Couple of things.
Macro, you can see in this chart, we had a huge gap in the volume profile prior to this recent correction. The correction bounced off of the pictured Value Area High (VAH), which also happens to be the 2015 top breakout. That was previous resistance and is now support. The rebound after correction got sold off the Value Area Low (VAL) from the upper range. That was previous support and is now resistance. Those two identify where buyers or sellers liked priced and bounced it in the opposite direction. Now we have settled right into that gap and are filling, finding a balance between buyers/sellers. Once balanced, likely after FOMC next week, we will move to a new range. That direction is likely dependent upon FOMC forward looking statements, as well as BOJ actions.
Looking in a bit closer, you can see the H&S structure of that massive consolidation range. A head and shoulders formation is a battle of POCs. We had two Points of Control formed when we moved from the first consolidation range (first pink box) to the second consolidation range (second pink box). Those two balanced and we moved to a third consolidation range (third pink box), and created a third POC. You can clearly see the 3 large volume bars on the volume profile. We failed to make a higher high and thus formed what people call a Head and Shoulders pattern. Three balanced levels. Classic TA says we have a measured move down equal to the distance from neckline to head, and you can see that we reached that measured move down almost exactly. This all coincided with the above info. Now we are into a symmetrical triangle with an apex almost exactly at 9/21, which is, you guessed it, the FOMC and BOJ announcement.
It is pretty amazing how the market structure often aligns exactly with major news events.
Heading into FOMC, we now have the ability to set a strong confirmation of the 2015 top breakout, or a strong rejection with a massive island top left above. Much is riding on FOMC and BOJ. I personally think FOMC is another non-event, that they will not raise rates and will continue to discuss things like the economy is strong, but we want more data, and that we are researching additional tools to combat future economic downturns. BOJ is a wild card, but I have serious doubts they will do anything but attempt to pump more liquidity into their market.
After a week of rising bond yields ahead of these meetings, this is why I want to be long bonds. Additional insight on SPX, there is some good RSI divergence going on while making these lows, which is bullish. My best guess on direction out of FOMC is higher, but as others have said, betting on FOMC is gambling. The underlying economy is not strong, but central bankers will keep us floating for as long as possible ahead of a recession that I believe is upcoming.
