Doves are harmless, right?  Suppressing interest rates and pumping markets full of cash for 10 years straight has obviously done wonders for stocks. What could go wrong?

Nothing, unless you consider the markets’ addiction to easy money a problem.  The mere hint of the Fed normalizing rates and “allowing” a business cycle to play out has the doves massing for an attack straight out of a Hitchcock movie.

Opinions are all over the map regarding tomorrow’s Fed decision.  I suspect the committee members, themselves, are somewhat bewildered. The US has taken on way too much debt and can’t afford higher interest rates.  Yet, until recently, inflation dictated that they tighten.

Will inflation’s recent decline stick, or will it bounce back toward 3% the moment Trump takes his boot off Saudi Arabia’s neck?  And, what about those sectors of the economy which have relied on low interest rates to do as well as they have?  Will the Fed knowingly nudge autos, housing and financials into a recession?

To hear our Dove-in-Chief tell it, more rate hikes will unravel all the wonderful things his economic policies have accomplished.  Can the Fed afford to appear subservient to the president, even if they did agree with him?

The charts don’t much care about all that.  Yesterday, major indices reached tipping points below which things could get really ugly.  Once such index we’ve focused on lately is the Nasdaq Composite (COMP.)  Yesterday, it reached our downside target from October [see: Plan B] and, after a great deal of consternation, put in a bounce.

Whether or not the bounce holds is critically important, as it represents a backtest of a breakout which began two years ago.  If the red trend line doesn’t hold, the index is susceptible to a drop of another 8-24%.Many other indices are in similar situations.  Perhaps this is why we’re getting mixed signals from the algo drivers which have been such reliable indicators of future direction.

continued for members…

As we’ve discussed countless times, every time USDJPY breaks down below the purple channel bottom stocks swoon. This morning, it’s not only below the purple channel bottom but the red TL as well.  The SMA200 looks like a logical target. Even DXY is looking vulnerable.On the other hand, every time that VIX retreats from the red channel top, stocks spike.  Could the market’s keepers be preparing another dip to its SMA200?Could it finally be ready to break out?SPX and ES, themselves, look ready for a bounce as usually happens in advance of a Fed meeting.

Oil and gas argue for lower stock prices with CL due to drop at least another 6%. And, bonds are poised for a breakout (in price, breakdown in yields.) Our yield curve model tells us that the downside might not be finished… …especially if 2Y yields tumble.Stocks usually ramp higher in advance of Fed meetings, regardless of the expected outcome.  If a positive outcome is expected, the reason is self-evident.  If a negative outcome (hawkish) is expected, the rally provides a higher perch from which to tumble.

The only exception to the pre-Fed ramp is when investors are so frazzled by the likely outcome that they overpower the ramp job.  At present, the notion that the Fed might be ready to pause is probably the only thing currently keeping them in the game.

But, this could turn on a dime and is, thus, an excellent time to be cautious.  Enough of my indicators are quite negative that a 2011-style decline could easily be in the cards.

My daughter is in town from London, so I’m going to take a few hours and show her around town.  I’ll be back before the close.

GLTA.

UPDATE: 3:40 PM

Pretty interesting day…Round trip and slightly lower lows for SPX and ES, but they’re fighting their way back as we go into the close. COMP is nominally higher.  Though it doesn’t look like much of a gain, not losing ground must be considered a win.

CL has reached our 46.02 downside target with the .618 at still on deck, while RB punched to slightly lower lows.

VIX has pushed above the red channel top, but it isn’t entirely clear it will hold.  A breakout is usually a breakout, but I wouldn’t be surprised if they claw it back by the close. Ditto for USDJPY, which is retracting its earlier losses. And, last, note that TNX is sitting right at our target and at support.