Tuesday, September 16, 2014

SPX Daily Chart Downward-Sloping Channel Tight Bands Squeezing Out Huge Move Ahead

The negative divergence (red lines) and overbot conditions highlighted a few days ago forecasted a spank down which occurs. The bears are having difficulty pushing lower as the overwhelming consensus of traders remain bullish overall. Selling volume is edging out buying volume by a hair. The downward-sloping channel is in play. Price is at 1984 directly in the middle of the 20-day MA resistance above at 1994 and 50-day MA support at 1973 below. The 1973 is very strong price support so a confluence forms at this level that acts as a magnet and price would be expected to test this level. Bulls win big above 1994. Bears win big under 1973.

The standard deviation lines (pink) are squeezing in super tight so a huge move is coming any day now a la the May and late July squeezes. Those moves, one up and one down, result in 80 to 90 handle moves in price over only 2 or 3 weeks time. Thus, one side is going to be very happy and the other very sad a couple weeks from now once history is written. The standard deviation band squeeze simply predicts the large point move but does not predict direction. Price is near the lower band at 1977 and if price violates the lower band a move back to the middle band, at 1994, would be expected at a minimum. Note the prior fractal behavior for late July where price collapsed when it was at this same juncture near the lower band.

As fate would have it, however, the Fed decision, forecasts and press conference is tomorrow afternoon, so stocks may slide sideways until then when Fed Chair Yellen will stand on the stage, extend here right arm and thumb, and turn the thumb up or down like Caesar dictating which direction the price break occurs. The central bankers control the market. Many think that the term "considerable time" will be removed from the Fed statement and say the weakness in stocks this week is attributable to the expected slightly more hawkish tone. 'Considerable time' refers to the time until the first rate hike (when ZIRP will end) now slated for next summer. However, GS this morning says do not expect the change to wording. Also, Yellen is Queen of the Doves and will likely not want to make the change and instead prefer to continue printing easy money.

The 10-year yield pulls back overnight from 2.62% to 2.56% so the bond market is not expecting the change. The change to Fed wording diatribe may be more of a media hype event than what actually occurs. If the Fed statement remains unchanged, now that all this talk has occurred to change the wording, then stocks will probably pop wildly higher. This may be in concert with the band squeeze in the chart above and create the 80 or 90 point upside rally. However, after six years of obscene central banker intervention, you would think the light would go off in trader's minds that the Fed's grand experiment is failing. Hence, a continued dovish tone, may indicate that the Fed is floundering and clueless, and traders begin losing confidence in the Fed, and it is time to jump ship from stocks, thus, the squeeze would be down. But more directly related to the change in wording, if the "considerable time" is changed, then stocks should move sideways to sideways lower as the end to all the Fed's easy money is seen as occurring sooner rather than later. Flip a coin.

If the Fed was not in play, the technicals on the chart say down. The downward channel is in play and the indicators are all weak and bleak wanting lower lows in price going forward. The RSI, stochstics and money flow are all under 50% in bear territory. The stochastics are not yet oversold to indicate a bounce. The 1985-1986 support has been violated so the door has been open for a couple days to show respect to the next strong support level at 1973. So the chart and technicals say down and a test of 1973 should occur where price can decide to bounce or die.

Get set for a wild ride beginning tomorrow afternoon through the end of the week. Once price begins to commit from the band squeeze for a few days the larger directional move should become obvious. The bears have the upper hand but if Yellen flaps her dovish wings hinting that the first rate hike may not occur until late summer or Fall 2015, or simply say nothing, the bulls will likely run. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 12:05 PM:  The move begins today instead of tomorrow. The SPX prints a low at 1979 then launches higher to 1998 intraday, a 19-point turnaround, after Jon Hilsenrath at the WSJ says the Fed will maintain the current language in the statement. The bulls may be launching the band squeeze higher but the Fed will have to speak tomorrow afternoon to verify the big directional move ahead.

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