ORIGINAL POST:

As expected, the Fed threatened much but did little – extending Twist through the end of the year.  Stocks and commodities didn’t much like it; the dollar is up nicely.

If the sell-off holds or accelerates at all, it will confirm the Point B we placed at 1363.46 yesterday — the Fib .618 retracement of the 1422-1266 drop. It might also confirm my suspicion that the daily RSI pop out of the channel was an aberration rather than a broadening of the channel, as seen in the following chart.  I keep coming back to the RSI chart below because of its import.

A drop back into the channel to, say, the midline would probably result in a SPX pullback (Point C) to the channel line around 1340.  A drop to the other side of the channel would likely result in a drop to the other side of the price channel — say 1326.

Even if we were to call the channel broken, we’d still be looking at a very extended rising wedge in RSI — also a sign of an overbought situation.

If 1363 holds as our Point B, it leaves the door open for a Gartley, which completes at  the .618 (1389), or a Bat, which completes at the .886 (1404).   Either of these, especially if they come on the heels of a more significant dip now, would likely fit nicely with a VIX drop into the low teens, possibly below the 13.66 watermark.

Note the smaller scale patterns all had their most common targets exceeded during yesterday’s rumor infused ramp job.  So, the possibility remains that the ramp just continues on up this acceleration channel, straight to our upside targets before turning back down.  That’s certainly what I would have expected had QE3 been announced.  But, I don’t think so.

I think it’s more likely we get one of the paths below.

While I’ve been typing this, SPX has recovered to almost even.  In fact, it stopped right at the .886 of yesterday’s highs, seen here on the 5-min chart.  BB’s upcoming appearance will be important.  The lack of a serious sell-off after the announcement should embolden them to leave well enough alone — which might be enough to get a little more downside going.

I’m going to be traveling over the balance of the week, so posts will be a little spottier than usual.  I know I’ve received many questions and comments in the time it took to put this post together, and I’ll try to answer those after I get to LA this evening.

Stay tuned.

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