The annual Jackson Hole monetary summit starts today. Many months ago it was thought it would be a bust at Fed Chairwoman Janet Yellen had stated she would not be attending. That was a clear break from her predecessor Ben Bernanke who used the event to talk more deeply about his views on policy. But along came Stanley Fisher as the new vice Chairman and things got interesting again.
So many market participants will be looking to the mountains of Jackson Hole for pearls of wisdom and knowledge bombs. My thought about the conference is if you think Stanley Fisher is going to stand up and tell you the date and magnitude of the of the next FOMC move then maybe you have been up in the mountains, without enough oxygen, for too long.
I on the other hand will be dreaming of the islands. A warm, fun, festive place as the summer weeks wind down. No,, I am not abandoning the market while it is in ‘turmoil’. I’m just looking at the price action. And as we come into Thursday the market is setting up for a possible Island Reversal in the S&P 500.
After a fall from the 210 level in the SPDR S&P 500 (NYSE:SPY) and then a gap down in the chart to open Monday, the price has been floating in a range from 185 to 195. It is a break of that range that should cause any action as I wrote here. And Thursday morning in premarket action it looks like that break may be coming, to the upside.
This would trigger an Island Reversal. A technical pattern where after a move lower and a gap down there is a gap up and continuation higher, leaving an Island of price data disconnected from the rest. The Island is then seen as the exhaustion of the downtrend selling. It is early in the day so this may fail and the gap up close. But should it hold up through the full day look for continuation Friday to confirm a reversal.
Two other things to stack away in your mind. If the gap closes and the price turns back higher, that is still a good thing for the S&P 500, just not a fancy Island Reversal. And an Island Reversal, or gap close and bounce back higher, does not mean an automatic move back to 210 in the SPY. Always remain cautious and have a plan in place. Now back to the Islands for me.
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