At this point, I think most people can see two distinct possibilities — either we already bottomed, or we haven’t. If we haven’t, then we dip below 2100 – somewhere between 2050-2085 and bounce back up.
But the more difficult question is how to trade it. We can wait for it to drop below 2100 and buy in the above region – but there’s no guarantee we’ll drop there. Also, once we drop there, the pattern could morph and the levels for bottoming may adjust along the way.
And if the market already bottomed that Sunday night last week – and if we rally, then we would be forced to buy at higher prices later.
The nature of this market is extremely unpredictable with lots of Fed-driven, he-said/she-said back and forth between various Fed governors — that is very difficult to trade.
Small position sizes – very small – are advised at this point.
There was some interesting reports from the Fed several years back that looked at how the markets performed since 1994 – going into Fed decisions. They concluded (with statistical significance) that 80% of the S&P performance is attributable to the 8 24-hr sessions prior to Fed announcements.
If it weren’t for these time periods, the S&P would be significantly lower. There’s no guarantee that tomorrow’s performance will necessarily match up with these statistics, but I think it’s worth noting.
Resistance is above 2150
Recall that Sep 8 – Thursday – was the key retail sales that were referenced by the Fed as influencing their decision. Prior to that report, the market began its downtrend – consolidating for the rest of that day and not falling out until overnight into the next day.
Recall Sep 12 Monday – was when Brainard spoke at 1pm – so the market rallied into her remarks – only to reverse overnight.
Since then, it’s been a Fed quiet period – and the market just zigzagged all over the place – with no clear discernable patterns.
2100 is the level in ES we hit – which corresponds to the tops in June. There’s a chance we can dip below before a bounce, unless the bottom is already in. But the weird thing is that the pattern this past week doesn’t look like the typical starts of waves up that we saw end of June and in middle of February.
So if we do rally into the Fed, there’s a decent chance that we sell back down.
It appears between the pink and blue counts from last time, the pink one is playing out – but not exactly. We are still below 2150 – and we hit resistance in the 2146 region – and then sold back below 2130.
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