Today is Fed announcement day. It is unwise to day-trade today unless you have a specific strategy that centers around the Fed decision. So I am refraining from announcing key levels, except that a sell-off for a few days is likely to follow on any day where we close below the previous day’s low. For sure, though, 4600 is a crucial support level on the daily chart and should hold unless a more extensive correction gets underway. Also, the nominal 40-day cycle dip is on the docket soon, though it may be mild in the context of the current rally and positive seasonality.

This year, the market rallied into the Fed meetings, and a few sessions beyond, before correcting a few days. What is unusual about this Fed meeting is that the market expects the governors to throttle back on bond purchases (Quantitative Easing). That is equivalent to a mild tightening. So why has the market rallied this time?

The most logical expectation is that the economy is slowing, the yield curve is inverting, and that should take the pressure of the Fed, interest rates, and inflation. The Fed’s potential action also is considered anti-inflationary. Inflation may very well be the greatest threat on the economy’s table.

In short, the Fed does not need to do anything dramatic today and has a runway to unwind some of its easy policies. Only time will tell. Success requires a delicate balance – a slowing economy that doesn’t slip into a recession. We used to call this Goldilocks from the famous fable – not too hot and not too cold.

What has been interesting to watch are the four major indices. The Dow, S&P 500, NASDAQ 100, and Russell 2000 have been vying for leadership off the early October lows like a good horse race. Uncertainty in the direction of interest rates has contributed to this contest for leadership. Rates drive sector rotation, and investors/traders have been understandably indecisive in picking the winners.

Keep your eye on the Russell 2000 (IWM) as it is on the verge of a breakout from the nine-month base. That could be very powerful should the breakout materialize. The Russell, Financials (XLF), Energy, Dow, and other cyclicals will benefit from mildly rising interest rates. Technology typically lags in such an environment.

From the bigger picture, note the rising wedges on the NASDAQ 100 and S&P 500 daily charts. Normally, that means a dip ahead. The market has been strong, and not all patterns have followed through successfully and reliably. Nevertheless, note the rising wedge pattern in your narrative. As set forth above, the nominal 40-day cycle dip is due any time and, in an ideal world, would result in a few days of weakness into early next week. A break of the wedge would get the ball rolling.

Expect a balancing market into the Fed meeting. After the Fed announcement or later this evening, I will publish a “View from the Top” macro perspective.

A.F. Thornton

1:47: The market is in a holding pattern…

If she moves and creates an opportunity before the end of the day (with enough time left on the clock…), I will comment accordingly

Otherwise, if she doesn’t move…

We’ll see you in the video tonight…

1:36: As for the SPY…

directionless floater on light volume – still…

1:35: A word on the Transports…

We all see the crazy move the Avis had – doubled in a day…

Hard to believe, but it does seem to be the culprit for the move higher in the index.

However, if you look at IYT which is the exchange-traded fund that tracks the index, it’s a real representation of what the transports are doing…

Translation, the index has a flaw that will now be addressed.

You’ll hear about (or not hear about it) in the next day or so…

12:55: Update…

No man’s land, waiting on the Fed…

A floater with the trend on all time frames is the dominant thing…

Just sayin’

Back as needed…

10:50: Not much to comment on in terms of the SPY…

They’re in no man’s land around 461.50…

Just floating…

Back after lunchtime…

10:32: After an hour we’ve got about 10 million shares traded in the SPY which is on the lighter side of very light…

They’re floating in a chop shop formation…

Waiting on the Kabuki….

Back as needed…

10:17: 460.73 against the support at 460.75 and the bounce…

Funny how that works…

10:08: Of note…

The transports are up over 5%.

Looking at the individual components, they’re not up like that….

Interesting for now….

10:07: 461.43 high so far against 461.50.

Remember – 460.75 is the short-term pivot or line in the sand for higher or lower prices…

10:02: From a very short-term perspective, 460.75 is support.

Below that and the door opens for 460 give or take…

It’s quiet and they’re floating until they find a morning pivot…

460.50 is a pretty good spot….

9:50: It’s not easy in no man’s land, but from where I sit, they’ll likely get to 461.50 give or take…

9:42: Around and at new highs is no man’s land…

We just let the SPY go until she shows a storyline…

9:37: SPY just pushing a little, but it’s very light volume and no conviction…

They’ll go back and forth…

460.75 was the official completion of the inverse from the video…

Of note…

9:33: So far, nice trade on MOS…

SPY quiet…

9:00: The pre-market activity has been rather quiet…

“Waiting on Kabuki?”

We come with no preconceived notion. Instead, I have an open mind for whatever Mrs. Market wishes to provide…

We’ll let em’ go to get a handle on the early storyline…

Look for the trading range between 4690 and 4720 to maintain in the next few sessions. Overnight inventory is net short, so that we might see a brief short-covering rally at the open. And yesterday’s price action did not get too far above Friday, with value (where 70% of the volume occurred) overlapping Friday’s volume.

In simple terms, the market slowed down a bit near the roundie (4600). This behavior is not necessarily negative nor unexpected. The Fed meeting starts today, and the announcement on interest rates and whether the Fed continues their bond-buying program (Quantitative Easing) comes tomorrow afternoon.

Perhaps a bit surprising to me is that the market has rallied hard into the meeting and announcement. The consensus expects the Fed to leave rates alone but announce a tapering of the Quantitative Easing program. Normally that would be negative for the markets. One must believe that the insiders know that the Fed will not change its policies, or the market likes the news. Another possibility is that evidence of a slowing economy takes the pressure off the Fed in the short term. So the party might go on for a couple of more hours. Who knows?

Otherwise, this is a good area to pause. We have achieved all of my original targets from the October low. So the upside is blue sky and somewhat undefended.

The first gateway to the north is the overnight high at 4610, which opens the door to yesterday’s high at 4612.75. Finally, 4619.75 is the Globex high from Sunday night. Conquer that, and happy days are here again.

I get a bit more nervous if we give up the roundie at 4600. That level is the true battle here. We have double POCs right below that level which should provide support. If they don’t, I think the idea of a sell-off for a couple of days becomes realistic. I will be using yesterday’s regular session low at 4586.50 as the line in the sand today. I will be short-term bearish below that line.

A.F. Thornton

2:18: So they’re almost home to 458.00. Between 458.15 and 457.79 is the spot.

Aggressive traders can expect a bounce from that spot.

It’s a scalp, not a marriage…

We’re running out of time on the clock, so understand if it goes against you and the time is running out, you either have to take the hit or hold and hope.

The exact reason why trades taken too late come with added risk…

Below 457.79 on candle closes and it’s wrong.

Back as needed.

2:09: Some traders can see the writing on the wall…

They’re either going to reach 458 give or take right into the closing bell, or…

Just float around the rest of the day…

Still watching just in case…

Back as needed…

1:52: The same support and important spot from this morning around 458.00 give or take should be important again if reached…

Should get a bounce unless it happens near the end of day, then anything goes…

1:29: Around, above and below the big phat round number is all they’re doing – at present…

Back as needed…

1:12: Where are they now?

They’re climbing the first-hour breakdown candle toward the high…

Maybe it’s a wedge pattern and they come back down after running said test in the neighborhood of the highs…

However, that high is also the all-time high from this morning…

Therefore, I’m not in the camp of betting they’ll come down into the close with a couple of hours left on the clock…

Just sayin’

It’s quiet and they’ve been in the light volume float mode since the early morning shakeout operation…

Back as needed…

12:42: Update…

They got back to 460 as prescribed… (459.97 high thus far…)

They’ll likely get a little higher but should peter out sooner than later for a while…

Back as needed.

11:03 Staying above 458.70 keeps the bulls working back to the big phat round number of 460.00 or higher, at some point…

Still back after lunchtime…

11:01: They really needed to get to 458 and below for another trade at present…

Now they’re bouncing away, so it’s not the same…

This is the bounce we would have been looking for…

Just didn’t get to my number…

Back after lunchtime or before if something crazy is happening…

10:57: At a spike of 458 it will be showtime again for the bulls to play defense…

Big spot.

10:37: If they drop em’…

They will likely run down and spike through 458.00.

And, if they do there should be a snapback…

Candle closes below 457.60 and the bears are in control and lower prices would be on the docket…

Back as needed…

10:30: No change for now…

They’ll move, but until they’re above one place or below another, it’s a chop shop formation…

Back as needed…

10:24: 458.00 is support.

The candle closes below and the bears pick up the fumble…

460.00 is resistance (give or take…)

In between is a chop shop formation…

10:09: And by the way…

That’s what we call “A Shakeout Operation…”

10:08: Next order of business is back to the magnetic 460.00…

Above and below and back to…

So far, that’s what’s going on…

10:05: Low of 458.20 low against 458 give or take.

Kind of on the line of give or take…

Either way, nice bounce from that area…

They’ve moved em’ quick all of a sudden…

We’ll get some opportunities as the storyline develops…

10:02: 458 give or take is the next spot where if a test is run, there should be a reaction in the other direction…

9:51: Traders long need to book profit along the way…

459.95 is the key…

Above on candle closes and she can run some…

Until she does, tests and rests are on the table…

9:50: Ran down to 459.25 and now lower.

It’s showtime for the bulls to play defense.

Below 458.00 on candle closes and it’s not bullish in the short run…

9:44: In the spirit of no surprises…

They’re doing the thing around 460.00 – back and forth…

Opportunity is scarce…

It’s a floater at present.

Back as needed…

9:36: 459.25 (give or take) should be a bounce number…

If reached on a straight shot…

9:33: Very quiet open…

In patience mode…

Remember, they’ll trade away from and then come back to 460.00…

9:16: We’ll let em’ go for a while at the open…

They’re hanging around SPY 460.00- the big phat round number…

Expect some back and forth above and below…

Remember – it’s magnetic…

EarlyThoughts

Happy Monday…

last week ended with a ramp-up right into the close…

Follow-through is what we’re seeing to start the first day of the month…

We talked about the big phat round numbers and the inverse head & shoulders pattern…

No surprises, they did the thing…

As for the numbers…

The SPY is trading at new all-time highs which is also known as “No Mans Land…”

It’s not a “hop on the bus” scenario…

It’s not a “short the market with both hands” scenario…

It’s a wait to see what happens and what develops throughout the day scenario…

The gap left open from last week is 459.25.

There will be support and a bull-bear battle before they get to the gap…

We’ve got the big phat round number of 460.00 which should be tested sooner than later….

As for Stocks on the Move…

It’s a light day in terms of pre-market activity.

We have no choice but to accept the tape Mrs. Market provides….

Overnight inventory is 100% long as the market gaps open on this 1st day of November. Gap Rules are in play as are Spike Rules. The market does appear a bit overdone here but follow the rules. How the market handles the gap this morning will be your best Market Generated Information on the day. Mark the open, and look for long or short trades when the market comes back through it from either side.

Recall that the Fed meeting begins tomorrow with the announcement on Wednesday. The market will either sell off into that meeting or begin to balance and move sideways. Trading much after today gets riskier by the hour. Let the Fed make its announcement and go from there. Also, we have a minor cycle dip scheduled into Friday or so. Keep that in mind.

A.F. Thornton

Apple and Amazon disappoint, Build Back Bankrupt scales back, it is the last trading day of October, and then there is the Fed…

The market is in a trading range at this writing, much as expected earlier this week. Balance Rules apply today, but it could be worse, right?

The trading range is bounded by 4590 on the north side and 4545 on the south. Acceptance above or below either number signals the next move, which should be double the range (about 45 points or so north or south of those numbers).

In an orthodox Elliott Wave pattern, we would be in a 4th wave rectangle/triangle from the low earlier this month, leaving a potential 5th wave to push higher into the Fed announcement next Wednesday. We shall see.

From a monthly chart perspective, there was August. Then September reversed August, and now October reversed September. There is a marginal new high for October, but it is represented entirely by the 45-point trading range discussed above. Were we to head south of that range today, October would show no price progress at all.

That makes 4545 your line in the sand. As always, watch for the fakeout, takeout before reversing back higher into the range. That is what Balance Rules contemplate.

Besides potential month-end shenanigans today, we are up against the WEM high at the top of the range around 4590, and that limits further progress before weekly options expire at the close. That also means I won’t be trading today, as the WEM high and month-end window dressing by money managers complicates the usual day trading strategies.

The MGI this morning is that the S&P 500 is down only 18 points in Globex, and small-cap stocks (IWM) will open higher even though (i) the 3rd Quarter GDP came out at a likely overstated and disappointing 2% yesterday, (ii) two big FAANG stocks (Apple and Amazon) missed their earnings targets after yesterday’s closing bell, (iii) the administration’s Build Back Bankrupt program is back on the table at $1.75 trillion (with a lot of smoke, mirrors, and gimmickry to get the number down), and (iv) the Fed will announce tapering next week.

If small-caps (IWM) were to break out of their 9-month trading range, that would indeed be something to behold. Worth a toe in the water with some calls? I am thinking about it.

The dominant narrative has been fear of the Fed tapering their monthly bond purchases in light of recent inflation trends. Is it possible that a slowing economy takes the pressure off? Easy money at near-zero interest rates has been the stock market’s fuel. Is the Fed more likely to continue the program if the economy is sputtering?

What would be the impact of the Dems passing their new spending programs? Are high inflation and a slowing economy more 1970s stagflation redux? What about a blow-off top? These are all musings for my weekend work – more thoughts on Sunday.

Meanwhile, be careful today and stay tuned for November, when the market will answer all of these questions. Meanwhile, enjoy your weekend!

A.F. Thornton

There is something for both the bulls and bears this morning. The bears can point to the last two days closing on the lows, forming a true pivot lower when yesterday closed below Monday’s low. And of course, a pullback is not surprising considering the market had been one-time-framing higher for nine sessions.

As well, both the NASDAQ 100 and the S&P 500 bumped up against their Weekly Expected Move highs on Monday and Tuesday, and that does have a way of limiting further gains for the week. But we can certainly ride the wave back up there.

The bulls can point to a new high in the NYSE advance/decline line, confirming the rally underway. Also, even in a tight bull climb like we just experienced, traders will almost always buy the first pullback, even if it eventually stalls at Monday’s high around 4590. Value was virtually unchanged yesterday; another vote for the bulls. The overnight profile has a 45-degree angle, which means traders are likely short in the hole overnight, and the low at 4545 starts as secure.

If the market can take out the overnight high (also yesterday’s halfback) at 4562.50 this morning, we can move back toward the top of the range and all-time-high at 4590. It won’t be a smooth ride, as we could stumble at yesterday’s POC around 4565. Then, we would have to take out yesterday’s high at 4576.75. Watch the market’s reaction at each of these levels and monitor for continuation.

Keeping in mind that overnight inventory is 100% long, there could be profit-taking and a fade at the open. If not, that is good, bullish M.G.I. If so, the overnight low at 4545 is the first target, then yesterday’s low at 4544. From there, you have Monday’s low at 4529 with a little noise in some VPOCs above that around 4533.

The 20-day future line of demarcation sits at 4522 or so, a normal target for the first pullback in a normal market rally. But there has been nothing normal about these markets. Otherwise, the FLD would be my target if the 5-day line at 4547 breaks for a few hourly candles.

The 5-day line is important. Apart from support and resistance, many algos are tuned to the 5-day line – so there will be some buying and support at that level. If we break it for a few hours, that opens the trap door to lower prices. When important moving averages are in the neighborhood, they can override the other levels. Keep that concept in your narrative.

From a macro perspective, the market (using our S&P 500 Futures Proxy, or even the SPY, is trying to hold a breakout over the September all-time highs. Failing to do so introduces the possibility of a double top major trend reversal. Last night, our Globex cousins failed to push prices to yesterday’s low, much less to new lows, which is a bullish carry forward this morning. Yesterday’s low at 4544 on the futures contract is the threshold that separates a new ATH from the old one. So I would use 4544 as your line in the sand if you are long. Closing some hourly candles below that level calls the breakout into question.

We have the Fed meeting next week, and the economic reports this morning continue to telegraph weakness, so this may be your last “free” day to trade before the influence of the Fed meeting starts to dominate.

A.F. Thornton

Yesterday saw price formally stall, with a pickup in institutional selling volume as price reversed and closed on the lows. Then, our overnight cousins worked on pushing prices down and through the all-time high breakout area but could not get the job done. So the bearish daily action is balanced by some overnight bullish action, if ever so slightly. This left a short, squatty profile on the overnight chart. The 45-degree angle on the profile usually places the overnight low at 4456.50 as fairly secure.

Yesterday’s low was breached overnight, but we are slated to open inside yesterday’s range. Accordingly, I would use the overnight low at 4456.50 as today’s gateway to lower prices and confirm a greater pullback forming on the daily chart. The overnight high at 4576.75 gets the ball rolling northward, leaving the new, all-time high achieved yesterday at 4590 as the next milestone to conquer. Then there is the WEM high at 4594 and the roundie itself at 4600. Keep in mind that the market-makers will fight prices above the WEM high until options expire on Friday.

I don’t hear much chatter about next week’s Fed meeting yet, but it will arise soon. The big tech earnings are capturing most of the attention this week. 10-year rates have yet to break that important neckline we have been talking about, which would imply a doubling of the level from 1.6% to 3.2%. That will be good news if the pattern fails. But it is much too early to tell for sure.

There is not much to guide us at the open this morning, so I will be using the quartet strategy. I would not be surprised if we go sideways for a few days between 4600 and 4550. Some balancing would be a good segway into the Fed meeting early next week.

Stay tuned,

A.F. Thornton

1:10: Now that they’ve move around a little, we’ve got stuff to work with…

The gap is 455.49 and below depending on which chart you look at…

It’s not been filled.

It’s no longer support since they bounced in front….

Below the gap, if they should do that is 454.25 give or take…

There’s stuff before that, but not that I’m willing to purchase for a trade…

Resistance is suspect since they just got here today, but from where I sit, 456.85 is the pivot for now…

Getting above opens the door for a test of 457.55 give or take…

Back as needed…

12:56: Checking back in…

Here’s what happened…

Instead of going to the big phat round numbers, Trick & Co. showed up and kicked em’ back to the gap left open yesterday…

We kinda discussed that earlier…

Where was support this morning?

At the gap and not before…

They’ve come up short, we know that one…

It’s either bullish or they’ll be back…

Watching and will be back with more…

11:18: No change…

Back after lunchtime to check-in.

10:30: No change…

They’re headed toward the big phat round numbers…

Whether they spike through or come up short on the first run is an open item…

Low volume, quiet tape…

The path of least resistance is sideways to higher…

Back as needed…

9:47: So…

With Stocks on the Move in the books and the SPY in float mode…

We’ll be quiet until there’s something material to say…

Back as needed…

(Treating it as a business, keeping the profit in the pocket…)

9:45: And GLW off the second price provided those painting by the numbers another base hit…

Those who only purchased the second number took an extra bag…

9:39: As for the SPY…

She’s floating toward what?

The next big phat set of numbers…

They won’t do it in a straight line and we should expect a visit from Trick & Co. in the process…

However, that’s what’s going on at present, until something changes…

9:38: And, XRX did the deal…

The rest is traders choice…

Hey, we had a nice day in the first candle…

9:36: Nice bounce on WM, regardless of whether you painted by the numbers or not, they’ve provided the base hit, too…

9:35: Nice trade on LMT…

The rest is trader choice…

9:07: We’ll let em’ go at the open, but traders should understand while in no mans land (new highs)…

Traders need not focus on the S&P until she develops some new “important numbers…”

Or, they get busy falling into a support area…

I’ll be looking around the horn for substitute opportunities…

EarlyThoughts

It’s turnaround Tuesday…

They pushed higher into no mans land headed to where?

The next big phat round numbers like ES 4600 and SPY 460…

Here’s what we need for numbers this morning…

Continuing up north is the floater situation until they get to a point where a reaction takes place – at an important spot…

SPY 460 give or take is the next big magnetic spot…

A spike through or slightly short of it, we don’t know, but in that general area is the likely target and short term destination…

On the flip side, if they fall the only area of interest in the early going is the gap left open from yesterday at around 455.50…

A double top is increasingly less likely, as we have a gap higher this morning (Gap Rules apply). Sometimes, we get a “gap and crap” as we affectionately reference it, but that is less likely as Facebook did not disappoint in their quarterly earnings last night. Moreover, the short squeeze in Tesla was something to behold yesterday, after Hertz announced the order of 100,000 Tesla cars.

More likely, we are back to a gamma spiral higher. As we are in the new high territory, there is no definitive upside resistance. The Weekly Expected Move high on the S&P 500 futures would be my target for the rest of the week, just below 4600 at 4594. Of course, 4600 itself is a magnet. Above that are Fibonacci targets. The 127.2 extension is at 4629, and the 161.8 rests above that at 4728.

If we head south, the market should find support at the former all-time high around 4550. I would get aggressively short if that level failed. Other than that, I will watch the Globex low, the previous day’s halfback, and the previous day’s low as we move along. Until the market closes below the previous day’s low, there is no potential trend change.

This could very well be the early stages of a hyper-inflation-driven stock market melt-up. I shudder at the thought because it won’t end well. But I am carrying the possibility forward in my narrative.

As always, how the market handles the morning gap will tell you a lot about the day ahead. Overnight inventory is net long, so there should be some profit-taking at the open. The trend is then likely to resume higher. The less the gap fills on the fade, the more positive the market. If there is no fade, what else do you need to know?

Traders should note all of the Gaps below us in their narrative. Gaps and spikes lead to poor structure and lots of air pockets. They increase the likelihood of short-term liquidation breaks. While the breaks are typically short-lived, they can be nasty for the uninitiated.

As usual, mark the open and look to go long when the market comes back up and through it on a pivot. The 10-day wave just bottomed and is moving higher, even though the trough is barely discernable. While we have a few more FAANGMAN stocks reporting, the Fed meeting next week is the next focus.

Interest rates will increasingly provide headwinds. But in hyperinflation, what matters are companies that have pricing power, and the market could rally despite rates. Check out INFL, an ETF that focuses on companies that do well in an inflationary environment.

Let the market tell you what it wants to do. How the market handles the morning gap is the most important MGI (Market Generated Information) this morning.

A.F. Thornton