RUT recently completed multiple Crab Patterns in the 1026-1039 range.  We discussed this cluster of Fib levels as an important target range in our May 13 update on RUT.

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COMP recently tagged the .618 retracement of the decline from 5132 to 1108.

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The markets continue in limbo, as Friday’s after-hours ramp didn’t hold up (for a change) and currency markets continue to vacillate.  DX is pushing toward a potential reversal and resumption of its uptrend at one of two .618’s…

…while EURUSD, having bulled its way back into the purple channel, tries to convince us that it’s on the rebound.

USDJPY continues to flirt with a couple of H&S patterns that could accommodate a move up to the .886 if need be.

The eminis pulled the usual nonsense after the cash markets closed Friday, spurting a couple of points after the close and another few on Sunday.  But, by this morning, all of it had been unwound.

SPX tagged along for a nanosecond this morning, but has since settled back to flat on the day — probably waiting for the existing home sales data (10 AM EDT) for some direction.

As of this moment, there’s a nearly completed Butterfly Pattern at the red 1.272.  It fell .53 shy on the opening thrust, which is probably good enough given the larger forces at work such as the double top we’ve discussed extensively.

UPDATE:  10:05 AM

The NAR existing home sales came in at 5.08M versus 5.28M expectations — a big miss considering it’s seasonally adjusted to begin with and that NAR is well known for huge revisions following inaccurate (cheerleading) initial reports.  This data reverses a 3-month trend of increasing activity and, due to the lag, doesn’t even reflect the impact of higher mortgage interest rates.  Distressed sales continue to make up almost 1 of every 5 transactions.

Past Freddie Mac data indicates sales will continue to slow once the real impact of higher rates is felt in the marketplace.

In the past, prices were knocked back by higher rates, but rebounded when rates moderated.

Though, increases in the use of adjustable rate mortgages were largely responsible for maintaining/regaining price momentum.

There’s no denying that average prices have risen in many markets.  The MSM attributes it largely to an inventory shortage.  I continue to suspect it’s largely a function of activity in the lower end of the price range — mostly from institutional buyers of distressed portfolios. CoreLogic reports about 2 million units still in some stage of foreclosure, and foreclosure filings are once again on the rise.

UPDATE:  11:08 AM

SPX just pushed up through this morning’s high.  I suspect the 1.618 at 1698 — call it 1700 — is in focus.  I’ll take an interim long position here at 1695, but leave our core short in place.

Tight stops (1695) though, as the dollar just tagged the lower of the two .618’s discussed above.

New all-time highs, yes, but no follow-through just yet…

My working theory is we’re due for a typical double-top pullback. As detailed in yesterday’s post, characteristics of big (95+ points) double-tops since Oct 2007 include:

• average 0.32% overshoot
• peak 5.91 sessions after the .886 tag
• drop 4.5% from the double top high
• almost always retrace to the .886 Fib level

Yesterday’s 1693.12 high, which came 5 days after the recent .886 tag (of the 1687 to 1560 decline), amounted to a 0.35% overshoot.

We remain short from 1692 yesterday, but will be ready to pull the plug should the market decide otherwise.  Today is OPEX Friday, when bullish levitation sometimes materializes out of thin air.

The dollar is taking the new highs in stride.  Recall it was whalloped last week in a well-orchestrated after-hours take-down following the startling revelation (not) that the Fed didn’t intend to raise interest rates anytime soon — all to get SPX past the .786 Fib at 1660.

Since then, however, it has more than held its own — even as SPX has been ramped up another 33 points.  The bullish longer-term channels and harmonic patterns are still in place — though the falling red channel midline could limit any push higher to the .786 (85.47) in the near-term.

UPDATE:  3:10 PM

Pretty quiet day, with the usual ramp into the final hour going on now…

There’s a good chance the small Bat Pattern (red) will complete at the .886 (1692.09) before the EOD.

No change from yesterday’s forecast. We’ll be watching to see whether SPX can break 1687.18 and ES can break 1685.75.  All in all, the market response to Bernanke’s testimony was quite muted — the first non-event in recent memory.

The e-minis are up a few points, but are still lurking in the harmonic waffle zone of .886-1.000.

This morning’s initial claims number was much better than expected — 334K versus consensus of 348K and prior of 358K — leading some to speculate that tapering might come sooner than expected.

This one of those times when the usual seasonal adjustment nonsense (unadjusted was 409K, up 25K) might work against TPTB.  I guess someone didn’t get the memo…

The important Philly Fed survey and the Conference Board LEI are due out at 10AM EDT.  As we discussed yesterday, a big miss on either or both could be especially damaging to the markets in light of the positive initial claims print.

A scenario where the economy continued to show weakness but unemployment remained stable might tie [Bernanke’s] hands in terms of tapering the tapering.

Briefing.com is forecasting a big miss on the Fed survey.   Stay tuned.

UPDATE:  10:03 AM

Philly Fed survey general business conditions printed a big beat: 19.8 versus prior of 12.5 and consensus of 5.3.

I’ll go long on the push through 1687.  Tight stops are warranted, as SPX has only now completed a double top.

 

Given the lack of a meaningful response at the .886 Fib on the 11th and the relatively small reaction at 1684 on Monday, there is still an elevated risk of a larger pullback here — especially since tomorrow is OPEX, which tends to prop up markets that are otherwise ready to fall.

Yesterday, we looked at both bullish and (short-term) bearish scenarios.  Though the push above 1687.18 is indicative of a continued bull market rally, a 5-pt rally isn’t exactly “proof.”

Last week, we examined the 14 large apparent Bat Patterns since the Oct 2007 high of 1576 [see: Time’s Up.]

• 14 previous large Bat Patterns — or at least what looked like one — since Oct 2007
• 4 met the precise definition: most significant reversal at B < .618
• of the 14, avg .886 overshoot was 0.13% (range:  -0.6 to 0.5%)
• of the 4, avg .886 overshoot was .38% (range: 0 to 0.9%)
• of the 14, avg reaction at .886 was -2.1% (range: -0.4 to -5.1%)
• of the 4, avg reaction was -2.5% (range: -0.8 to -3.6%)
• 13 of 14 provided a “2nd chance,” reacting at the double top to below the .886
• 3 of the 4 did the same, average retrace at double top = -4.5%

It’s this last data point that catches my eye, as 4.5% of 1687 is 76 points, or about SPX 1611 — which is almost exactly a .618 retrace of the 1560–1687 rally.

Going back to the data I put together for the Bat study, 12 of the (now) 15 Bat Patterns studied went on to make a double top reasonably soon after hitting their .886 (average = 5.92 sessions, range: 1-11.)

The average price at which the double top completed was 0.32% higher than the previous top (range -0.18% to +1.31%.)  The reactions that occurred after the double top ranged from nil to -19.7%, with an average drop of -4.3%.

Now, again, all this is not to say it will happen this time.  But, an average response after reaching the 1687.18 top would be a 0.32% overshoot (or 1692.57) about 6 sessions after the .886 (it’s been 5 so far) that is followed by a 4.5% decline (1611, the .618 of the 1560 to 1687 rally.) 

Just saying…

SPX is about to complete a small Crab Pattern at 1692.34, so keep your stops where you’re comfortable.

UPDATE:  11:23 AM

We’re getting a small reaction here at 1692.  I’ll take a short position and see if we get merely a backtest of 1687 or something more.  Stops at 1694ish.

UPDATE:  1:24 PM

SPX just tagged 1687.18, so I’ll take profits on the short position and revert to long — with tight stops in case there’s more to come.

There’s no evidence yet of lower prices to come. This has been a very orderly backtest.  But, you never know (OPEX and all.)  Bulls will need a break back above 1689.25 to break the little falling channel from 1693.12.

Bears will want the bounce to fail there and drop through 1687 — which is where I’ll entertain a short again.  Note that the .886 of the drop from 1693.12 to 1687.1 is 1692.44 — which is also the 1.618 that triggered the short position earlier.  It makes a nice target for a bounce, no?  Just need to get through the red .786 channel line at 1691ish.

UPDATE:  2:50 PM

Shorting SPX here at 1691.

It probably seems a little wishy-washy, but we just completed a backtest of the red .786 channel line discussed above — and a backtest of the .75 of the little channel I hadn’t shown before (above in purple.)

It’s not that I’m worried about bagging the whopping 4-pt gain on our last long position; but, consider today’s move in the context of the data presented earlier:

• today’s high = 1693.12, a 0.35% overshoot versus 0.32% average
• today’s high came 5 sessions after the .886 versus average of 5.91
• almost every double top has retraced back to the .886 (1672) or more, especially if — as is the case here — there was very little response there in the first place
• the red channel midline is currently crossing the .886 at 1672
• the 50-period SMA on the 60-min chart is at 1672
• the average drop for big double tops is 4.5% or 1611
• the .618 retrace of 1560-1693 is 1611
• the SMA 100 should reach 1611 around next Tuesday
• the broken falling white channel intersects with the purple channel .236 on Tuesday
• someone please explain to me why we should make new highs after tapering — the single biggest threat to the bull market — has been confirmed multiple times

There’s more, but you get the picture.  I’ll gladly suffer the told-you-so’s next week if SPX is trading at 1772 rather than 1672 or 1811 instead of 1611.  I’ll close my short on any thrust through 1695, no harm done.

UPDATE:  3:45 PM

Chances are nothing will happen until after OPEX this Friday.  But, of course, a drop back through 1687 would be short-term bearish.

While I’m thinking about it, I will be out of commission after the close today and again Monday after about 11am EDT, back in the saddle on Tuesday.  Here’s a peek at the current 60-min chart.

Though I might regret it, I’m riding my shorts into the close — not recommended for those who can’t trade and/or hedge after-hours.  Stops around 1695 probably make sense.

GLTA.

 

 

 

 

 

 

 

 

No surprises in Bernanke’s prepared remarks…  The housing recovery…isn’t.  A very predictable earnings report from BofA…  Naturally, the eminis are up 6.75.

Might as well play the upside, but be prepared to duck out at 1682-1683.

UPDATE:  9:35 AM

Just tagged 1683 – the .886 of yesterday’s mini-decline from 1684.51.  I’ll take a short position here, with stops at 1685.76.

We’ve analyzed the channel from 1538 to 1687 in April-May many times.  There are two basic ways to draw it: (1) connecting the tops – shown below in red; and, (2) connecting the bottoms – in purple.

As we’ve discussed, the latest channel rising from 1560 on Jun 24 features roughly the same slope as the channel from Apr-May.

It matches the purple channel slope best, but does so by virtue of its tops rather than its bottoms.

To me, this implies that the current purple channel is likely an acceleration channel within the primary channel: the red one.  In other words, look for the current purple channel to break down at some point and the red one to take over.

At present, the bottom of the red channel is around the white .618 at 1638.72 (very close to the SMA 50 at 1637.) I suppose Bernanke could say something shocking enough to produce a 44-pt plunge — but, I think he’s a little more savvy than that.

Other potential targets includes the white .786 at 1660, which intersects with the red channel bottom next Wednesday, and Jun 18 high of 1654 (next Tuesday.)  This second target looks to me like the best bet, as it’s also the intersection of the rising white channel .382 line.

While we’re waiting for Bernanke’s testimony, I’ll post some charts explaining how this fits with my potential scenarios for the remainder of the year.

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It’s so odd to wake up and not see the eminis up 5-10 points overnight.  Most markets continue to be rather subdued as we all wait to hear what Bernanke has planned.

SPX hasn’t yet broken its 1687.18 high.  Although I suspect it will eventually, it will have to show us its intentions.  For now, it’s showing us that it’s content to wait for whatever incredibly bullish comments the Bearded One will deliver tomorrow.  Look for a back test of the .886 Fib at 1672.72 or the channel bottom at 1663 if things get really out of hand.

Last week, markets spiked on Bernanke’s incredibly bullish remark that the Fed was unlikely to tighten interest rates anytime soon.  As we discussed, this was not only not news, it was cover for an after-hours ramp job that shoe-horned the SPX past combined .786/.886 Fib resistance.

Instead of an occasional boost based on important events occurring outside the US, ramp jobs have become the tail that wags the market’s dog.  Like QE itself, they have become necessary to the market’s continued “health.”   As the table above shows, without the points delivered in the first hour of trading following after-hour ramp jobs during Mar-Jun, SPX itself would be sitting at around 1430.

The 120-pt rally from 1560 over the past 15 sessions has featured 9 ramp jobs totaling 126 points.  They are rarely inspired by actual news, earnings reports or economic developments. And, they rarely last longer than is necessary to clear whatever technical hurdle lies in the way.

In the chart below, Fibonacci levels are cleared by ramp jobs 2, 3, 4, 7 and 9.  Channel lines are cleared/saved by numbers 1 and 7.  Downward momentum was arrested by numbers 1, 4, 5 and 6.

Once the cash markets open, they play catch-up (allowing the sale of the previous night’s emini accumulation), and then generally drift about — waiting for the next one.  It has become remarkably cheap and easy to push the market higher… and no one is pushing back.

Not so many months ago, ramp jobs were the exception rather than the rule.  A trader could leave a position open overnight and have have a reasonable expectation that whatever pattern had completed would play out the following day (e.g. H&S patterns, harmonics, broken channels, etc.)

Now, these normally reliable patterns (especially the bearish ones) are routinely busted by the overnight action — driving more traders either into futures or away from the market all together.  It’s yet one more way in which individual investors face increasing risks at a time when many of them — enticed by scintillating reports of the market’s new highs — are considering jumping back in.

I had lunch yesterday with a friend who, as a very successful broker, has recently turned away 15 new accounts from retail investors who have bought into the bullish story line and were ready to roll the dice.

Of course, there’s nothing wrong with making money in equity markets.  Some exposure to equities is a good idea for most investors — particularly those with a long enough time horizon and adequate risk tolerance.  It’s entirely possible the market will continue rising over the coming year.

But, when new highs are built on artifice rather than an improving economy and quality earnings growth, investors should know that the risks of a sudden and severe downdraft are also rising.  Wall Street doesn’t want you worrying about this, of course. Neither do banks, brokerage firms, mutual funds, the Fed, ECB, politicians or the MSM — whose bonuses or continued employment will be determined by their ability to keep advancing the story line.

As a technical analyst, this sort of market makes my job easier.  Patterns that look bullish will probably play out.  Those that suggest a drop beyond the occasional back test or channel expansion probably won’t.

As a trader, this sort of market boosts my returns (preliminary June performance appears to be about double our 10% monthly average.)   My strategy is essentially to take positions suggested by the charts and let the market tell me whether I’m right or wrong.  Any time TPTB’s game plan becomes more easily discernible, it becomes easier (unfortunately, not easy) to make the right calls.

Nothing lasts forever, of course.  Whether by tapering, higher interest rates or HFT, the rally will falter.  If Wall Street thinks it’s tough to get mom and pop investors into the market now, wait until it sells off by 20%.  I was trading options in risk arbitrage names back in October 1987 and can well remember how individual investors fled the markets after the meltdown.

Those who were decimated by the crashes in 2000-2003, 2007-2009 or even the summer of 2011 are understandably nervous about a repeat.  Until the market can stand on its own two feet and string together even a few months of positive returns without games or outright manipulation, they should be.

*  *  *  *  *

UPDATE:  1:30 PM

Who knows whether it’ll be permitted to play out, but there’s a completed H&S Pattern visible on the 15 minute chart below.

It targets 1661.76, which is also a .618 retracement of the last leg up from 1647.66 on Jun 10 and a stone’s throw from the .786 Fib of the 1687–1560 decline.

I’ll take a long position on any bounce back up through the neckline.

UPDATE:  1:39 PM

SPX just moved back through the neckline at 1673.30.  I’ll take a long position here, but keep a tight rein on it in the event that it’s just a back test.

Ordinarily, I’d put the odds of the H&S playing out at 60-70%.  But, the market completely yawned when the pattern completed. And, SPX did just bounce on a channel fib line (the red .146.)  There’s a better looking neckline available based on the 1671.84 low that suggests a shoulder of 1676.68 later today.

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Earnings haven’t impressed.  Economic data has been mixed.   The Fed even talks openly about withdrawing the mainstay of the rally since 2009: QE_n.  So, why does the market march ahead as though everything is just great?

We’ve looked at “how.”  A handful of ramp jobs* over the past four months has transformed what would otherwise have been a 15% loss into a 2% gain.

 

There are two fundamental explanations as to “why,” depending on your level of cynicism: (1) the beneficial wealth effect of higher stock prices; or, (2) TPTB wants/needs the money.  Either way, there is no longer much attempt being made to disguise the blatant manipulation.

Fortunately for us, these same conditions have existed throughout the past couple of decades.  Therefore, we have tools that have been fairly effective at pointing out the obvious and not so obvious paths ahead.  We’ll start with the charts for RUT and COMP.

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The dollar caught a bid at the .236 Fib line of the rising red channel last night.  This also represented the .500 Fib retracement (green) of the drop from 84.595 to 80.615 and, more importantly, the .618 (white) of the drop from 88.90 to 72.86 that began in Jun 2010.

The dollar intrigues me in the way it acts as the canary in the coal mine for all the fear and greed associated with so many markets.

DX spiked as SPX was tumbling towards 1266 in Jun 2012, then again as it initially failed to retake the .786 of the 1422-1266 plunge.

When SPX recovered and went on to new highs, DX plunged — especially when the Fed announced another round of QE in Sep 2012.  It made our top call at 1474 nerve-wracking.  Clearly the markets thought QE would trump the biggest Bat Pattern completion ever!

It spiked modestly when SPX tumbled to 1343 — obviously thinking the drop was manageable.

TRADE UPDATE: 10:44 AM

I’ll take an interim long position if we break 1678 (for protective purposes.)  This is probably just a stop-clearing exercise to weed out weak shorts.  Remember, our target date is Monday.  Core short position still in place.

THE DOLLAR, CONTINUED…

It settled back down as SPX recovered from 1343, but got increasingly nervous as SPX approached 1553/1555 — the completion of the Crab Patterns set up by the 1370–1074 plunge in 2011 and the 1474–1343 correction in the fall of 2012.  DX hit its peak about the same time SPX was testing the previous all-time high at 1576.

I was quite bearish at this point, and can well remember the fear present in the marketplace (for those of us who shorted then, it was more on the greed spectrum.)

DX bottomed in early May as the euro and the yen both slid at the same time and SPX tagged the trend line connecting the 2000 and 2007 highs, reaching an interim high as SPX topped out at 1687.  And, this is where it got weird.

I had shorted at 1687. From an equity fear/greed standpoint, I was looking for a rise in the dollar as the market sold off.  The dollar had just topped July’s 84.25 high.  Having just completed a Bat Pattern in April (purple grid), it was well on its way to completing a Crab Pattern up at 87.66.  Why, as stocks were melting down, was the dollar following along?

The answer came courtesy of the yen, which caught a bid when the USDJPY tagged both the .786 of the 110–75 decline that began in Aug 08 and the midline of a price channel going back forever (yellow, dashed line below.)

As a result, USDJPY broke down from a wicked-steep acceleration channel it had been in since August 2012, spurring an avalanche of short-covering by yen bears.  As USDJPY found channel and Fib support in mid-June, SPX’s rebound from the initial 1687–1598 plunge ran out of steam.  The combination of the two sent the dollar soaring again.

But, when SPX found another bottom at 1560, the dollar kept rising.  From 1560 all the way to 1654, the two rose in lock-step.  I considered this quite normal, as SPX was closing in on the .786 retracement of the 1687–1560 decline at 1560.

Then along came Wednesday and Bernanke’s little chat.  Within a few seconds of the dollar index closing on the ICE, someone started buying up eminis like crazy.  Later, the talking heads would explain that Bernanke had allayed fears of tightening — i.e. raising interest rates.

This was insane, as no one in their right mind ever equated tapering or even ending QE with a Fed directed increase in interest rates.  And, there was no change in the previously discussed plans for QE other than the wording that was, if anything, stronger regarding its end (by the year’s end.)

The emini buying was enough to break through resistance and initiate a marvelous ramp job that boosted SPX to the .886 the following day.

By the time the poor dollar re-opened several hours later, the damage had been done.  It gapped down and has been holding on for dear life.  It found support where it should have, and is waiting to see whether stocks are really going to ignore the obvious Bat Pattern reversal opportunity.

As our study pointed out yesterday, this has not occurred in the past six years of trading.  No other well-formed Bat Pattern of this size has utterly failed to register even a blip at or near the .886.  And, even those that made a very modest retracement reversed from a double top back to the .886.

So, I think it’s worth taking the chance that this is a slight overshoot of a Bat Pattern .886 that will reverse on Monday.  If I’m wrong, and it hits 1687 first, odds are we’ll be even or ahead of the game after a pullback from the double top.

I’ll be updating the forecast Saturday afternoon.

GLTA.

 

It’s here a little early, but this morning should see the end of the rally from 1560 on Jun 24.  Look for the market to top out at the .886 Fib retracement of the 1687 to 1560 decline to complete a Bat Pattern.  This is the higher of the two targets we’ve had in our sights since May 21 [see: If It’s Tuesday] — which was the last time we saw a sharp rally 17-point ramp job on Fed comments that were decidedly not bullish.

The original forecast, shown below, called for a much quicker return to this level from a low of 1600, followed by a decline to 1560.  Instead, we are reaching the interim high after the 1560 decline.  Time will tell how this translates in terms of waves.  But, we should get a sharp pullback regardless.

For anyone short from yesterday, expecting a pullback before this final thrust like I was, the options are to hold and wait it out or play the upside and re-short.  I’ll do the latter.

UPDATE:  9:44 AM

SPX has come to a screeching halt at 1670-1671.  We could still see another point or two, but no doubt there are others who are wondering the same thing and won’t wait to short.

I’m pulling the plug, will revert to a full short position here at 1670.57 w/ tight stops.

Note the dashed line SPX tagged just now at Point D.  This is one of the three trend lines from 1994/2002 we’ve been tracking (445.45 on 12/8/94 and 776.76 on 10/9/02.)  Its yellow cousin is just above at 1685, and the red version is down at 1619.

Note the consolidation that has occurred around each — validating their importance.  A sustained move above the yellow one or below the red one will tell us much about future prices.

Also, an update to yesterday’s ramp job tally: this morning marks the 11th ramp job for 10 or more points since the 1687 high on May 22.  The S&P 500 might be down 16 points since then, but without those ramp jobs it would have been far, far worse.

My back of the envelope calculations:

UPDATE: 2:36 PM

The eminis just completed its own Bat Pattern, so SPX should be free to reverse now.

Obviously, Bat Patterns don’t always produce meaningful reversals.  That’s why we use stops.

But, the nice thing about them is that they occur at the .886 Fib.  So, if they bust, a double top — another shot at a reversal — is only 11.4% (of the decline) away.  In this case, if 1672.72 doesn’t produce a reversal, the previous top of 1687.18 is only 15 points away.

I’ve spent the last several hours looking at the 12 significant Bat Pattern over the past six years. I limited the study to those of 95 points or more which involved a reversal off a decline rather than a rally.  Both are legit; I just wanted to see what recent history said about situations like the current one.

To review, a Bat Pattern involves a drop from one significant point to another.  They should be at least meaningful interim highs/lows, though this is obviously subject to interpretation. They are shaped like a big “W,” with the height of the right side only 88.6% of the height of the left (from the very bottom.)

The trick with Bat Patterns is the Point B.  It must come in at less than 61.8% of the initial drop from X to A.  If it’s greater than or equal to .618, you’re probably looking at a Crab Pattern which finishes at the 1.618 extension (or more.)

One common problem is deciding which reversal to label as Point B.  Here, there are no absolutes; but, my practice is to choose the greatest reversal to date.  In the current case, that came at 1626 on Jul 1 at roughly the .500 Fib.  It was only 22 points, but there are no other candidates as large since the 1560 bottom.

BTW, we could have chosen the Jun 18 high of 1654 as the origin.  The 1626 reversal would be at its .707 Fib, which means it could not be a Bat Pattern.  The pattern from 1687 to 1560 qualifies perfectly.

I’ll publish the actual data after the close. But, the bottom line is that of the 4 patterns that actually qualified (B<.618), every one of them posted a reversal within a few points of the .886.  The extent of the reversals:  44 points (2/11/11), 61 points (5/2/11), 106 points (8/31/11), and 130 points (10/11/07.)

The last one is the biggest pattern on the chart that represents the 88.6% retracement of the drop from 1576 to 666 that began on 10/11/07 and finished on 9/14/12.

The Bat Patterns that “busted” weren’t really Bat Patterns.  They featured either a Point B that exceeded (even slightly) the .618 Fib or a much bigger reversal at, say, the .786 Fib (indicating a probable Butterfly Pattern.)

But, of those that did “bust,” a reversal at the double top occurred in almost every case — typically down to the .886 or more.  The result of this, of course, was another chance to break even.  So, even someone completely asleep at the switch, who shorted at the .886 but did nothing as it climbed up to the 1.000 typically saw a reversal back to their entry point.

As I wrote back in December 2012, as SPX was leaking up past its .886 retracement of 1474-1343, the gap between the .886 and a double top is the most challenging area for harmonics traders.

SPX tagged 1676.60 a moment ago.  Is it a slight overshoot (not uncommon) of the .886?  Or, is it a double top, instead?  If it tops 1687, will it stop at a double top, or is there more upside to come?

Given the acceptable form of the price movement up from 1560 and the channels at play, I’ll stick by the Bat Pattern call.  If it closes at 1677 and they ramp it up again tomorrow, my downside is probably another 10 points, which I should be able to recoup in the likely event it reverses at 1687.

I’ll take a quick break after the close, and be back within the hour to post the study data as well as a revised forecast for the next few months.

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