What will they decide to do, if anything?

In my WR, I wanted a new low in stocks for my final w5 down prior to a rally. The gods were kind to me and right on cue, in Sunday night trading, the Dow did just that. So now we have a very interesting situation less than 48 hours away from the Fed announcement. Volatility is increasing not just in stocks, and markets will remain nervous going into the late Wednesday news event.

Interestingly, the Dow carried to a Fibonacci 62% retrace (with slight overshoot, as to be expected after such a sharp rally) and is deciding what to do now. If history is a guide (and it usually is), it is a curious fact that stock markets have generally sold off following every monthly Fed QE announcement. Markets have made a habit of rallying into the date and then selling off, sometimes sharply. It would be unwise to bet against a reversal of this practice.

Bullish sentiment remains elevated with even the bears caving in now. Yes, there are dark clouds on the horizon (rising US interest rates, eurozone woes, etc) but hey – nothing will stop this train. That is the current level of complacency. Just a cursory scan of article headings on seekingalpha.com confirms this. The most bearish piece I have read says that yes, we are due for a dip, but what a great chance to pick up some cheap stocks!

DOW

I have my 5 down complete at Monday morning’s low and the A wave of my A-B-C and this is my best guess for this week:

Yesterday’s rally is the A wave of an A-B-C and the C wave should terminate at or near the Fibonacci 78% retrace. A break of the B wave low will be a signal the downtrend is resuming. But as we edge close to the Fed event, markets may go haywire and produce spiky moves. This is a most dangerous phase for swing traders.

A sharp move above the 16,050 level would put my bearish case on hold. That is my line ion the sand.

NASDAQ

This is the index I have been concerned about (see WR), but now I have my 5 down and I am more heartened! Remember a 5 down means the larger trend is down. It is the canary in the coalmine.

And yesterday’s rally carried to the Fib 62% level as did the Dow. I have a good tramline trio and look where the rally carried – to the meeting of the tramline and the Fib. There is always heavy resistance at these meetings.

That high should be wA and as I write, wB is forming and let’s see if a new rally high in wC appears.

GOLD

Is edging off the lows nicely (see WR):

And my tentative w3 is moving up on cue. I am happy with my bullish stance unless we get a break of lower tramline, which I do not expect – at least just yet. There is more upside. . Sentiment remains uber bearish and should support a hefty rally.

My relief rally remains on track and I am long.

JUNK BONDS (US Corporate high yield)

Yields have been pushed to record lows as investors chase yield with QE-induced fervour, but I believe that is about to change: