Charts I’m Watching: Oct 3, 2012

ORIGINAL POST:  9:20 AM

Competing patterns in the EURUSD…

And, DX taking another crack at breaking out of the channel…

Nothing much is likely to happen until the ISM services numbers come out at 10.

UPDATE:  10:40 AM

Nothing too exciting here.  Slight increase in several measures, even as employment and order backlogs contract.  Between the dollar’s strength and global slowdown, exports are also contracting.

UPDATE:  11:10 AM

A reminder, we’re still long from 1441 yesterday.  We’re approaching a critical level — the top of the falling red channel we’ve been in since Sep 14 at 1474 — currently at 1454ish.  We’ve bounced back off it several times.

Yesterday’s downturn was another bounce off the channel midline.  We retraced a little over 50% of the decline since Monday, so are potentially forming a Bat Pattern at the .886 of 1455.07.  A reversal there would mean yet another rejection off the channel top.

But, there are several patterns that hint at more upside — IF we’re able to break out of the channel (don’t expect it to be easy.)  The yellow pattern suggests at least a Gartley completion at the .786 of 1465.10.  A Bat would target the .886 of 1469.50

The red pattern completed a Gartley Monday at 1456, but could also be a Bat based on the .618 reversal on the 27th.  If so, the .886 is up at 1459.51.  A Butterfly would be at the 1.272 at 1472.14 or the 1.618 at 1483.45.

And, the purple pattern — which is still trying to complete a Bat at 1455, could be working on a Crab at the1.618 of 1468.

All of these require a clean break through the red channel.  I wouldn’t blame anyone for taking profits if/when we reach it a fourth time.  That would be a nice 13-14 point gain since yesterday — another 1% in the bag in the first few days of the new quarter.

I can’t say for sure what to expect.  But, I see no negative divergence on SPX on any time frame — while there’s plenty to be found in the dollar — on nearly every time frame.  SPX is trying to break out of a 2-week channel, while DX is trying to quit both a 10 week channel and a 2-week channel.  My gut says stay with SPX at this point.

We’re in the top quarter of the channel now, so a rejection off the very top should be limited to the channel line we just broke up through (1446ish) if SPX is to break out and go higher.  A break down through 1446, on the other hand, would mean we’re less likely to come back for a 6th try.

UPDATE:  11:40 AM

The dollar is looking very weak here, forming a lazy triangle/RW on negative divergence.  This will break down if SPX is to break out of its channel.

Remember, when SPX breaks out, it’ll likely back test the red channel — maybe from 1457.14 — the last high.  If a legitimatel break out, the channel top should hold.

UPDATE:  11:50 AM

Just reached the channel top, pausing for dramatic effect…  Might pull back here a bit, maybe 1450-1451.  Note the RSI still looking positive, with the purple channel midline and the white TL just above.

Let’s talk about the objective for a moment.  Remember, we completed a big Bat Pattern objective on the 14th — the .886 of the 1576-666 decline from 2007-2009.  We’ve retraced only 44 points since reaching that milestone.

It may have seemed like a lot, but in the scheme of things, it wasn’t.  Therefore, my expectations of this breakout are modest.  I’ll be open to the alternative, but the yellow .786 at 1465.10 or .886 at 1469.50 would be a normal retracement if this is merely a corrective wave 2 on the way to a 100-pt reaction that would be typical of completing that large a Bat Pattern.

As I wrote when I called this latest top on the 14th [see: The World According to Ben], the last Bat Pattern this large to complete was in March 2007.  SPX retraced a relatively minor 98 points before continuing on to make a double top at 1576.

A 98-pt drop here would mean 1376, not the mere speed bump of 1430.  The daily RSI has been a very good indicator for us of medium-longer term trends.  It’s hard to trade intra-day, because the value that gets printed is the end-of-day value.  But, it’s great at pointing out upcoming support and resistance.

Bottom line, there’s plenty of it just above.

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