Outlook for the rest of the month (Sept. 13, 2015)

As shown on the chart below, the Dow’s rally off the August 24 low looks more like a corrective rally than the start of a new uptrend:

Dow Corrective Rally

Notice the choppy movement and overlapping waves. and the repeated failures around 16,600.

Also, the Fed will meet on Wed-Thurs. this week to decide whether to raise the Federal Funds Interest Rate. If they raise the rate, stocks will probably fall sharply to a new low on fears that the rate hike will slow the economy down.

If the Fed delays the rate hike, stocks will probably rally for a day or two, but afterwards the realization will hit that the rate hike was delayed because the economy is slowing down, so stocks will subsequently decline to a new low.

Thus, I think the outcome of the Fed meeting is a kind of lose-lose situation for the short term. The only way the Fed meeting could cause stocks to break out to the upside is if the Fed delays the rate hike but affirms that the economic recovery remains solid. But I think that, in recent months, the Fed has ruled out such an option (and that’s a good thing for the long run in my opinion).


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