The way the market acted today it looks like it is primed for a reversal tomorrow. I wouldn’t be surprised to see the stops run in metals overnight in preparation for whatever the Fed announcement is going to be. That would complete 5 Waves down (the last few days would have been a Wave 4 consolidation) and then we would get the bounce out of the cycle low. The odds are increasing daily that a bearish intermediate cycle is going to play out even if we don’t get a failed daily cycle right now, and the straddle or net short options looks like the best play going forward as the moving averages continue to roll over. Sentiment is getting overwhelmingly bearish again, and I think the market will shake out the shorts before showing its true intentions as it always does:
The miners look to be in ascending broadening wedge, and even if the metals form a new low overnight they might be predicting that the next move will be a bounce higher. An ascending broadening wedge is defined as a widening wedge higher, and it typically features 3 touches of each trendline before a bounce off the lower one and then a break lower by definition. That aligns with both the cycle count and the wave count for the miners. Here is the link if you want to read more about this pattern:
The CRB is moving into a cycle low and may or may not break its intermediate trendline tomorrow. Either way, a bounce higher is likely this late before a move into an intermediate cycle low:
Oil has found resistance at the previous 110 pivot and is likely moving into an intermediate low. This cycle is extremely right-translated and oil may bounce higher before this run is over and test the 114 pivot:
Bonds reversed today and may be the surprise winner post-FOMC for the next few months. There is a significant momentum divergence and a taper has been shown to be good for bonds in the past:
Stocks have likely priced in the best scenario for tomorrow and the SPX is still at resistance. A “sell the news move” that drives stocks into a temporary low over the next few weeks would be a dip before another run higher if commodities are headed lower. Strength in bonds could also help stocks move higher due to lower interest rates:
The dollar is below its multiyear trendline but the action has been all over the place for months now and correlations have broken down with other assets. I ultimately expect the dollar to move into a low before a massive launch higher beginning sometime next year:
The market has been pricing in the Fed announcement tomorrow and by the morning should be ready for reversals. The character of this intermediate cycle has changed dramatically over the last 4-7 trading days and so has our intermediate-term outlook. Bonds could be the best performing asset on the long side over the next few months, and commodities could be good on the short side after a bounce to stop out the shorts. I will be sending out a pre-Fed update, but the game plan continues to be to play the divergence in bonds and go neutral or slightly short on a move out of the next low in precious metals. Stocks are buyable on a dip with a stop underneath, and we will have to see the dollar continues to react to its multiyear trendline.
Have a great night everyone and leave any questions in the comments section as always.
Good trading all.
Steve Chapman, TRI
Subscribe now for less than $1/day!
If you would like to subscribe to The Refined Investor, then please visit the subscribe page above for more information. A subscription to The Refined Investor includes 5 daily reports per week with complete coverage of equities, currencies, commodities, and moves of interest from around the global markets. Complete strategies and risk management are presented in an entertaining and educational format for the independent investor. Subscribe today!