Update for Wednesday, September 23, 2020, 4:39pm, Eastern.

The Dow rallied to 27,464.40 intraday, meeting the recently violated “shelf”
that we’ve discussed in STU. When a trendline is violated, oftentimes the
market will rise or fall to meet the line again prior to peeling away in the
direction of the break. After the Dow met the “shelf” line this morning, the
index spent the rest of the day declining. The NYSE advance/decline ratio
ended the day with 9.2 shares down for every one that was up, the strongest
downside breadth since June 11. In the S&P 500, 95% of the issues closed
the day lower, and in the NASDAQ, 86% of the issues ended the session
lower. Two of the past three days have been attended by Big Board down
volume of 89% and 90%. So, the selling pressure was broad.
The rally since Monday’s low in the DJIA is either a smaller-degree fourth
wave or second wave within Minute wave iii (circle) down, which is still
developing. As the wave progresses, the next surrounds the 24,971.00 level,
which is the prior wave 4 low from June 26. The wave ii (circle) high is
28,364.70 (Sept. 16) and this is a key level. The reason is that a rally above
this level would mean the decline from September 3 is an (a)-(b)-(c) pattern, a
three-wave decline that would be Minute wave iv (circle) of Minor wave 5. It
implies a rally to a new high. A break under 26,611.00 would eliminate the
Alternate interpretation because wave iv (circle) would overlap the top of the
presumed wave i (circle).

The S&P carried to 3323.35 intraday before reversing trend and nearly
retracing the entire advance from 3229.10, Monday’s low. We haven’t
published the weekly chart of the S&P for several weeks, but we do so today
to remind readers that the index completed a throw-over (see text, p.73) at
3588.11, the September 2 top. Throw-over’s complete the larger trend, so the
three-week decline since the high should be the start of a larger and longer
selloff. Short term, the S&P should work down to the 3000-3055 range.
The NASDAQ’s bounce ended at 10,979.60, within our cited range at 10,883-
11,000. The NASDAQ should be starting the next wave of decline, which will
draw prices to the 9350-10,000 range. An alternate view is that today’s high is
wave (a) up of an (a)-(b)-(c) countertrend push. Wave (b) down ended this
afternoon and wave (c) will be a rally above 10,979.60 to complete the rally.
Thereafter, the NASDAQ’s decline will resume.
According to the work of the late Paul M. Montgomery, heightened volatility
and/or trend reversals often attend the equinoxes. Identifying candidates
where a trend change may occur is done on an ad hoc basis, looking for
assets that appear extended at the time. In last Monday’s STU (Sept. 14) we
said: “One obvious candidate for a reversal is soybeans, which have
advanced for five consecutive weeks and where the Daily Sentiment Index
(trade-futures.com) is at 90%. Soybean Oil appears to be in a similar
situation.” In last Friday’s Update (Sept. 18), we added gold and currencies to
the list of coming market movers. Each of these assets have had sharp moves
this week. With respect to Soybeans and Soybean Oil, the extremes reached
proximate to the equinox are now “time stops,” levels that should remain intact
or this forecasting exercise will be for naught.
[U.S. Treasury long bond futures] have remained in a narrow trading range
since September 8. The 178^17.0 high of September 3 remains intact and so
too does the short-term bearish potential. The initial target for wave 3 of (3)
down is “below 170^00.0.” Greater bearish potential exists. A rally above
178^17.0 would turn our stance neutral temporarily because it would create
more options for the developing wave structure.
The [U.S. Dollar Index] has pushed through chart resistance and is
subdividing toward the next target area at 94.665-94.833. Beyond this range,
a higher target area exists at 95.716-96.042, which includes the level where
the index will retrace a Fibonacci .382 of the decline from the March 19 high.
The dollar’s rally potential will remain on solid footing as long as the 93.345
level remains intact.
The [Euro] has broken the neckline of the head-and-shoulders topping
pattern, adding additional evidence for our forecast for a decline. The next
target range is 1.1452-1.1495. Prices have no business being above 1.1873
again or something else is developing.
[Gold] extended its decline to $1855.85, as wave c (circle) of Minor wave 4 is
nearing its terminal point. The break below the wave a (circle) low satisfies the
minimum requirements for wave c (circle) and gold declined to just above our
cited target range at $1825-$1850. The completion of wave c (circle) will also
mark the completion of Minor wave 4. Minor wave 5 will be a five-wave rally
that carries above $2072.12, the August 7 high. As we’ve noted, in an impulse
pattern, wave 4 cannot overlap the top of wave 1, which means that gold’s
decline cannot move under $1765.61, the wave 1 high. If prices break this
level, it means that the August 7 top is important. It would raise the odds that
Cycle wave c down is underway.
[Silver] declined to $22.57, meeting the rising trendline from the $11.62 low,
as shown on the chart. While meeting the trendline could lead to a near-term
bounce, the line has contained silver’s entire rally since March 18, so a solid
close below it would be compatible with greater bearish potential. The next
downside target is under $19.00.

Next Update: Friday, September 25, 2020.

--Steven Hochberg, Editor.