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How Will the Fed React to the Current Market?


Will oil and gold keep the Fed on hold? Will an approach by the S&P towards 1500 keep Ben in a Box?

"Tried to run, tried to hide,
Break on through to the other side..."
Break On Through (The Doors)

Oil has broken through $80. Gold has broken through $700. Let's all buy stocks in anticipation of a Fed Funds rate cut because obviously there's no inflation.

Will such a rate cut cause stocks to break on through to the other side back above 1500?

Will oil and gold keep the Fed on hold?

Will an approach by the S&P towards 1500 keep Ben in a Box?

Is Thursday's close over its 50dma for the second time, albeit marginally, a second mouse move through this key moving average, or, will the index once again be turned back as it was on September 4th?

Many time the beginning of a new month sees the high or low in an index for the month. Did September 4th, in the least sanguine of market months, define such a high?

An hourly chart of the S&P shows five waves up to test the breakaway gap from September 4.

Click here to enlarge.

Clearly a break of 1480ish will snap a short term trendline.

The bulls would love to see a strong Friday/weekly close, which is the sign of the bull. But given the slippage this morning in the futures it appears that buy programs put on to keep the bears at bay prior to the holiday on Thursday will not do the trick into the weekend.

A look at a daily chart of the S&P shows a 1-2-3 daily rally to the September 4th peak. The advance into Thursday mimics that run as it is also a 1-2-3 move to the 50 dma.

Click here to enlarge.

Because of the position of the market, and the breakdown level of the June lows having been well tested, any break of the aforementioned short term channel especially on the weekly close suggest Monday could be hard down.

I still expect stock indices to see another leg down into October as most declines play out over three months.

Click here to enlarge.

A failure by the S&P back below its 50 dma and then its 200 dma at 1460 should indicate that wave down is under way since the June lows as old support have been tested multiple times.

Click here to enlarge.

Finally, the Thursday the week before options expiration is many time a misdirection day. If in fact that is what took place yesterday and the arbs fluffed up the feathers of this turkey sitting on a fence, then the great expectations surrounding the Fed to save the day may have been already discounted and the unwinding begin here and now.

The behavior of Goldilocks' chaperon, Goldman Sachs (GS), at its 190 strike, tagged yesterday, which has carved out a 1-2-3 snapback swing to a test of its overhead 50 dma should be a notable tell as to the market's bias going into next week.
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