Charts I’m Watching: Sep 4, 2013

DX has pulled back from the .500 retrace of the drop from 84.965 and a tag of the red channel .236 line and appears to have its sights set on a Bat Pattern — though it’s too early to say for sure.

The red channel — while not exactly a thing of beauty — has simply continued to chug along.  But, as an indicator of equity prices, DX has been a schizophrenic indicator at best.

The USDJPY, on the other hand, has journeyed as far as it can without breaking out or breaking down.  The red H&S Pattern in still in play, but so is a smaller IH&S Pattern.

It reached our target price zone a day early — representing a backtest of the broken purple midline, a completed Bat Pattern (small purple grid), and a tag of the tops of the short yellow and grey channels — not to mention the 3rd backtest of the white channel from Jul 2012.

At the very least, I would expect a pullback here — if only to the .618 at 98.35 to backtest the IH&S neckline.

To be clear, few of these H&S Patterns have produced significant payoffs.  But, the necklines have proven to be good indicators of turning points.

In contrast with DX, USDJPY has been a very good indicator of equity prices — as shown in the chart below.

So, when its chart indicates a critical possible turning point — as it does now — we should pay attention.  Note the pennant/triangle tag at the purple channel midline.

As to SPX, it has designs on completing a Bat up at 1664.72 or at least closing the gap at 1656.02, but has to do better than yesterday when the white channel .146 smacked it back down.

I’ll play along on the upside here, but will watch for signs of weakness.  As the daily RSI chart shows, SPX faces its own moment of truth.

UPDATE:  10:45 AM

SPX is approaching the .886 (1649.30) of yesterday’s drop from 1651 to 1633, at which point it will have also reached the purple channel top and the same falling white channel .886 that stopped yesterday’s rally.  I’ll try a short position with any weakness here.

I think 1649 is close enough.  Full short, with stops at 1651.36ish.

UPDATE:  11:13 AM

Got  very close to our stop, but seems to be backing off now — a pattern we saw with the Aug 30 lows.  Stay tuned.

UPDATE:  11:40 AM

Just stopped out on the short position, back to full long.  This price range is a little tricky, as the white midline still represents resistance, and the white .618 is just overhead at 1653.45.  Tight trailing stops make sense.  But, be aware that there may be some chop here.

If SPX can punch through, 1660-1664 could arrive later today.

UPDATE:  12:55 PM

It doesn’t make a lot of sense from a harmonic standpoint, but it occurs to me that we could get a meaningul reversal here at the red .500 at 1654.47.

Note how each of the previous declines going back to 11:15 ET on Aug 27 have come at key Fib levels on the red grid.  That particular one came at the .886.  The next came at the 1.000 (the smallest at 11 points), then at the .786, then the .618.

If the pattern holds, we’ll see another here at the .500.  I say it doesn’t make much harmonic sense only because this rise is way out of character for a typical for a C-D leg of a Crab Pattern.  It’s still in the vicinity of a .618 retrace, however, so I’ll try a short position on any weakness here.

If it doesn’t play out here, keep an eye on the red .382, which lines up with the white .382 at 1658.75 and the purple .786 at 1660.51.  I also show the neckline for the potential IH&S arriving any moment at the grey 1.272 at 1656.23.

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