The Fed has made me even more certain about the Dow

If the Fed announcement taught us anything, says John C Burford, it's that stockmarkets aren't allowed to fail.

The Oracle spoke and my Wednesday prediction came true. The Fed won't raise interest rates until the data allow. In other words, a decision has been put off using the usual fuzzy language. Remember, the Fed committee is comprised of economists and you will never find a one-handed one ("On one hand")

But what was interesting to me was the excuse given that "heightened uncertainties abroad" (translation: the collapse in Chinese share prices) had been a major factor. If this is not the most blatant admission that the Fed's job is primarily to keep the stockmarket bubbles inflated, I don't know what is.

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So there we have it. The original rationale for the formation of the Federal Reserve Bank was to keep the value of the dollar intact, not to prevent recessions. Now it is to force inflation up to 2%, to keep unemployment low, and to keep stock prices rising with quantitative easing and zero interest rate policies (Zirp). I guess two hits out of three ain't bad. But they have strayed a very long way in 20 to 30 years.

So how did stockmarkets react? This week's rally has firmed up my interpretation of the Elliott waves. Below is the Dow hourly chart showing the action from the wave 3 spike low on 24 August 24.

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Previously, I was unsure where my C wave would terminate, but yesterday's spike high to the 16,940 level was all the evidence I needed to state that in all likelihood, the Wave C of 4 (blue) was now in, and wave 5 down could start.

In addition, the spike high yesterday occurred with a large negative-momentum divergence, which added to the evidence.

15-9-18-MWT-1

Last week, the market burst above my green line of resistance, which is now support. So to verify I have the odds for the above analysis well on my side, I need to see a move back below this line. That should occur fairly soon if we are truly at the start of wave 5.

The headlines said crude was doomed and that was great news for me

15-9-16-MWT-5

Below this is the chart as of yesterday. As I forecast, there was a host of buy stops that were triggered as the market moved up past the highs.

15-9-18-MWT-3

That is typical market action whenever the speculators are lined up mostly on one side of the market in this case, the short side. Sentiment has been extremely bearish with hedge funds and small speculators heavily net short.

In fact, as I mentioned before, Goldman Sachs has a $20 target. Using my 'headline indicator', I was confident that the market was indeed ready to rally.

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Whenever you see a lop-sided market such as this, all it takes to set off the firecracker is a move towards the obvious stop-loss levels. These are readily made apparent by a glance at your chart. And this can produce a very rapid short-term profit for those traders that understand where the path of least resistance lies.

You do not need to take a view on where oil prices 'should' be (in fact, having a firm view can easily detract from making great trades). Be an interested observer and make rational judgements based on what the market is telling you and never fight the market: it is always right.

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