The Weekly Chart Before the FED Decides

The new weekly bar chart of the cash S&P500 is shown in the middle of today's chart display.

The weekly price swings (shown in blue on the price bars) are showing the possible contracting triangle pattern that we’ve been following on the daily chart. Note that this week’s close is at the short moving average (red line on the price chart) and the 61.8% Fibonacci retracement of the decline from the all-time high. The market is at resistance.

We are meeting this resistance after rebounding from a dramatic Derivative Oscillator (indicator on the bottom panel of the chart) low in mid-August. I say dramatic because this was the lowest weekly value for this indicator since September 1998: 9 years! Whenever an extreme low is formed you can expect a rebound but it is not the end of the decline. This guideline tells us that the bottom is not yet in. Supporting this notion are the momentum indicators.

The top panel of our chart displays the RSI and the second panel the confirming indicator I use. As noted before in this blog the weekly chart remains on a momentum technical “sell” signal. Our momentum indicators did not generate a buy signal at the August low. This also indicates that the 61.8% move up since that point is only a bounce and not the end of the decline. More immediately, the RSI made a new high this week (since the mid-August low) along with price (on a closing basis). It is hard to see, but the confirming indicator did not make a new high. This is a sign of potential weakness dead ahead in the market.

Bottom line: The wave count and technical indicators describe a market that is at a significant decision point. It is a curiosity that this decision point coincides with an extremely important and anticipated meeting of the Federal Open Market Committee. Interestingly, the wave count and technicals also indicate that the next significant move in the cash s&p500 will be down. What does this say about the Fed’s decision? I’ll let the reader ponder that!