Thursday's Market 01/30/2014

FOMC statements often provide the catalyst for market volatility, and Wednesday was no exception. Following Tuesday’s decidedly positive tone, the SPX gapped down to open Wednesday’s trading session, plunging to 1775 within the first ten minutes of trading. I had been looking for a modest continuation of Tuesday’s rally to the 1800 level, but the market had other ideas. The SPX rallied back to 1787 by late morning, and then drifted lower as it awaited the Fed statement.

Once that statement was released, the real fireworks started. The SPX first spiked higher to 1784, but quickly reversed to fall to 1777. Another rise to 1782 was followed by a second drop, this time to 1774. From there the index recovered to 1779 before a final drop to 1770.45. A more extended move higher followed, as the SPX moved back to pre-statement levels at 1782.92, and then re-tested the day’s low by dropping to 1770.98, just above that low. The index then moved slightly higher into the close.

The market action from Tuesday’s 1793.87 high to yesterday’s 1770.45 low appears to have completed a 5 wave sequence from 1849.31, and Wave B of 2 from the 1850.84 high.

Today started with a sharp rally, with the SPX gapping up to 1790.31 at the open. After a pullback to 1784, the rally continued. The SPX would reach 1798.77 before the next meaningful pullback. This brought the index back to 1792.09 before the SPX rallied again, this time to 1797.68, before slumping into the close.

Looking at the count from yesterday’s 1770.45 low, the SPX completed Wave 1 at 1782.92. The pullback to 1770.98 was then Wave A of 2. This inverted corrective Wave 2 took the index to the day’s high of 1798.77, and then completed at 1792.09. It would appear that Waves 3, 4, and 5 from 1770.45 then completed at 1795.93-1794.18-1797.68.

This should complete Wave C of 2 from 1850.84. Support is now at 1790, and then 1781. The SPX could pull back to one of those support areas to complete Wave D, and then complete Wave E, and Wave 2 somewhere above 1800. The more bearish scenario is that the SPX falls below 1770 before completing Wave D of 2, and then after another short-lived rally continue lower. My downside target remains at 1679.