Another overnight ramp job, another failure to break out/down — prime territory for a pop and drop.
The eminis are up 10 points, so I’ll play along on the opening. But, the dollar still hasn’t broken any new ground to the downside (or broken out).
And, the EURUSD is a hair’s breath from a potential reversal at the .618 Fib on the daily chart.SPX has several hurdles in order to break to the upside: the red channel midline, the grey .75 line, the purple .25 line and the purple .618 Fib.
UPDATE: 9:34 AM
Note that SPX closed Monday having completed a lopsided IH&S that targeted about 1700. It fell yesterday to a point where it would have formed a more balanced right shoulder — which was about 10 points back below the purple channel .25 line.
After a strong bounce on a channel bottom such as occurred on Thursday and Friday (up 44 points) we would expect such a backtest of a channel line. But, yesterday’s action established doubt as to whether this larger pattern would complete.
SPX regained the .25 line early in the session, only to turn around and give back most of the gains by the close. This morning’s spike on the opening regained it momentarily, but in 15 minutes since, it has dropped back below yet again.
UPDATE: 9:45 AM
The red channel I’ve inserted is not well-established, but it is parallel to the red acceleration channel that guided SPX to its 1687 top (see the chart below.)
Following a strong rally as it did, this pattern becomes a potential pennant (target 1673.) But, the pattern would break down with a drop below 1626.20 or so.
And, a channel drawn between the bottom and this point (in white, below) features as its midline an intersection with the white .618 (1653.20) at the closing bell — a hallmark of the market lately.
If this turns into a bounce up to 1653, it will present some very interesting questions about the big picture. I tried — and struggled — these past two sessions to put together a forecast that I felt confident enough to foist on my loyal readers.
If we get a breakout to 1653, the picture will be somewhat clearer — in the neighborhood of clarity, but not quite crystal clear.
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