Yes, there could be another major market sell-off after the announcement this Thursday. But that looks to be highly unlikely at this point. The first picture shows a classic rising wedge pattern in the Dow Jones Industrials. however, the pattern is incomplete since there is no negative divergence in the MACD or PPO. Thus, it looks like we have a real market rally (on low volume albeit).
The next chart is an update on the Dow/Trans relationship. If the Dow finds a way to hold above 13279, and the transportation index continues its upward march, there is a real possibility both indexes confirm a new bull market. If the conditions are favourable this week (i.e if more QE is announced), that may provide the fuel needed to keep the bull moving. However, there are no guarantees. The reasons why the market moves are many and complex, but since the Dow/trans relationship paints an accurate picture of supply and demand, we can trust it to inform us of market temperature. If for some reason the Fed decides not to announce QE, there is no telling what the markets will do. They may shrug off the news, they may not. So far, the divergence is still extreme ... the transportation index is showing divergence from the Dow Jones in the short (one month), medium (a few months) and long (yearly) terms. A quick glance at the chart below reveals both the short and medium term divergence.
The fact is, the most recent double top being formed by the Dow, which has now seen the Dow beat its previous 52 week high
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This means we don't want to buy on momentum. Since the last temperature reading was warm, we already bought into the last dip -- so we are now holding. If you didn't buy the last dip, you may have another chance. As of now, there is no way telling which way the dice will roll, and it's best not to gamble.
