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The Power of the Wave Principle

Mario Supersized Stock Market Stimulus

Stock-Markets / Stock Markets 2016 Mar 10, 2016 - 04:18 PM GMT

By: Anthony_Cherniawski

Stock-Markets

Mario Draghi supersized his stimulus announcement. EuroStoxx ramped after the announcement, but what will be the follow-through? Will this be another Kuroda, European style?

ZeroHedge Reports, “Well, the people wanted a "bazooka-sized" surprise from Draghi, and they got it.


Moments ago the ECB announced not only a 10 bps cut to the deposit rate expected pushing it to -40%, but also announced a 5 bp rate cut to the refinance (pushing it to 0.00%) and the marginal lending rate (now at 0.25%), and also boosted QE by €20bn to €80 billion per month, the addition of afour new targeted TLTROs each with a maturity of 4 years, but the most surprising announcement was that the ECB would also for the first time include investment grade euro-denominated bonds issued by non-bank corporations along the list of assets that are eligible for regular purchases.”

SPX Premarket has also rallied to challenge the March 4 high at 2009.13.

I am reluctant to change the Wave labels on the chart, but the SPX futures have already exceeded the March 4 high of 2007.50 by ramping to 2009.75 this morning. That suggests the SPX may at least match the March 4 high. The 2-hour Cycle Top is at 2012.77 and may be a natural barrier to a further high.

My reluctance stems from several issues. First, there are several structural issues with the decline that cannot be clearly explained. But a new high today would clearly label this rally as an A-B-C which fits the Wave (2) structure. In addition, we have run out of time for additional delays before going directly into a Wave (3) decline.

Putting another perspective on it, SPX may also be probing to its daily mid-Cycle resistance at 2014.42. This level also has a Fibonacci value of 66.666% of the decline.

Although a new high may be made, we may also expect to see a sharp and dramatic reversal.

TNX isn’t buying the rally, suggesting that most, if not all the stimulus is coming from Europe. It suggests a very short-lived rally in SPX this morning, but not a likely follow-through.

I will be away most of the day, unfortunately.

Regards,

Tony

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