The already extremely tough market just got tougher. Yesterday the Chinese market took an almost 7% dive. The last time something like this occurred was on February 27 and the US markets were hit hard. The tricky thing about the market though is that it does its best to confound the greatest number of people.
So, those expecting a slide after the morning gap lower were doomed to face buying instead. End of the month liquidity probably didn't help the issue much either. The morning dip wasn't really much to write home about though. Prices for the most part ran back up to right shoulder resistance on the head and shoulders pattern we have been discussing and they were locked down from there.
It was the reaction to the FOMC minutes that really put it to the bears and squeezed shorts yesterday. The initial interpretation is that the Fed was dovish on rates. Reality is that some members of the Fed are a bit hawkish here and are intent on actually raising rates. With the economy already on thin ice, this has to be disturbing to the market. So, today we will see how the market reacts now that it has had some time to digest the Fed statement.
Early on today we should see more buying as sentiment remains bearish and shorts are vulnerable. We will need to see how the market closes today in order to determine whether or not it is necessary to change our bearish posture.
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