We’re heading into what may be the biggest whipsaw of the year. Keep your eyes open and your hand on your wallet. The market will be trying to rip you off this week.

Four times a year, the market stages a Triple Witching event, when equity index futures, index futures options, and stock options all expire simultaneously, usually on the third Friday of the month that ends the quarter – and often the market often goes nuts, as investors scramble to rebalance their positions.

This time it is going to be worse, because it is augmented by the Fed Open Market Committee meeting on Wednesday and Thursday, the meeting where the Fed may finally have to make a decision about an interest rate increase.

Wall Street is about evenly split; roughly half the players think the Fed will increase rates by a symbolic 0.25% this time; the other half thinks there will be no increase at this meeting, and probably not this year.

No matter who is right, the market is going to rip in one direction or the other. No rate hike and we’re going to the moon, Alice. Even a small increase and we may be looking at a sell-off like the last Black Monday, just two weeks ago.

Active traders who monitor the market, minute-by-minute (like us) love this kind of wide-range action because the opportunities for fast in-and-out trades increase exponentially.

But for anybody with a fixed position it is perilous, because those positions are usually protected by stops which will close the position when a trigger price is touched, at the then-current market price. That means a loss.

The rapid price swings often hit all the stops in both directions, so a lot of positions will be closed at a loss – even if the market later moves in the “right” direction. You can be right about your trade, and still end up a loser. Sucks, eh?

There isn’t much you can do to protect yourself from this except stand aside and let the market swing with somebody else’s money. There will be blood in the Street this week; try to make sure it isn’t yours.

Monday

The triangle formation (see chart) is the key pattern for the current phase of the market. The downtrend line should be the first resistance at the 1985-75 zone (SPX). The uptrend line should be the first support at the 1935-40 area.

As long as SPX stays inside that triangle early in the week, the price will continue to chop around 1965 and try to shake out weak hands – that’s retail traders like us – on both sides. We expect a break out from that pattern after the FOMC announcement … and perhaps before it, if the algos start pushing the price around on the usual rumors.

Futures

The S&P 500 mini futures (ES) have made lower highs and higher lows for 13 trading days since Black Monday. That forms a triangle pattern for the futures and we expect ES to stay inside it today. However market sentiment still has some residual bullish bias, prompted by hopes the Fed may delay an interest rate increase.

Major support (ESZ5): 1932-35, 1922-18.50, 1907-03, 1875-50.50;
major resistance levels: 2015-18.50, 2029-28.50, 2035-38

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Chart: S&P500 cash index ($SPX) daily chart Sept. 11, 2015

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