Bears failed again yesterday to take out the rising green trendline and the 50 day moving average (4423, but now 4425). They pierced the trendline but just by a little and it's not as important as the 50 DMA is... and this morning we see a small bounce.
I posted on twitter that I thought we'd bottom yesterday and that we start a strong rally up from these oversold chart, with a new all time high possible. But this morning the bounce is not what I expected. It's kind of weak looking if you ask me. It's opened the door again for the bears to take another shot at breaking support below and triggering sell stops, which can cause a large drop as I've talked about all week.
It's still hard to forecast this in advance as the market is very tricky and keeps teasing you with these bounces, but they aren't holding and that keeps that door open for the bears. If there's ever a chance at a flash crash happening it's this week. Will it happen? I don't know? But if that 50 DMA is taken out cleanly I'd be on the lookout for a big drop.
For the bulls they have to clear the dashed green falling trendline today around 4460, and if they can't then the ball gets turned over to the bears again... it's just that simple. But the bears are at the goal line (that 50 DMA) and odds will be much higher today for them to get through it since they have got close to it several times now. Once through it I'll start looking for the 200 DMA for the next big support.
So I'm very mixed here on what's going to happen. On one hand we have oversold charts that say a strong rally is near and should start very soon. On the other hand we have a very bearish month and a series of wave 1's down and 2's up... which can lead to a massive wave 3 of 3 of 3 or something. Basically a flash crash drop out of nowhere.
I'm also concerned about the CPI Data coming out lower then expected and everyone now assuming the Fed isn't going to taper any because inflation isn't as high as it could be. But we all know that's a smoke screen and probably a lie on the numbers. Doesn't mean I expect the Fed's to taper but it does mean that surprises can happen out of nowhere now.
Meaning that if we rally up into FOMC next Wednesday and put in some new all time high, then I wouldn't be shocked if the Fed's say that they are going to taper after all. Or if we flash crash instead then the Fed will be saved as then they don't have to taper because the market can now go up much higher into the end of the year on the backs of shorts getting squeezed.
Which one would the Fed rather do? Screw the bears by doing a flash crash that they miss, and then squeezing them when they short the bottom... or screw the bulls with a surprise taper announcement that drops the market hard after the FOMC meeting into October or so? If my logic is correct the Fed's will screw the bears by NOT letting them catch the flash crash and then squeezing them back up the rest of the year. Bulls won't get hurt too bad as the flash crash will be over with quickly and we'll be back at new all time highs within a few weeks.
It's a big win for the Fed to do the flash crash prior to the FOMC I think, which again is why this week is very critical and the only chance the bears have for a big drop. Today is the day they must take out that 50 DMA and get the sell stops to trigger. Do that and look out below. Failure to do it means we should squeeze up into the FOMC next week. So... who's your daddy, Mr. Powell or Mr. Bear? Have a "scratch my head" day.