TA in front of tomorrow's FOMC (9/16/2015)

The rebound since Aug 24th bottom has been weak relative to that of Oct 14. However, a grinding rally has more staying power. Daily ranges have narrowed signficantly, while bulls were able to demonstrate strength by building a series of higher highs. So far the rally is still capped at around 2000 level after two tries. Instead of the symmetrical trianagle pattern, a pattern formed by higher lowers and lower highs, which is consistent with matching strength of bulls and bears, the bull is gaining momentum while bears cannot hold the bulls down. The bull is gaining momentum in anticipating of a dovish FOMC statement tomorrow. 

The current Fed does not like to surprise market. There are likely three scenarios playing out tomorrow:

1. Fed does not raise, but stays committed to one raise before the end of the year.

2. Fed raises in Sep by 25 bps and signals that it is one and done for the rest of the year by recognizing global slowturn / equity market turmoil / domestic slowdown / low inflation / commodity market trouble;

3. Fed raises by 1/8% or 12.5 bps, signaling gradual approach for the path of rate raising.

Market is current expecting #1. All three scenarios will be interpretted as dovish, which likely will lead to a breakout of SPX 2000 level, and at least a retest of March/Apr/July low of 2025-2030 area. After that we may test up to 2050 area. I doubt we will go back to the high of the year in 2100+ area anytime soon. We have the debt limit debate in sight, and when it comes to Oct, we will be all over this "to raise or not to raise" uncertainty again if there is no raise for September meeting.

In the highly unlikely scenario of a 25 bps raise, combined with strong hawkish wording implying additional raise before the year ends, market will sell off to at least the low 1900 area, which might be followed by another retest of Aug 24 low around 1840 area.

Just my 2c. YMYC