FOMC Day / SPX in Descending Channel + Flagging

Thanks to everyone that watched the show last night. If you couldn’t, it’s in the Stocktwits.tv archives.

I am undecided on direction for today simply because we have the FOMC announcement today at 2:15PM. I don’t suggest trading prior to that announcement (if you are trading the indices). I suggest careful and decisive trading based on the reaction. The full reaction should take 30-45 minutes.

The SPX is in a downward channel. As the day progresses, note that we are near dual resistance levels (on the 10-day chart). We are forming a flag that is most clearly visible on the multi-month daily chart.

Below is the 5-day chart of the SPX with a ‘extra day’ added on for today. See the descending channel? Use that as your short-term guide.

The RUT is now at the 100-day MA as it formed a doji yesterday. There wasn’t much of a fight at the 50-day, so let’s see if we see some struggle here. Make note that this is the first time the RUT touched the 100-day since April.

All indices have formed stick sandwiches or modifications of them. I am short/intermediate-term bearish and will reflect this sentiment by incorporating my primary swing strategies with the current day trading. Day trading is great and all, but I’m looking to capture larger chunks of the moves. Also, it’ll ease up my time to focus on other things. A swing trade can be a simple overnight 2-day hold or a multi-week hold and everything in between.

Charts shown are 9-mo and 5-mo.

The SPX is short-term bearish and intermediate-term neutral as it is with most of the other indices. I’m looking for a 1-day neutral/reactionary move for entry. The RUT continues to lead the way down as I have predicted. It is testing the 100-day MA. The DJIA is testing the lower ascending range as well as the 50-day MA. Finally, the COMP is in a neutral range and threatening the lower boundary. Notice how all the indices are in different stages of the correction?

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The transport index is also testing the 100-day MA and is in a neutral range.

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Not only are all the indices in different stages, so are the individual sectors.

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My costume:

Long before the SPX formed the 20/50-trap, most stocks formed what I call the “20/50-day churn” which is essentially the same thing except that we do not know if the SPX will churn. The only way to tell is if a lower high is made, and that is yet to be seen.

The trap is basically when a stock or the market tests the 50-day and then test the 20-day MA’s, creating the possibility of continued narrow-ranged consolidation. The trap the turns into the churn if the range cannot be broken in it’s entirety.

In the case of the SPX, a churn is bearish as it cannot form a higher high. If the SPX can bust through the 20-day and flag, it is likely going to make the attempt to test the high of the rally. I am and have remained mostly neutral on my stand on market direction.

On the char below marks the 20/50-day MA’s. Also noe that we are forming an ascending broadening wedge within a larger rising wedge. In the first two corrections, the market was able to successfully bounce without the need for the 50-day. The past correction in the beginning of Oct required the 50-day. This correction needed further room lower. Make note of this trend as a mark of weakness.

I am still looking at my standard names such as AIG, but am also looking at CAR, NANO, NVTL, CROX, DAN, PVTB, CNXT for major reversals/continuations. I will mark trades if I take them. That is, if I make to campus before the open.

Watch both closely over the next several days.