Thursday’s trade was no doubt about it – awesome!! A complete reversal of Wednesday’s response to the FED action and then some. Today’s decline erased the last 3 days of rally. Today’s decline decisively tore down the “wall of worry” built up from Monday. It was extremely tradeable – it was a clear trending day – it was a day that we only get within a 3rd wave. So, recognizing the pattern and follow the building signs will help build trust in the move itself with regard to expectations of follow through. The moving averages on the hourly chart were critical to today’s move with the break below the hourly 200 and then 50 MA was classic, and the response was classic — acceleration increases.
For tomorrow, it is expiration Friday and again the moves have been big and very sweeping in terms of sailing through strike prices on all the component company’s options. We need to leave open the potential for the market to again turn higher, catch fire and run back towards 4300 and still be a part of the Minor wave 2 corrective bounce. The flipside of that suggests that off of the 4303 high the ES is putting in the “initial” 5 waves down to kick off the Minor wave 3. This would be achieved by the ES putting the small bounce as it has off of today’s low – turns and drops to a new low below 4100 to put in the finishing moves on that start of Minor wave 3. Moving forward though, it would put the sellers back in control of direction and strength of direction.
If the ES does continue to break down after the bounce the next Fibonacci support levels come in at 4083, 4015, 3947, 3897, 3851, and then 3728, which may where support to complete the 3rd of the Minor wave 3.