This week’s price action was topped off by the FOMC announcement on Thursday. As was the case with all FOMC announcements all eyes were firmly fixed on not just the announcement but to the market’s reaction of the announcement.
As mentioned in last week’s commentary the 199.88 level acted as resistance and capped Thursday bullish run up.
Friday’s session was dominated by the sellers as the market indices closed near the lows of the day however after all was said and done we remain near where we began at the start of the week.
The pattern of fading the initial market reaction to an FOMC announcement continues to be a worthwhile tactic. #study
All of the major levels we outlined the past few weeks have held so the following scenario is still in play.
We see 2 possible scenarios of which I believe the 1st scenario is more likely:
1. If the SPY can hold the ~189 level then the expectation is that we see the market work its way higher.
Interestingly we now find ourselves retesting the triangle. If the triangle pattern can hold then this favors a continued run to the upside assuming we can break the 199.88 level.
We now have an unfilled gap @ 199.73 which is an attractive target.
My mid-term target continues to be the unfilled gap way up @ 208.32 which would result in a re-test of the symmetrical triangle.
2. Else if we fill the gap @ 192.85 , break the triangle pattern then expect to see the ~189 levels.
If the ~189 level fails to hold then we can expect to find ourselves back at the lows of 182.40 with the following downside targets –
- Unfilled gap @ 177.48
- Unfilled gap @ 173.22
We continue to see a nice game of “fill the gap” as the VIX and the market indices continue to move harmoniously together to fill the various upside and downside gaps we’ve been highlighting.
The VIX remains at elevated levels however numerous downside targets in the form of gaps remain unfilled at 21.97, 17.62, and 16.26. Again if the VXX breaks down and fills some of the gaps below this would certainly be supportive for a broader market rally.
Noticed how the VXX bounced off strongly off the 50 daily MA (blue line)?
Also notice how the volatility of the volatility index has increased? #study
For the upcoming week we now have a very attractive short term target @ 26.05.
The bullish case for the VXX remains that if the ~189 level on the SPY doesn’t hold, then we have a high probability of testing the unfilled gap @ 33.31.
Here’s an updated VIX (the Volatility index) chart below.
Here’s an update on our sector rotation watch.
- No major updates for the week
- Nearly all the sectors have coiling patterns and it will be worth watching how they break out of consolidation
- The 50 period SMA is solid resistance for all the major sectors
- We need to see some of the leading growth sectors close above that 50 period SMA before we can presume a healthy market
The major sectors are posted here on Finviz for your viewing pleasure –