OK, will they or won’t they?

“To taper or not to taper, that is the question” (thanks, William). But do you know what – this question is almost redundant. And do you know why? It is because everyone is talking about what the Fed will do. And when all eyes are pointing one way, the surpise comes from behind. All the pundits are positioning the 17/18th Fed announcement as the defining event in the stock market.

Their equation is very simple: No taper = more punch, please! A gradual taper = more punch, but hold the vodka. The market believes there is no room for another outcome: A sudden taper = no problemo, the economy will take over the heavy lifting, as the Fed has enough confidence in the economy. And we all know the Fed is omnipotent, right?

So whatever the Fed does, it will be bullish! If that is not a bullish sentiment extreme, I do not know what is. And a great big flashing red light to get out of Dodge – pronto.

OK, let’s get back to reality. Stock valuations are stretched, bullish sentiment is about as high as it can get (one economist said that this Goldilocks economy is bullish for stocks and is as good as it gets, which means that the only way now is down, surely), and virtually no-one is contemplating a sharp decline. About the worst expectation is that stocks need a ‘breather’ before resuming the bull market.

My EW analysis says otherwise – and today is the start of the second leg down that started in the Dow October 30. Since the Dow high at 16,170 on that date, we have seen a textbook A-B-C on very low volume and has all the hallmarks of a small scale DCB (Dead Cat Bounce).

S&P

I had a Fibonacci target at 1815 (see previous posts) and is holding. Here is today’s action on the 15-min

Now WC has five waves and is complete – a few ticks off the 1815 top! And with the huge neg mom div at the C wave high, the odds strongly favour a big decline here.

Confirmation will come when/if the WB low is taken out. It could be only days away.

GOLD

Has moved above my centre tramline