Charts I’m Watching: Sep 3, 2013

The futures again accomplished what the cash markets could not, ramping 15 points over the holiday weekend to present a mildly bullish view this morning.

As we discussed Friday, there is a battle brewing between the harmonic picture — which still suggests lower prices — and the purple channel bottom.  So far, the purple channel is holding its own.

But, this purple channel is subordinate to the white channel — which at present is being backtested.

I’ll play along on the opening, but will watch for any signs of weakness.

UPDATE:  9:33 AM

SPX is approaching the .618 (1653.45) of the last leg down from 1669.51.  This should be the first test of the market’s ability to break out of consolidation.  Breaking through 1646 was a good start.

UPDATE:  9:59 AM

We’re getting a pause here, resistance from the small rising purple channel midline.  Look for a backtest of the red midline at 1645-1646.

UPDATE:  10:20 AM

SPX has almost reached the red midline.  If this is only a B of C corrective wave, then we should see one last spurt higher to the .618 (1653.45) or possibly 1656.02 to close the gap from Aug 26.

UPDATE:  11:20 AM

Taking an interim short position here at the red midline at 1645.  The next support level is the .618 retracement of the latest wave up at 1636.96.  It also marks the bottom of the purple channel.

However, a retrace to the .786 at 1633.04 would set up a measured move to close the 1656.02 gap.

A reminder, the downside case presented last week is still very much on the table.  If 1627.47 should fail, we should see a quick decline to 1620.84 and, potentially 1577.

UPDATE:  1:08 PM

Going long here at 1635.  Tight stops, as this could be just a backtest of the purple channel bottom at 1637.   If so, the .786 at 1633.04 or the .886 at 1630.71 are up next.

UPDATE:  1:12 PM

I think I jumped the gun.  Short again at 1637 with stops around 1638.

UPDATE:  2:57 PM

Still inching down, very close to the .786 at 1633.41. The RSI charts suggest a little lower still.

UPDATE:  3:05 PM

Stopped out at 1638, back to the long side.  I suppose we’ll get the usual late-day bounce here, but don’t see the immediate upside other than a lackluster bounce off the purple channel bottom.

The bounce at the bottom of the red and white channels on the daily RSI confirms the purple channel bounce.  It even shows a little positive divergence.  But, there are longer term channels whose midlines — just above — should be even more influential.

It was this 15-min RSI chart that had me expecting a tag at 1633 or 1630.  Now that its daily candle has been magically transformed into a more bullish omen, the futures will probably gap down to tag one of those levels overnight.

In sum, I still see plenty of downside potential.  I’m just not willing to hold short overnight to capture it — not without a little more clarity.  There’s a good chance of rallying up to 1643-1645 for a Point C to establish a Butterfly Pattern that targets 1621.70 — in line with the red 1.618 at 1620.84.

I’ll likely go to cash at the close.

UPDATE:  3:47 PM

Closing out the long position and going to cash here at 1639.

Comments

Charts I’m Watching: Sep 3, 2013 — 3 Comments

  1. What are the levels you are looking at for an overnight gap down on the futures? Tough to see on the daily chart. 1577 ish or is it the 1633-1630 area you are talking about earlier in the post.

    I personally am of the thinking that we could easily be headed deeply down whereas we are now testing a channel (not sure how valid it is but i like that the 1651 SPX hit the midline and went lower) from underneath and have an area down to 1627.47 which at least needs to be retested.

    • As I mentioned earlier this morning, the purple channel should be subordinate to the white — which is being backtested. Doesn’t mean the purple can’t continue to power through, but there’s still more risk to the downside.

      Re ES, I don’t know the order of things. But, I’m looking for 1611 if the Aug 30 lows don’t hold.