Whiplash

Good Morning:

• We rolled from a Navigator Swing sell to a buy signal in 36 hours, something that hasn’t occurred in two years.
• As we covered in the room yesterday, there was considerable institutional buying on the dips. Also, failed wedges often turn into small pullback bull or bear trends, as applicable. 
• Yesterday’s intraday failed wedge turned into a small pullback bull trend for the day. An analogous version of the phenomenon is possible on the daily chart as well.
• I chose to ignore yesterday’s buy signal, as whipsaw signals are less reliable, and I prefer to let the market digest the Fed decision and statement before taking another position.
• The stock market is approaching the meeting optimistically today, as it has several times during the bear market.
• Paradoxically, the market is giving the Fed all the room it needs to raise interest rates as they see fit. Imagine the difference were the stock market selling off into a deep trough before the meeting.
• One of the easiest ways to predict the market is to project the previous bull and bear segments as measured moves. This works with uncanny accuracy in any time frame, including the daily chart.
• In that regard, the market sits well short of completing the measured move that projects the October 13th – December 1st segment of 600 S&P 500 points from the December 28th low at 3780. Adding 600 points projects 4380. And 4380 is still tolerable to maintain a longer-term bear market outlook for those who continue to doubt the latest move.
• I covered the alternative of an “M” double top in yesterday’s discussion, which remains my preferred analysis, so I don’t want to belabor the point here.
• As always, we will keep an open mind and react to the price action as it unfolds.
• This is a tricky area for the markets, so be careful. Recall that 80% of breakouts fail, so it won’t be a cakewalk to take out the 4100 level without help from a “dovish” Fed.
• We have resistance at 4130 and 4180 today, with support coming in at 4050, then 3960. Remember that 3960 is critical as the highest volume node since the January 2022 peak.
• The market looks to be gapping down, so apply Gap Rules again this morning.
• I will join the Trading Room at 1:00 pm EST, an hour before the Fed Decision today.

A.F. Thornton