Fed Reflex
Sometimes it seems that the same trading action will occur no matter what the Fed decides to do. No action results in the same double fake-out, and then the market starts the next day as though nothing happened. Let’s look at the Daily chart first.
After a two month rally we broke the uptrend, and for the last week have been making a pullback to re-touch the trendline from the opposite side. At the same time there is now a reasonable rectangle trading range from about 810 to 840. Rectangles can break either way, but they can also go sideways for a long time.
On the intraday chart we gapped down to a 62% Fibonacci retracement of yesterday’s slow rally. Then there was a low-volume rise while waiting for the Fed announcement. I avoid trading just before and after these events, but quite often trendline and Fib signals seem to work just about as well as on non-Fed days.
The parallel to the upper trendline (through point “A”) stopped the post-Fed drop, matching the level of yesterday’s close. After a triangle-shaped hesitation, the market shot up to complete an A-B-C Measured Move. This was also a 162% external retracement of the “A” to “B” pullback, again giving two reasons to be cautious at that point.
The last hour and a half made another small A-B-C Measured Move to the downside, eventually ending at yesterday’s high. Notice how the unmarked “B” respected the earlier trendline? That’s not unusual. I’m still biased to the downside, but if the market makes a high-volume break above that rectangle I would instantly change my mind. Always remember, the market makes the rules.
