Look no further than the Fed for the confusion reigning on Wall Street.  It was only a few weeks ago that they were preparing us for multiple rate hikes, as we were far from the neutral rate.  Then, the story shifted, indicating we were just below the neutral rate.  Yesterday, they leaked a story to the Wall Street Journal that they were gravitating toward a wait-and-see approach.

The problem isn’t that the Fed can’t make up its mind.  The problem is that the current Fed, just like its predecessors, is data dependent.  And, the data they depend on is the stock market.

There’s no mystery regarding the timing of the leak.  The S&P 500 had fallen 179 points in two sessions.  It was about to undergo a death cross, as the futures did this morning. Even worse, it was within a few points of completing the Head & Shoulders pattern we’ve been watching develop over the past month.In the end, ES and SPX came within 10 points of our next downside targets before promptly reversing course.  SPX came within a point of closing its gap from earlier in the morning.  The question, now, is whether the coast is clear.

As usual, we’ll watch the algo inputs closely.  VIX reversed at our next upside target rather than breaking out.And, USDJPY enjoyed a timely bounce at our next downside target.   Even CL and RB are surging sharply.  Will it be enough to keep the rally going after the gap is closed?  Don’t be so sure.

continued for members…

Note that RB has reached our initial bounce target and should take a breather while OPEC makes up its mind.  Look for it to try to hold its recent lows.We’ve seen it play both ways with gaps:  a closed gap kicks off another leg down or fuels a continuing rally.  But, the Fed’s intent seems crystal clear.

And, I don’t think they give a damn about tagging the H&S Pattern neckline on the numbers.  I think they care quite a bit more about avoiding the death cross and getting SPX back above 2703.62.  That should be today’s line in the sand.

For ES, yesterday’s lows came close enough to the purple midline to count as a tag.  A strong reversal here would go a long ways toward erasing the yellow channel. If VIX can’t hold the purple channel breakout on a backtest, it could end up testing the white channel bottom or SMA200 yet again.  If it does hold, and the TL above doesn’t, then remember there are plenty of upside targets.Aside from all the algo-baiting, the yield curve problem has not gone away.  This should make for a great test for our model. UPDATE:  3:40 PM

Feeling pretty good about our downside target, and the possibility of a drop through the neckline. The drop through the neckline would be greatly facilitated by USDJPY’s breakdown…

…and, VIX’s breakout. Note that COMP and AAPL are both making nice headway toward our downside targets and should continue to be a good source of downside pressure.  COMP is about 3.2% away.And, AAPL is still about 14.4% away.