FOMC CHA CHA Breakout

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“The Fed’s job is to take away the punch bowl as the party gets going.” – William McChesney Martin

Wednesday was a textbook buy the rumor (accelerated Taper and series of rate cuts in 2022) and buy the news.

But the real question is whether Wednesday’s 101 point swing is the beginning of a meltup into January or a doozy of a solitary short squeeze.

As always, follow through will be the key to the tale of the tape.

For several months we’ve kept the door open for a run to 4900 SPX into January.

Wednesday’s reversal to within a whisker of a new record closing high may be a calling card for a Santa Spike.

If so, the first quarter is likely to be a sleigh ride from hell.

You see, several cycles are due to exert their downside pressure come January.

This includes a 7 squared year cycle of 49 years from the major January 1973 FALSE BREAKOUT.

It must be said that WD Gann wrote that 7 is the fatal number, the number of time and went on to prove this geometry in many of his writings.

For example, there have been several notable crashes in years ending in 7, such as the 1907 Rich Man’s Panic, 1937 and 1987’s infamous Black Monday. And, of course, late 2007 marked the top of the Great Recession.

Notably, the Tech Bubble that ballooned in 1999 was 70 years from the parabolic advance in 1929.

As well, 4900 (SPX) is 70 squared. So there is some compelling time and price symmetry on deck should we get squeezage to 4900 in the next few weeks.

Seems like a lot? Maybe, but the second half of Wednesday’s session alone was nearly 100 points. So never say never.

The key to aggressively playing a runaway move to 4900 will be the next pullback.

If the next pullback holds the 4660 -4665 region and turns back up, a powerful move should unfold above the 4700 well-defined resistance.

On the 10 min SPX for the last two sessions, you can see how 4660 represents a backtest or checkback to the horizontal breakout pivot from Wednesday.

Hit & Run members were well positioned to capitalize on Wednesday’s explosive reversal. Prior to the release of the Fed comments, we tweeted on the private Hit & Run feed that the SPX 10 min was presenting as a possible Angular Rule of 4 Breakout.

This is a breakout over a declining 3 point trendline.

This dove-tailed nicely with a pattern I’ve dubbed the FOMC Cha Cha.

This is the propensity for the market to play out in 3 counter moves on FOMC Days.

I’ve noticed this pattern play out over the last two decades, and Wednesday didn’t disappoint.

Wednesday morning, we picked on some beaten down glamours that were showing quiet relative strength, ASAN and NET.

Specifically, we stated that ASAN had a date with 70 while NET projected to 140.

In addition, AMD, a long pick from Tuesday night’s report that showed superior relative strength at its 50 day line, exploded for us, tracking on 11 points.

For example, if the first move is up, the next move is down followed by a genuine directional move to the topside… i.e., cha cha cha.

This is precisely what occurred following the Rule of 4 Breakout that was looming before Fed minutes on Wednesday.

We got a spike up, a pullback toward the breakout pivot followed by a massive rally in the same direction as the initial upleg.

I’ve noticed this pattern play out on Fed Days many times over the last two decades.

In sum, on the bull side of the agenda is that the SPX triggered a Jump the Creek sell signal when it cleared the open gap at 4670 and followed through with authority.

This morning the SPX is going to attack the Key Reversal Day ATH of 4743.83. Clearing and sustaining that region triggers a continuation buy — a Reversal of a Reversal, or what I call a Keyser Soze.

Fast moves come failed patterns: if the large range Key Reversal Day AND Key Reversal Week from 11/22 is offset, it opens the door for a fast move toward 4900.

On the bear side of the agenda, technically, a new ATH above November 22 satisfies a 5 point Megaphone Top pattern.

In that instance, a failure back down through the prior 4743.83 swing high with downside follow through puts defense on the field.

Now, with the market’s sell the rumor buy the news FOMC ratchet to new highs, it will be interesting to see if the precious metal miners can respond to their own sell the rumor and buy the news.

With sentiment on silver more negative than at the March 2020 lows. Yesterday’s LROD or Lightning Rod (Large Range Outside Up Day) on SLV sets up as a possible double bottom with the September swing low… 90 days/degrees ago.

Conclusion. I can’t help but wonder whether yesterday’s “goose” of the market to show that all is right with the world was transitory, and will prove to cause market participants to duck once the reality that the Fed Put is dead and the punchbowl empty sets in.

Is the Fed trying to pull the punchbowl away after the market has already drunk itself into delusion?

But a Final FOMO Fling may force money managers who have jettisoned their beloved growth glamours to chase the market to 4900.

This week we flagged the 941 square-out level in TSLA. While TSLA slipped slightly below that region, it exploded after recapturing 941 yesterday. It will be important to gauge TSLA, the icon of risk on, at the 1007 resistance region.

Likewise, it will be important to gauge AAPL, which has carved out 3 large Topping Tail reversal days since Nov 22.

AAPL has a square-out at 188/189. This is a full 360 degrees up from the 138 October low on my Square of 9 Wheel.

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