Are the Bulls Running Into a Red October?
“The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustainded return to 2 % inflation.”
-Fed Chairman Powell
“…very possible Fed will push rates higher than neutral.”
-Fed Chairman Powell
“Inflation could be above or below 2% at any given time.”
-Fed Chairman Powell
The 8th consecutive ‘dovish’ rate hike occurred yesterday and the market tried to rally but the SPX was rejected from the open gap at 2929, collapsing into the close.
Our expectation of a wild FOMC Cha Cha Day in yesterday morning’s report played out with the SPX rallying 16 points and reversing 26 in the span of two hours.
The SPX 10 minute chart below clearly defines a possible Island Top with the SPX snapping a short-term channel into the bell.
Now the index is flirting with a break of a 3 month Rising Wedge show in yesterday’s report.
See daily SPX from yesterday here again:
It looks like the SPX closed right on the cusp.
Failures from Rising Wedges are notorious for sharp and fast breaksm so the prospect for a bloody October is on the table if we get downside follow-through.
The market may survive quarter-end but the verdict looks down for October.
That verdict is backstopped by the pattern in the QQQ. which shows a bearish 1 2 3 Swing Snapback to a secondary high from the record late August high.
Wednesday’s Lizard sell signal — a new 10 day high Topping Tail may have installed the right shoulder of a Head & Shoulders top formation.
If so, critical support ties to a Neckline at 181.70 which coincides with the 50 day m.a. on the Q’s as well as a little triple bottom.
Consequently, downside follow-through below 181.70 would violate a trifecta of support.
This would be occurring in league with the SPX breaking key support at 2900.
As the above daily SPX depicts, break of the Rising Wedge could perpetuate a plunge to 2800 to 2700. This is the potential if October lives up to its infamous reputation.
Interestingly, the 1 2 3 Swing Snapback on the Q’s is a fractal of the pattern from 18 years ago on the weeklies when a primary high played out in March 2000 with a secondary high at the end of August that year.
So this late August anniversary from 2000 which started downside acceleration must be respected if we see follow through.
The Head & Shoulders projection on the Q’s, if triggered, points to 175.
If price is the final arbiter, the verdict from yesterday’s reversal is also backstopped by the action in the RUT.
The RUT knifed below its 50 day m.a. with authority, leaving an Expansion Pivot sell signal. This is the largest move below the 50 day in 10 days, and has a good record for signaling lower prices.
Moreover Wednesday’s break of the 50 day m.a. follows what looks like a big picture Gann M. A. Top.
This is a double top with a false breakout… the ‘A’.
At the same time the RUT triggered a Rule of 4 Sell yesterday by breaking a 3 point trendline.
Downside follow-through indicates no support until 1600.
Conclusion. If the market can escape the Kavanaugh hearings intact today, they may still try for a quarter-end mark but downside follow-through demands defense as a big short may be setting up for October all the way down into the election.
The key pivot now is the 2942 which squares-out on the Square of 9 chart with September 28, quarter-end.
The break point is 2900 and caution is warranted with the SPX closing meaningfully below its August 30 2916 high.
Financials got killed yesterday despite the rate hike and higher yields and this is dangerous as financials lead both ways.
I can’t recall seeing a sustainable upleg without financials performing.
Additionally, several go-to glamours look suspect after yesterday.
For example TWLO broke out but left what looks like Train Tracks below the prior swing high.
SQ left a Gilligan sell signal from a gap up reversal which could have been a short-term buying climax this week IF it doesn’t rally from here.
ROKU left a Topping Tail and CVNA a long day trade idea from yesterday morning tailed off giving up the lion’s share of its gains.
PAYC may have left a Hook, Line & Sinker sell setup, so it will be good guidance.
NFLX is flirting with key resistance at 382-385 as outlined this week.
Names set to rally that will be good for guidance are SHOP, TTD and TCMD.
Positions in SPXS, UVXY
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