Next Wednesday's FOMC meeting is menacingly close. It could act to reverse the market's volatile decline of the past few months, but it could just as easily give rise to further acceleration down. Everything we have been looking at on the charts for the past few months has pointed down, and as the QQQ chart below illustrates, even more so as of Friday's close. Fibonacci extension targets are still lower with some outlier levels much lower. Stock Market Circuit Breakers It is hard to imagine that a Wave 3 of 3 down can end without at least one or two rounds of circuit breakers kicking in, so this weekend let's take a look at the rules and relevant price levels...just in case. "Market-wide circuit breakers provide for cross-market trading halts during a severe market decline as measured by a single-day decrease in the S&P 500 Index. A cross-market trading halt can be triggered at three circuit breaker thresholds—7% (Level 1), 13% (Level 2), and 20% (Level 3). These triggers are set by the markets at point levels that are calculated daily based on the prior day’s closing price of the S&P 500 Index." Level 1 - S&P is down 7% (approximately -300 S&P pts; -2300 DJI pts) Level 2 - S&P is down 13% (approximately -550 S&P pts; -4300 DJI pts) Level 3 - S&P is down 20% (approximately -840 S&P pts; -6700 DJI pts) "A market decline that triggers a Level 1 or Level 2 circuit breaker before 3:25 p.m. will halt market-wide trading for 15 minutes, while a similar market decline “at or after” 3:25 p.m. will not halt market-wide trading. A market decline that triggers a Level 3 circuit breaker, at any time during the trading day, will halt market-wide trading for the remainder of the trading day." Perma-Bear Paradox The lower the market falls, the more bullish it becomes. There will be a tipping point ahead where probabilities will start shifting to the upside, just not with charts that look like the QQQ chart above. The triggering of circuit breakers will be the first clue that panic is setting in and a reversal to the upside will come into view. In a perfect world, mega gains banked from index puts on the way down will be leveraged into calls for a turn back up. That cycle should be completed by year end and maybe a lot sooner. The Last Time Circuit Breakers Kicked In - March 2020 Premium Service Option Positions PRO Service Option Positions
