Charts I’m Watching: Feb 3, 2014

The falling purple channel in USDJPY has broken, and the third H&S Pattern has completed as expected.  In other words, the yen’s appreciation has accelerated — a definite negative for stocks.

Yet, ES has reached the bottom of one rising purple channel.  So, the market is clearly at a crossroads.  The problem for bulls is that the rising purple channel is the most bullish scenario.  There’s a more bearish option that argues the bounce isn’t yet here.  Note the white channel has plenty of downside to go.  The bottom is currently around 1724.

And, if neither channel holds, there’s always the larger channel that has guided prices from the 2009 lows; the bottom is currently around 1670.  And, lest anyone forget, the recent top was a very large Butterfly Pattern completion.  A mild reaction would be back to the prior top: in this case, 1546.75 on ES.

A common reaction would be to the .886 (1441) or .786 (1350) — which would fit nicely with the attractive alternative to the big rising white channel.  And, for the uber-bears, how about the .618 at 1194?  Would the Fed permit it?  Probably not.  But, unlikely as it is, if the Fed somehow took a hands off approach to the markets, it’s the best looking outcome on the charts.

Coming up, targets.

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