Two of the most bearish things that can happen to an index are when either a rising channel or a rising wedge break down. For COMP, both happened on August 21. After having already lost 7% since its July highs, it plunged another 12% over the next two sessions. Things were looking rather bleak.
In our September 15 update, I noted that it had climbed back up to reach important resistance:
Exacerbating the situation is the fact that the bounce since Aug 24 has reached, just today, the .618 retracement of the drop from the Jul 20 highs. What’s more, it has backtested an important internal TL (yellow, dashed) connecting many key highs and lows since last November.
It’s a precarious situation for COMP. Any of those features could, alone, be responsible for a downturn here. If, on the other hand, the FOMC bails on the idea of higher interest rates in a couple of days, we could easily see all that resistance melt away.
I put an upside target at the red TL (the white circle above) and waited to see what happened.
Two days later, the FOMC decided that interest rates were just fine where they were for the time being, and COMP shot directly to our target — only to promptly reverse and plunge nearly 10%.
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