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