UPDATE:  2:15 PM EDT

Something’s gotta give…  We’re in a falling wedge within an expanding wedge, with loads of divergence and retesting the earlier lows.

UPDATE:  12:15 AM EDT

Market seems to have found support here.  Only influence I can see is the Nov 5 2010 high of 1227.  We’ve made a new bullish falling wedge…a few times, now.  Have had a backtest and are possibly retracing, but risk still off the charts.   If it plays out, could take us back to 1245+.

UPDATE:  11:50 AM EDT:

Next major support isn’t till 1200.

ORIGINAL POST:  10:30 AM EDT

The rising wedge seems to have paid off nicely, with prices falling back to the base as per the script.  Like yesterday, the trend line off the Feb 18 high saved the day (so far.)  It’s the orange dashed line on the daily chart below.

The big question is whether this is “b” of a corrective wave, or the next impulse subwave.  We did make a new low, so caution is warranted.

We’re still due a [iv] wave sometime soon.  My original thought (as of a couple of weeks ago) was August 11 (the purple line.)  This was based largely on the 87-day cycle — it should mark an important high.  But, it also dovetails nicely with the 2007 topping pattern.

BAC reached the bottom of its rising wedge this morning.  It tagged 9.32, even better than the 9.40 I was looking for.  I sold my remaining August 11 puts at 1.65 for an 83% gain in 9 days.

At 8.89, it would complete a bullish crab pattern that would also coincide with the bottom of its channel. Might take another look at playing the upside, but doubtful.

First, I don’t expect the market to make any serious advances anytime soon.  Second, if I changed my mind, I wouldn’t play the upside with BAC.

ADDENDUM:  10:35 PM EDT:

Thanks to ewtnewbie for this question on Daneric’s excellent EW blog:

Pebble, love your stuff.  I’m glad you cleaned up your Fib chart–it was getting hard to read.  I haven’t redrawn mine yet, but are you thinking today as ‘a’ up, with ‘b’ and ‘c’ to come to get to 1270ish–or time to add to shorts here at 1260 for sub-1230?

Your comparison chart shows that the topping action in 2007 had a multi-day retest of the neckline, but only wicks above it, no closes. If that holds true this time, we not see 1270 on a closing basis. Just something to think about. 

Sorry, sometimes I go a little overboard with the TLs.  But, sometimes I think one is done affecting anything and delete it.  Then, surprise!, right back in the soup. 

Gotta tell you, the question re a-b-c is my biggest challenge with EW (aside from the dain bramage.)  I’m always wrong with the size/scale of corrective waves, thus leave labeling to those much more capable.  In fact, it’s probably why I dove headfirst into chart patterns, TL’s and harmonics…no labeling!   With that disclaimer out there, my guess is today was the whole enchilada.  Probably not “big” enough, but that’s pretty much what happened in 2007 so it’s good enough for me.

As far as 1270, you’re probably right.  I looked at this a little closer after reading your question.  Bottom line, we’ve extended almost exactly the same from the 6/16 to 7/7 move as we did the equivalent 2007 move (11/26 to 12/11.)  The bounce in 2007 was to the .786 level.  Today, that would equate to about 1279.

Looking at the 5/2 to 6/16 move… the equivalent 2007 span (10/11 to 11/26) extension was right about 115%.  The fib retrace was about .85.   Now, we’re just a smidge past 115% down, and .85 would take us up to around 1273.

I can’t really argue with 1273 or 1279, as that’s where I’ve shown the bounce going to for the past two weeks.  It’s also where my regression channel -2 std dev line is.  But, I’m a little troubled by the idea of that big a bounce.

Hence, the only reason I’m not completely committed on the short side just now — and the reason I took the trouble to play the bounce today.  I can see the bounce stopping right here and now, or tagging that line on the backtest.  But, seeing as how it’s a difference of only 20 pts in the scheme of a 100+ point swing, I can live with the ambiguity.

END OF DAY:  8:45 PM EDT:

Trying really hard not to get distracted by the intermittent noise.

Standing firm,
weathering the storm,
sticking to the plan,
staying the course,
keeping the faith…

UPDATE:  3:40  PM EDT:

Tagged the 1260 IHS target, a little over the 1258 resistance.  Watching a rising wedge getting close to its apex of around 1265 (the other IHS target, hmmm…)

Also seeing a divergence between price and RSI/histogram.  Time to add to shorts.

Looking at the candle we’re likely to leave on the day.  Hammer is a popular candle, but not always a good indicator.  Bulkowski has a good discussion.

UPDATE:  1:45 PM EDT:

Getting awfully close to 1258.  Will go ahead and close out the longs I was playing the bounce with and start scaling in some shorts.  It might indeed go higher in the short run, but I’m fairly certain it’s going lower in the medium/longer term. 

UPDATE:  12:45 PM EDT:

Two little inverse head & shoulders patterns setting up on the 1-min chart.  Might be the boost we need to do a proper c leg of the a-b-c here.  Targets are 1260 and 1266.  I’m watching for a break above 1252 on the upside or 1240 on the downside before adding more to any positions.

Although, it’s likely 1258.07, now that it’s been broken as support, will act as resistance to any further bounce (see below.)

UPDATE:  11:00 AM EDT:

Playing the bounce off the crab here.  Initial target 1257, then 1270.

UPDATE:  10:30 AM EDT:

Market down 12, looks like more to come.  Next logical place to pause is TL and completion of bullish crab at 1233.

UPDATE:  10:05 AM EDT:

ISM not as bad as it could have been..  Index fell from 54.6 to 53.3.

Factory orders came in at a 0.8% decrease instead of -1.0%.  briefing.com does a great job of graphing the trends.   Here’s the report, available here.

UPDATE:  9:50 AM EDT:

Reached the important 1249.50 level of support; this would be the logical place for support to come back in if it’s going to. I imagine any bump we get will be limited to 1268 or so.

The factory orders and ISM non-manufacturing data is due to be released at 10.  Factory orders are durable goods (got it last week – bad) and non-durable goods like food.  Given the food inflation we’ve had, the non-durable aspect of factory orders might compare positively to expectations of -1.0%.

We saw the  ISM manufacturing numbers come in barely positive last week.  I don’t expect services to be any better, especially given the reported layoffs in the financial sector.  The market’s looking for 52.

ORIGINAL POST:  9:25 AM EDT

The Swiss cut rates to 0%, trying to halt CHF meteoric rise…

And, the rest of the currencies vs S&P; futures…

More later.

I don’t really follow gold, per se.  But, seeing that it made a new high today (1646.80), it seems like a good time to take a look at the technical picture.

Gold has been in a rising wedge for over three years — a long time, in technical analysis-land.

A couple of other things can be seen from this chart.  First, there is apparent divergence between price and technical indicators.  Notice that RSI, MACD and histogram all sloping downward while prices have continued to advance.

Also, at today’s high, GC completed a bearish Butterfly Pattern.  These sometimes extend beyond the 161% level, but that’s the most common D point target.

Also common in Butterflies is a rather strong reversal.   The initial target would indicate a drop to the .618 level of 1533.  But, Butterfly patterns frequently correct to a 1.618 extension of the XA leg, meaning a downside to 1350.  The “middle ground” 127.2 extension target is 1413.

Placing a bearish trade in a red hot market takes a lot of nerve — and tight stops.  And, gold has acquired an elevated status lately — given the US debt issues.  But, the harmonics patterns have been very accurate the past several months across markets.   We’ll see how this one plays out.

UPDATE:  1:00 AM EDT

Posting this pretty late at night, only because I needed a long walk on the beach after a day like this.  Don’t know about you, but my head’s still spinning.

We got exactly the move I was looking for; just didn’t expect it all at once like that.  The goal was 1250 by Friday, as has been indicated on my charts for the past 2 weeks.   This could mean there’s more momentum here than expected, which might indicate a deeper drop.  On the other hand, it could mean we’ve achieved the capitulation that’s typical of a short term bottom and bounce (sorry… temporary cessation of crash-like behavior).

We saw a good amount of divergence toward the end of trading, especially on the 60 minute chart.  And, we’re just 5 points away from horizontal support from the Mar 16 low.  We also nearly tagged the TL I’ve been expecting to bring a pause to the decline.  And, last,  S&P; surprised no one by caving (see the 1:40 post below) on their downgrade threat.

Add that all up, and I made the decision to take some profits on almost 1/2 of my positions — a little bit at the 1265 level (my H&S; target) and a bit more at 1258 (the Jun 16 low.)  I thought we’d get more of a bounce at 1258, and I’d have a chance to buy back in a little cheaper.  Instead, I’ll be looking for a good spot in the morning, maybe around 1268 or so.

If I’m wrong, and we get no bounce at all, I’ll likely chase after it like a drunken fool with about half the funds I pulled out today (leaving the rest on the sidelines just in case.)

I know we’re technically oversold.  I know there are others who see this as a huge buying opportunity.  I know the put-call ratio is probably through the roof (not even looking tonight.) 

But, I am fairly well convinced our economic goose is cooked.  Has been for a while…but the secret’s out.  And, now that our own little crisis is averted for another 15 minutes, we can start worrying about the train wreck across the pond.  So, yes, I’m as bearish as ever… at least until further notice.

Bottom line, I’m gonna “dance with the one what brung me.”  The 2007 pattern has worked beautifully till now, and I see no reason to abandon it at this stage.

UPDATE:  1:40 PM EDT

We hit our H&S; 1267 target (see below), bouncing at 1265.59 just a bit ago.  Whether the bounce has any more juice in it or not is unclear to me.  But, I did take profits on a small percentage of my portfolio.

My best guess at this point is we close somewhere between 1269 and 1274 today, then trade in a range of 1250 and 1275 through the end of next week before turning down in earnest.  But, as we near a potential turning point, the exact time and place of the turn gets a little murkier.

I’m not really looking for a bounce any higher than that unless: (1) unemployment numbers are miraculously better, or (2) S&P; and Moody’s follow Fitch’s lead and leave the credit rating alone.  We can only imagine the level of pressure they’re getting from Washington.  And, who would be surprised if they caved?

UPDATE:  11:00 AM EDT

The H&S; pattern is playing out nicely so far, with SPX down to 1275 and gaining momentum.  We might run into some resistance at the -2 std dev line of our regression channel, which is also yesterday’s low (bottom purple dashed line.)

If we can break through, the dashed red trend line has offered fairly strong resistance in the past, but will fail — either today or in the near future.

For those wondering when/where/how big the bounce…. the comparison with 2007 suggests it will be limited to a 38.2% Fib retrace.  Based on yesterday’s low of 1274.73, that would mean 1301.91.

That’s also where the regression channel  -1 std dev line is now, and where the 50 day SMA will be in a couple of days.  There’s also a pretty good trend line intersection at that same level.    It’s anyone’s guess whether it’ll reach that high, but I’d put it at 50-50 if a bounce began right now.

Naturally, the .382 level changes if we make new, lower lows.

UPDATE:  10:40 AM EDT

SPX continues to slip and slide, reaching 1279 — near its opening low.  In so doing, it has completed a little head & shoulders pattern, indicating a downside of 1267.  Should play out in the next 15-20 minutes.

ORIGINAL POST:  10:15 AM EDT

Still watching the ES vs USD/CHF relationship, which does a great job of showing how well equities and the dollar continue to correlate.

I show the Swiss Franc because it has performed the best relative to the dollar and is as strong a currency as there is.

Here it is, compared with the DX, which is a basket of non-USD currencies — primarily the Euro (58.6%) but also including the Yen (12.6%), Pound Sterling (11.9), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%).

The chart suggests that, while the USD continues to slide vs the CHF, it seems to have bottomed relative to everything else — particularly the euro.