FED Caves to Markets

Minutes of the prior Federal Reserve Meeting were published today at 14:00 ET, and even as some news outlets were having trouble getting copies of them and interpreting them, it was pretty clear the FED had acquiesced its policy in favor of calming the markets. CNBC reports the minutes of the meeting below have an unabashed reference to the decline in equity prices since the fall of 2018, as follows:

Participants noted market belief that the balance sheet reduction helped cause the late-2018 market volatility, and noted that investors interpreted communications from the December meeting as "not fully appreciating the tightening of financial conditions and the associated downside risks to the U.S. economic outlook that had emerged since the fall."

Meanwhile, back at the S&P500 Cash Index, as this 90-minute chart shows, prices keep getting wedged into a tighter and tighter formation.

S&P500 Cash Index - 90 Minutes - Still Wedging Below Channel

This action does not seem characteristic of the broad gains in the middle of the third wave of an impulse. Therefore, we still think it is the minute ((c)) wave of the overall Minor 2 correction. And it may end shortly, but has shown few price declines significant enough to draw that conclusion.

From a price perspective, nothing has invalidated the count of an ending contracting diagonal for the minute ((c)) wave. Wave (v) is still shorter than wave (iii).

Things could start to get bumpy soon, but remember, ending diagonals can be cantankerous to count. They can give the appearance of ending, only to begin another series of waves. So, patience, calm and flexibility are still required until the pattern resolves.

Have a good start to your evening.

TraderJoe