Well, it was the FX shuffle we expected and an equities samba that greeted the FOMC. As I mentioned yesterday, “FOMC days are great for reversals so be aware of the potential here tonight as the market has NOT priced in any disappointment”. Ironically the “disappointment” came when the Fed didn’t INCREASE QE which I find astonishing, as if $115 billion a month of liquidity wasn’t enough for the equity bulls? Importantly, the DJIA managed to eke out new all time highs before reversing sharply lower as the bears finally had something to cheer about.
The SPX found strong resistance at the green long term trendline highlighted yesterday, getting within 3 pts of our measured target before selling off pre and post the FOMC announcement. Wave circle C can now be counted as complete but we need to see some downside follow-through tonight culminating in a 5 wave impulsive decline to increase our confidence in a tradable top.
On an intraday basis, the SPX finally showed some weakness with its reversal lower from a higher open but the bears need to put the hammer down tonight and keep the SPX below 1770.48 (blue trendline) to get some momentum. Otherwise the decline will very much look like 3 waves as another correction ensues. If we can get a clean 5 waves down we will have something to work with. With $60 bln being taken OUT of the system tonight and no POMO, the bears have the upper hand. Clearly, a break of the 1740 shelf support will go a long way to helping the bears.
The Russell 2000 chart which I Tweeted live mid-session also points to a completed near-term count, opening the door for the bears to test the downside. Once again, it will be the structure of the decline which will provide clues as to where we are in the bigger picture.
The Eurostoxx50 also completed a perfectly balanced wave count terminating at yesterday’s highs where all subdivisions are accounted for and wave (5) equals wave (1) which is an expected measured target.
In the FX markets, we finally received some confirmation of my strong US$ call on the weekend with the USD/JPY completing a picture perfect 5 wave impulsive rally off critical support. The bigger picture trend is now up. We should now expect a corrective overlapping decline for wave (ii) before we see another 5 wave advance. The following chart highlights the EWT signature with peak momentum for wave (iii) followed by momentum divergence for wave (v). Ideally, we get a wave ii correction to the 97.50 – 98.00 buy zone.
The EUR/USD continued to follow our strong US$ theme by stair stepping it’s way lower so far this week. Unfortunately, the decline is overlapping and not clearly impulsive but with lower lows and lower highs, the near term trend remains down. The nature of the decline to-date makes me suspicious and unless the decline accelerates, it will look corrective and due for complete reversal which is unexpected. There are no signs of a reversal higher yet. However, there is a cluster of near term measured targets in the 1.3650 to 1.3675 area (where the H&S “works” to)
The AUD/USD climbed towards the bottom of my 95.20 – 95.50 resistance (high 95.18) and was met with heavy selling. I suspect we remain within the wave 4 of (3) correction with further lows to come as the thrust to new lows appears to be in 3 waves and incomplete. I have outlined a potential 4th wave triangle as a possible roadmap forward.
That’s all I have for now, trade safe 🙂