Which Way Wednesday – Fed Minutes Edition

So far, so predictable.

And that's the way we like our markets, right?  It was two weeks ago (2/6) that we prediced the market would bounce back from 2,550 to at least 2,650 (strong bounce) for the week and then, on 2/9, we broadened our lines and came up with the following predicted range for the S&P (/ES) Futures using our fabulous 5% Rule™:

Here's how those lines are holding up two weeks later:

We're testing the top of the bounce range but remember that range tops out still only 40% back to the 30% line, which doesn't even register on the chart anymore as the trading range has narrowed – as we predicted – at the lower levels.  As I said in yesterday's Morning Report, evidence suggests that 20% line may be the top of the range for rest of the year, not the bottom or even the middle and we will need to look down to the 10% line, at 2,420, for proper support after the next correction.  Hopefully, we'll consolidate around there for a proper move up later in the year (assuming things hold up in the economy).

This isn't about TA (I HATE TA), the 5% Rule is just a mathemetical representation of the Fundamental Value of the S&P 500 and we simply use the chart to illustrate it.  Stocks can go a very long time 10% overvalued and even grow into that valuation without a correction but 20% over-valued is strething it and, as we're seeing this earnings season, we set the high-flyers up for big punishments when they miss.  Here's the Big Picture on our other indexes from our Big Chart:

Those 50 and 200 dmas are the only TA I do pay attention to because those represent the average that a large sampling of investors have been willing to pay for a stock (or index) and, as you can see, we're still miles over the 200-day moving averages for our indexes so, the question is, what changed in the last 50 days to justify a 10% bump in the indexes?  I guess you can kind of say the taxes but,
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