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Wednesday, 20 September 2017

Frabjous Day?

If you don't immediately recognise the title for today's post then I must first warn you that your knowledge of Lewis Carroll's literary works is dangerously deficient.

So why am I thinking of Alice in Wonderland today? Well it is Fed day, and for me the Fed always bring Wonderland to mind. I was talking to my older son a few weeks ago explaining that in the same way that lawyers trained for years to achieve a state where they could swallow (figurative) camels and yet still strain at gnats, economists went through a process where after years of patient study that seemed to require at least a PhD, they achieved a state where measures that looked reckless or even suicidal to the less trained eye were revealed as both sensible and necessary.

He asked whether the Fed's track record at steering the economy in the past was impressive, and I told him that it had delivered a succession of ever greater disasters over recent decades. He then asked why people still nonetheless trusted the Fed to deliver policy, and I replied that people had to believe that the Fed knew what they are doing, as the alternative was just too terrifying. I added that the Fed never admitted to making a mistake, which reassured many, and that Ben Bernanke had an impressively bushy beard that had inspired confidence, though Yellen had needed to manage without one so far for technical reasons.

Having delivered a possibly fatal blow to whatever remained of my son's childish belief in the rationality of adults we moved onto other topics. :-).

I've been writing about a likely inflection point coming on equity markets for a couple of weeks now and we are in that inflection point now. The Fed meeting today, together with the expected statement on the gradual unwinding of the massive QE over the last few years, could obviously push markets in one direction or the other.

The pattern setup and cycles lean towards a bearish resolution here, and on SPX that is expressed in the 70% bearish rising wedge that is forming. Ideally I'd like to see a touch of rising wedge resistance in the 2515 area before any turn but the 2509 SPX target that I have been mentioning has already been reached (rounding up) with the two intraday highs at 2508.82 and 2508.85. That may be close enough. SPX 60min chart:
The ES, NQ and TF futures charts below were done two hours before the RTH open for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

Trendline resistance on ES is in the same area, though I'd note that on ES that target trendline has already been tested. ES Dec 60min chart:
NQ has been the weakest of the three indices on the way up, and has managed to convert the weekly pivot to resistance, which is not encouraging for the prospects for further upside. I do still have an open bull flag target at a retest of the all time high at 6025, though after a number of near misses just below over the last week I am wondering if NQ can reach it before the expected turn downwards. NQ Dec 60min chart:
On TF, I would ideally like to see a test of 1450/1 before the turn as that would deliver a full retest of the all time high on RUT and a very nice looking double top setup there. TF Dec 60min chart:
Obviously there is always a choice to be made at inflection points and though this one very much leans bearish, price always has the final word and equities way go the other way and break up. There is no such thing as certainty in terms of price direction. That said, subject to whatever the Fed may be talking about today, deranged or otherwise, this is a nice short setup and I'm expecting this to break down. Tomorrow and Friday are both cycle trend days, so if we see a break downwards this week, that could be a strong move.

Stan and I are doing the first of two 'Trading Toolbox' free educational webinars an hour after the close tomorrow at theartofchart.net, and this one will be looking at the use of bollinger bands in day and swing trading. If you would like to attend then you can register for that on our September Free Webinars page. This week's edition of The Weekly Call is posted and the model portfolio there is up 206% in the ten months to September 10th, now slightly over our target minimum 200% return over the first year. As that target has been reached we're thinking of making the strategy there a bit less conservative. That's a free weekly service and if you trade futures I'd suggest adding it to your reading list.

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