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Tricks or Treats From The Fed Today?


Today Count Volatility promises to raise the stakes and haunt the Street with more aplomb than usual...


Like a bat out of hell
I'll be gone when the morning comes
- Bat Out Of Hell (Meat Loaf)

Led by vicious declines in go-to glamors DryShips (DRYS) and Excel Maritime Carriers (EXM), which I mentioned on the Buzz and which came like a bat out of hell yesterday, Count Volatility took a bite out of the market late yesterday.

Was the decline in DRYS and EXM specific to news in the group or was the bloodletting partly due to institutional profit taking in front of fiscal year end by many funds today?

Whatever the case, Volatility took a bite out of traders in more than a few names on Tuesday. For example, Under Armour (UA) was down as much as five points before the open on earnings and rallied to be up five at the close. CF Industries (CF) gapped up eight on the session to all-time new highs but closed down more than a point on the session, and the S&P, which closed down ten points, looks to regain half that loss out of the box this morning with the futures up over five points.

Today Count Volatility promises to raise the stakes and haunt the Street with more aplomb than usual as his mentors Boom Boom and Hanky Panky don their Halloween costumes. What will they wear for Fed Jack 'O Lantern Wednesday? Rumor has it that they will come dressed as Lil' Bo Peep and Cupid but I'm not sure who's who. Of course, if you ask Boo, they'll be Abbott and Costello meets Frankenstein. But Boo's got cause in the paws.

Yesterday's decline in the S&P saw the index close below October's midpoint of 1533. But it appears there will be an attempt to recapture that level right out of the box in the early going today.

Will it be Trick or Treat on Wednesday? Will the market have a costume malfunction on the Fed news?

1530 is an important level as today is month end and the closing monthly high on the S&P was, believe it or not, way back in May at 1530.60. November will be six months from May, which is reminiscent somewhat of another pattern at these same levels: back in 2000 the S&P scored an all time high, declined sharply and snapped back to test that high six months later in a return rally failure.

Will the market be haunted by this same pattern? Is the S&P tracing out a mirror image Test of a Test pattern? In other words, is the October high a test of the July high (90 degrees or days prior) which is in turn a test of the 2000 high?

Click here to enlarge.
Was the October 1576, A, high a test of the July 1556 high, B, which was a test of the March 2000 high, C? Note the September 2000 test, D, of the March 2000 high six months earlier.

If the index is reflecting the Test of a Test pattern at the July/October lows five years ago in 2002 it might scare itself to death if it gazes through the looking glass too darkly. It is a little spooky how the echo bubble of 2000 wafts over the pointed little heads of those chasing stocks up the church steeples of speculative fervor once again. Will they find Quasimodo ringing a bell if the third time is not a charm for the Fed?

Importantly, this potential Test of a Test pattern from 2000 is occurring a geometric 90 to 91 periods later on the monthly chart and 60 periods forward from the 2002 bottom. Just as the test of the highs in September 2000 was a geometric 180 degrees or days forward, is it possible that the S&P is testing the May closing high six months later in the current pattern?

Speaking of geometry, as random as the market may appear, it seems to seek equilibrium. It is noteworthy that the midpoint for 2007 to date is 1493 S&P. This coincides with the important June lows, which when broken led to the Summer Swoon of 2007.

Click here to enlarge.
A) Double Bottoms in June
B) August high
C) Early September high

1493 is roughly also the level of the August high and the early September high. It therefore also defines the level of the breakout the last time the Fed eased in September. This is the same level that defines the two big sell-offs and recoveries this month. This is the Big Neck for the fourth quarter: Dracula's doorstep, so to speak.

Click here to enlarge.
2007 Range = 1410.45 to 1576.10. 165.65 points for a midpoint of 82.8 points giving 1493.25. A close below this level should be a nail in the coffin.

Beginning Tuesday, November 6th, Jeff Cooper's daily column will be moving exclusively to his subscription service, Jeff Cooper's Daily Market Report. With his service, you will also receive daily swing and day trading setups as well as follow-ups from Jeff.

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No positions in stocks mentioned.

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