c505218304b50c59c3659f6dda43bae7-links-0–>This S&P market consolidation for the past two weeks has been painful to watch. We attempted a trade based on the statistical fact that market tends to rally into the Fed announcement, but
After two tries, we finally caught the wave up – with an entry on SPY calls when ES was at 2141 – and exiting when ES was at 2171 — a 30 point move in less than 24 hours.
Due to uncertainty in the markets, we only bought 4 SPY contracts at 3.35 — so risked about $1,340 – and sold at 5.42 for a 62% gain or $800 gain.
Of course we lost about $100 in prior false start attempts earlier in the week. So net effect was closer to $700. Wish we put a larger position size in hindsight – but given recent lack of confidence in trading this unpredictable market these past few weeks and recent losses in GDX/SLV, I’ll take it.
Let’s review the market leading up to this recent Fed announcement yesterday Wednesday, September 21.
Thursday September 8 – is when the retail data come out. Fed referenced this as important for ther decision.
At that point, the market completed an ending diagonal and consolidated for the day – but after the market close the market pushed down and stayed down through the rest of the night. What happened next was a collapse the next day as another Fed governor chimed in that Friday September 9 saying that he wanted a rate hike.
Of course fear was high going into the September 11 weekend – and the market sold off through that September 12 sunday into Monday morning.
But then that Monday Brainard – who is more dovish was scheduled to speak at 1pm — and the market rallied into her speech – and followed through a bit afterwards.
But the overnight session completely reversed and we tested lows once again.
From then, the market was range-bound into the Fed announcement. The size of the consolidation- over well more than a week, going into the Fed announcement indicates that there should be some momentum to this move.
While the S&P has been relatively weak, Nasdaq and Russell have made new highs multiple times in a row.
Given the size of the triangle, there should be a little bit more movement – even if this is a B-wave high rather than a 3rd wave.
Notice the triangle structure – each time you can see it as an a-b-c — or a 1-2-3 –every time it tries to trend up or trend down in that 3 or c-wave – it fails and turns around.
While this is easy to spot look back, it’s definitely painful while in the process. However, the first give-away was the massive rally on Monday with Brainard’s commentary — that was reversed the next day.
From there, the setup for the triangle was in place — with the vertex of that triangle coinciding with the date of the Fed decision on September 21.
What we got was the left diagram – contracting triangle in bull market.
I’ve added this example to my list of Triangle examples in my Elliott Wave member notes section.
Both Nasdaq and Russell are very bullish and have been during the entire time the S&P has been consolidating.
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