It seems like the market's been on hold for the past week until we got through today's FOMC announcement, which included no change to rates and no change to expectations. The market's muted response left indexes still chopping sideways waiting for something to kick it off dead center.

Today's Market Stats

AAPL started things off to the upside this morning, especially for the techs, after it received a positive response to its earnings report after yesterday's close. It gapped up nearly 8$ from about $98 to $104, settling near $104 at today's close. NDX futures (NQ) were up about 40 points before the open, pulled back in the morning and then rallied back up with the rest of the market this afternoon before giving back some into the close. The techs led the way higher today but the blue chips were not able to hold their gains and closed marginally in the red.

The blue chips have been weaker than the techs and small caps for the past week and that could be a bullish sign for the market as money leaves the relative safety of the big blue chips and heads over to the riskier higher-beta stocks. Either that or it's another sign of bullish complacency in the belief the market is heading higher. Usually tops in the market occur with higher highs for the riskier stocks while the blue chips hold back. Is that what we can expect here? It's anyone's guess but it's something to think about as we look for where this market might be heading and when it might be ready for at least a larger pullback.

This morning's economic reports included Durable Goods orders, which were disappointing (not that the market cared). Orders for June were down -4.0% vs. expectations for a drop of only -1.0% and worse than May's -2.8% (revised lower from the previously reported -2.2%). Taking out transportation orders, the number was -0.5% for June, down from -0.4% in May (revised lower from -0.3%) and worse than the +0.2% the market expected. Transportation goods made June's number worse and today the TRAN got smacked down much more than the broader market. I'll review its chart tonight.

This afternoon's FOMC announcement included, to no one's surprise, the Fed leaving the rate alone at 0.375%. In their statement they left few clues about when they're looking at another rate hike. They believe the economy is showing signs of improvement, which hints of another rate hike, but left no clues as to whether it could be in September or as the market believes is more likely, in December. They did say inflation is not showing any signs yet of heating up. The Fed's annual Jackson Hole, WY conference, scheduled for August 26th, could see a few more clues but for now there are just two words to describe today's announcement -- "No Change."

Odds for the next rate hike remained the same at about a 30% chance in September and 48% chance in December. My opinion is they won't be able to raise rates again and instead will be forced by the bond market in the other direction by next year, if not sooner.

Now the market waits for Japan's announcement on Friday about what kind of additional asset purchases they plan to make as they're expected to expand their QE efforts. There's also talk about a perpetual bond after Bernanke's meeting with Japanese leaders earlier in the month. A perpetual bond basically means the central bank will convert all existing government bonds to non-expiring bonds that pay no interest and the effect of that is basically to wipe out the government's debt, wipe their hands clean and start all over again. It would be a new and creative way of declaring bankruptcy without declaring bankruptcy.

The trouble with perpetual bonds is that the central bank will be the sole customer for the bonds. It would be the financial equivalent of the nuclear option since it would be a full admission by both the bank and government that they have debt that will never be repaid and instead will simply be pushed aside into perpetual bonds. Now you see it, now you don't. Genius really, except it would likely completely ruin the ability to sell additional bonds in the open market since future bond holders would be worried the same thing could happen to them again.

None of this had much of an effect on today's stock market but the bond market continued its rally following the decline in the July 21st low. The blue chips have either been chopping lower (the Dow) or sideways (SPX) or higher (techs and RUT). For two weeks we've had a choppy market and depending on the index you will see different possibilities for the next move. There are not many times I am neutral the market but this is one of them, which means trade setups are missing and it's a good time to stay patient and not force trades. I'll start tonight's chart review with the weekly chart of SPX.


S&P 500, SPX, Weekly chart

Last week SPX made a high at 2175.63 and so far this week's high is 2174.98 (this morning's opening spike up) so it's clear SPX is struggling with 2175. There's a price projection at 2177.67, shown on the chart that is within spitting distance and this is where the 2nd leg of a 3-wave move up from February is 62% of the 1st leg up (for a possible a-b-c bounce correction off the February low). Some shorter-term price projections and trend lines show reasons for a lot of resistance between 2175 and 2200 but if the bulls can power through that 25-point zone I see upside potential to 2223. This is level of the 127% extension of the previous decline (May 2015 - February 2016), which is often a target and reversal level. As I'll point out on the 60-min chart further below, this 2223 level shows up again on a smaller pattern. Above 2223, if this turns into a true melt-up and blowoff top, is a projection near 2293 where the rally from February would have two equal legs up.


S&P 500, SPX, Daily chart

A little closer view of the 2177.67 projection is shown on the daily chart and you can see how price has been consolidating just beneath that level. As mentioned above, there are a few price levels between 2175 and 2200 to watch, if reached, and one is a trend line across the highs since June 8th, currently near 2190. This is also a potentially important level that's shown on the 60-min chart below

Key Levels for SPX:
- bullish above 2178
- bearish below 2108


S&P 500, SPX, 60-min chart

SPX has been consolidating sideways since the July 20th high in a contracting triangle, which can be seen on the 60-min chart if you look closely. The post-FOMC spike down did a small throw-under below the bottom of the triangle, near 2161, and then rallied back up to the top of the triangle shortly before the close, near 2172. The pullback into the close kept SPX trapped inside, which keeps both sides guessing but the higher-odds play here is a breakout rather than a breakdown. The rally followed by a sideways consolidation is typically followed by a rally out of it. But, if it breaks down instead it could drop fast (failed patterns tend to fail hard).

Assuming it will rally out of this pattern, once above 2178 it could find resistance at its broken uptrend line from February-May, near 2181 (much higher if viewed with a log price scale), and then a trend line along the highs from July 14-20, near 2188. Above that is a projection at 2191, which is based on the EW pattern projection. It's also coincident with the trend line across the highs since June 8th, mentioned above with the daily chart.

Without trying to get all EW geeky on you, the sideways triangle fits as a 4th wave correction in the leg up from June 27th. That in turn points to the need for one more leg up to complete the 5th wave. Since the 3rd wave of this move is shorter than the 1st wave it's common for the 5th wave to be even shorter and a typical projection (with an extended 1st wave) is where the 3rd through 5th waves equals the 1st wave and that's the 2191 projection. Get it? Got it. Good. The other common projection is where the 5th wave achieves 62% of the 3rd wave, which points to 2221.82 and this matches up with the 2223 extension mentioned with the weekly chart above.

So to recap, I see upside targets/potential resistance levels at 2178, 2191, 2223 and then 2293. A drop below this afternoon's low at 2159 would be possible trouble but with all the choppy price action I'd be reluctant to chase it lower until I see more evidence of a turn down, such as a strong impulsive decline. Bears really need to see SPX below 2135 before they'll have a better shorting signal.


Dow Industrials, INDU, Daily chart

The Dow has been the weaker of the broader indexes I track but it still has left just a choppy pullback that looks more like a bull flag than something more bearish. As long as it holds above its May 2015 high at 18351 it remains bullish. Look for a possible test of that level this week and if it holds it could be a good opportunity to try a long position for another leg up. But I'd keep a short leash on the play and I'd be nervous about holding long positions overnight. The market is overbought and overloved and that's a dangerous combination. However, the flip side is that we have no signals to tell us to get short.

Key Levels for DOW:
- bullish above 18,350
- bearish below 17,900


Nasdaq Composite index, COMPQ, Daily chart

The first time the Nasdaq made it above its March 2000 high at 5132.52 was April-August 2015 which was followed by another test in December 2015. Today is the third time rallying above this key level and the bulls need to hope it holds above. The bears are salivating about the possibility for a triple top since it's very rare to see a quadruple top. In other words, if the current rally does not hold it's more likely to start a strong decline rather than just a pullback and then test it again. Today's little doji star has the potential to turn into a 3-candle reversal pattern if Thursday finishes with a red candle. But for the bulls, the break above 5132, and holding above, as well as getting back above its broken uptrend line from February-May is a bullish move. They just need to keep it from turning into a failed rally attempt right here. The next upside resistance level is the December 2015 high at 5176.77 (today's high was 5151). As I'll show on the 60-min chart further below, the bulls have a reason to be worried here.

Key Levels for COMPQ:
- bullish above 5177
- bearish below 5075


Nasdaq Composite index, COMPQ, 60-min chart

The Nasdaq's 60-min chart shows a trend line along the highs from June 23rd and that's where today's rally stopped. My best guess on the short-term pattern is that it needs a small pullback and then another push higher, possibly right to the 5176.77 December 2015 high, before it will complete its rally leg from June 27th. As can be seen on the oscillators, the new highs this month have been met with weaker and weaker momentum and this is bearish. The techs have been leading the charge to the upside this month but on weaker momentum and it's a setup for a collapse back down to at least 5000 where we'll have to evaluate it for possibly something more bearish or just a pullback correction.


Russell-2000, RUT, Daily chart

The RUT is another index that has been outperforming to the upside but the alternating up and down days (look at the alternating red and white candles for the past two weeks) as the index chops its way higher is typical of an ending pattern. I've had a 1205-1218 upside target/resistance zone and today it climbed marginally above this zone so that's bullish. But if it doesn't soon breakout into a sprint higher it will continue to look like an ending pattern and if it now drops below the July 20th low near 1198 it would be a good signal the top is in place. In the meantime I see upside potential to at least the trend line along the highs from April-June, currently near 1233.

Key Levels for RUT:
- bullish above 1233
- bearish below 1198


10-year Yield, TNX, Weekly chart

U.S. Treasury prices briefly spiked down on the FOMC announcement but then immediately bounced back up and continued the rally that started off the July 21st low. Yields of course did the opposite and we've seen a pullback in yields in the past week. So far TNX has only retraced 38% of its July 6-21 rally and could easily turn around and head higher in its current bounce off the July 6th low. A reversal of the pullback could see a rally (selling in bonds) to 1.80% for two equal legs up from July 6th. That's also where it would back-test its broken uptrend line from July 2012 - February 2015. Above that level would have me start thinking more bullishly about yields (bearish bond prices) but for now I'm looking at the bounce off the July 6th low as only a bounce correction in the longer-term decline (to at least 1% and maybe down to 0.5%).


KBW Bank index, BKX, Daily chart

Today's rally in the banks popped BKX above resistance at its 200-dma, which it had been consolidating underneath (and above its 50-dma) since July 14th. That has it looking bullish, as long as it holds above its 200-dma, currently at 67.89, for a possible run up to its downtrend line from July-December 2015, near 70 early next week. It takes a drop below price-level S/R near 66.50 to turn BKX bearish.


Transportation Index, TRAN, Weekly chart

The Transports sold off more strongly than other sectors today and TRAN finished down -1.5%, which reversed the bounce from the previous three days. This is happening following the test of downtrend lines from February 2015 - April 2016 and from August 2015 - April 2016, currently near 8000 and 7910, resp. The pullback from the July 14th high can be considered corrective, which points to another rally to follow but so far it remains bearish below 8000. Bulls would be in better shape above the April 20th high at 8149.


U.S. Dollar contract, DX, Weekly chart

The US$ has pulled back slightly from its downtrend line from December 2015, near 97.40, and the pullback is nearing the level (96.65) where it will achieve two equal legs down and so it could turn around and head higher from there. Additional support might be found at its crossing 20- and 200-dmas near 96.60. The dollar has been in a choppy consolidation since its March 2015 high and I suspect it will remain in its trading range the rest of this year.


Gold continuous contract, GC, Weekly chart

Gold has bounced a little this week after pulling back to support at its January 2015 high at 1308 and its 200-week MA, now at 1301.60 (last week's and this week's lows were near 1311. There is still the potential for another push higher to its downtrend line from September 2011 - October 2012, near 1410, and a price projection at 1417.50 for two equal legs up from December 2015. But a drop below 1285 would be a bearish heads up that we're looking for at least a larger pullback before heading higher, or a more bearish move back down to lower lows. Keep in mind that the bounce off the December 2015 low is so far just a 3-wave (a-b-c) bounce correction within a larger downtrend. We do not have any confirmation that a more significant low is in place no matter how much the gold bulls pound the table about why you should move your cash into gold (the usual reason is because the dollar is about to collapse, which I do not see happening until well after 2017).


Oil continuous contract, CL, Daily chart

Oil has continued its pullback from resistance near 51 and is now back-testing its 50-week MA at 41.46 (today's low was 41.68). This could lead to at least a bounce and obviously it would be more bullish above 51 but I think oil will continue lower.


Economic reports

Thursday will be a quiet day for economic reports and then Friday's will include an advance look at GDP, which is expected to improve to 2.6% for Q2 vs. the 1.1% we had for Q1. Also on Friday we'll get the Chicago PMI, which is expected to show a minor decline, and Michigan Sentiment, also expected to decline some.


Conclusion

Depending on which index I look at I could argue for another rally leg or I could argue the rally could top out at any time. The Dow has a choppy pullback, which has it looking like a bull flag and normally another rally leg would be expected. The RUT and tech indexes have been chopping higher, which has it looking like an ending pattern (such as a rising wedge). All have been in choppy patterns but they can't all be interpreted the same way. The techs and small caps have been leading the way higher for the past week but they remain below their all-time highs while the blue chips already achieved new all-time highs. Which index(es) do we believe?

Because of the mixed picture, including in the market internals (day to day they switch from bullish to bearish), one day I feel more bullish the next day I feel more bearish. I feel like my trading should be along the lines of "She loves me, she loves me not, she loves me, she..." Not seeing clear setups for either direction makes trading more like gambling and we're not gamblers (nod your head in agreement). There are good times to trade and there are bad times and this is one of the latter.

It's hard to do but sitting out the times without clear setups is what good traders do. Even if those setups turn out to be wrong there are clear stop levels with them but right now if you make an honest assessment of the charts it's hard to figure out where your stop should be (or it might be uncomfortably far away). Before making a trade the first thing you should be able to answer is where your stop belongs (and then decide if you want it to be on an intraday move or just the closing price).

My sense is that the rally is very close to finishing, within days if not hours. August might not be kind to bulls if this current rally has been primarily based on central bank money in response to the Brexit vote and fears about what's happening in Europe. The big question for us is whether or not we're going to see the usual summer swoon and if so there's a good chance it will start next month. In the meantime, wait for the pretty bus to come along to give you a ride; all ugly busses you can let pass.

Good luck and I'll be back with you next Wednesday.

Keene H. Little, CMT

In the end everything works out and if it doesn't work out, it is not the end. Old Indian Saying