Well, the market didn’t quite do what I envisaged. I was looking for a one-timeframe in either direction; instead we had a rotational day until 1:00 PM EST. From that time onwards, a directional move down ensued. The cash S&P closed 1192.70 on very strong bear volume on Market Delta’s footprint charts.

In this blog, I’d like to consider what last night’s action means for the US stock market.

  • The close alone is equivocal. It closed a mere 7.5 points below the swing low at 1200. A conviction bull bar close above 1215 would raise the probability of a low being in place till at least after Xmas.
  • The volume and bearish candlestick suggest that the above scenario is unlikely. Instead of a rally, we should see a continuation of the down move.
  • There is one more item muddying the waters. The FOMC decision is due at 2:15 EST. According to the Fed Fund Rate, there is an 80% probability of a rate cut of the Fed Fund Rate. I doubt that will happen but the FED may do something else ‘to try to save us from Armageddon’.
  • One thing is clear, each intervention needs greater and greater effort from the FED to generate a positive response. Will tonight be the night where FED intervention fails?

My best guess is that the FED action will generate a knee-jerk reaction that will cause a retest of 1200. This retest will succeed, and we’ll see the market start a full-fledge bear market. This assumes that 1215 will remain intact on a closing basis.

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