The market saw quite a reversal yesterday afternoon.  After heading toward the usual last minute buy-the-dip stick save and an apparent Gartley Pattern, ES plunged below the Oct 3 low, likely confirming the red Crab Pattern.

It remains to be seen whether ES will flesh out the expanded channel I proposed yesterday, but the odds are increased with yesterday’s solid reversal.

SPX closed on the purple channel bottom.  And, while a drop to the .786 at 1675.04 or .886 at 1672.89 is clearly in today’s game plan, that’s not all the downside the market has in store.

First, a drop below SPX 1670 kills off the IH&S Pattern that looked so promising.  We’ll watch to see if the bulls defend that level.

And, of course, SPX already put in a reversal at the red .786.  So, while a stop at the .886 isn’t out of the question (the Plunge Protection Team has definitely not been furloughed) the greater likelihood is an extension to the 1.272 at 1664.59 for a Butterfly Pattern.

Remember, 1666.58 is the .618 retracement of the rise from 1627 to 1729. So, as we discussed yesterday, a completion of the red Butterfly establishes a likely Point B in either a Gartley, Bat or Crab Pattern on that larger (white) grid.

In other words, a reversal at 1666.58 opens the door to the white channel tag I’m expecting.  Does it mean the market will reverse at 1666?  Of course not. Breaking below 1670 would embolden the bears, and we could see some real momentum build.  A plunge to 1649 (the .786, a close 2nd in probability) or 1639 (the .886) wouldn’t surprise anyone.

There’s also the ever-present possibility that the market will suddenly spike higher on real or rumoured improvements in budget negotiations (always use stops.)

But, a reversal at 1666 is the most likely path if we’re ultimately going to see lower prices.  Why the italicized “if”?  From a harmonic standpoint, it’s anything but certain.

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SPX almost broke out Friday…a pretty convincing move.

But, the futures  — currently down 15.25 — have done a number on anyone taking the bait.  Look for at least a .786 retrace of the move up from the purple channel: SPX 1675.

ES followed our script pretty precisely on Friday:

The key is what ES does if/when it reaches the top of the falling white channel (currently around 1679.50.)  If it breaks out, it should have legs — at least to 1687-1700.  If it reverses or stalls there, then the downside case is still a good possibility.

After reaching 1681 early Friday, ES backpedaled 8 points before topping out at 1686.  It’s safe to say that ES is now reversing and has the .886 at 1665.84 in its sights.

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For those of you waiting for fund documentation, it should go out this evening or tomorrow.  I underestimated the amount of time necessary to get all the accounts open (bank, administration, brokerage, etc.)  Thanks for your patience!

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ES tagged yesterday’s target pretty precisely, bottoming out at 1663.25 and bouncing as high as 1677.50 before soccer moms began attacking the Capitol.

A dip below 1666.75 might normally be expected to open up a small Crab Pattern to 1650.99.  But, the larger pattern .618 is at 1663.71 (below in yellow), only a slight breech of the purple channel bottom.  It could prove to be strong support — depending on what sound bytes are being delivered by CNBC at the moment.

The positive sound byte at the time was Boehner saying something conciliatory.  Even after the “new face of terrorism” was revealed, ES managed to close above the purple channel bottom and remains there this morning.

The dollar is also rebounding a bit, backtesting the channel midline — and probably at least the purple .786/red 1.272 at 80.217.

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After an overnight dip, S&P 500 futures are back to slightly positive at an expanded channel top.

USDJPY continues toward our Fib targets…

And, DX is consolidating just below 80 on its way to our initial target.

UPDATE:10:25 AM

Awfully close to a bounce at ES 1670/SPX 1677.45.  But, the following move might fool a lot of traders.

Note the .886 tag coming up on the red grid — also the midline of the falling channel and the bottom of the purple channel.A dip below 1666.75 might normally be expected to open up a small Crab Pattern to 1650.99.  But, the larger pattern .618 is at 1663.71 (below in yellow) — only a slight breech of the purple channel bottom.  It could prove to be strong support — depending on what sound bytes are being delivered by CNBC at the moment.

The equivalent .618 for SPX is 1666.58.

UPDATE:  11:30 AM

There’s the ES 1669.66 tag.  Should be a nice bounce here.  But, watch out for the drop through 1666.75 to 1663.71 we talked about above.

UPDATE:  11:50 AM

Just dropped through ES 1666.75.  Next stop is the .618 at 1663.71 — though there’s no real good channel support there.  There are lots of other potential turning points, including my favorite from the 30th at 1657 and my new favorite of the yellow .786 at 1646.58.

Needless to say, if the purple channel line doesn’t hold, all those other targets open up — starting with 1590-1600.

UPDATE:  11:59 AM

There’s the .618 tag at 1663.75.  I’d look for a recovery here to at least the purple channel line — probably around 1670.  A failure to close back up there means the purple channel is kaput.

UPDATE:  3:58 PM

Looks like a close right on the neckline of the latest (yellow) H&S.  For overnight traders, the purple line is the one that matters.  SPX is well above its purple channel line, so there’s room for a little downside overnight — say, 1671.

I’ll be spending the rest of the afternoon filling out forms for the Fund — an unbelievable number of forms, actually — as we try to get all the accounts open asap.

For those who have been waiting patiently, my best guess is that we’ll have documents as early as this afternoon or tomorrow, and wiring instructions as early as tomorrow or Monday.  With any luck, we’ll be up and trading by next Wednesday.

 

 

The market is taking the shutdown a little more seriously this morning, with the E-minis currently off 11.5 points and the current falling channel seemingly intact.

The market’s rise since Monday would make for a nice B-C leg of a Bat or Crab Pattern, but it’s too early to say.  I still like the red 1.272/purple .786 combo at 1590-1597, with a secondary target of the red 1.618/purple .886 at 1561-1573.

Either would spell the end of the rising purple channel, but a tag on the white channel bottom is much more important and, in the long run, would do more for the bulls.

DX is drawing very close to our 79.6 interim target — currently trading below the important support of 80 at 79.92.

And, the USDJPY is selling off as expected — drawing nearer to the yellow midline at 96.34 and/or the neckline of the largest H&S Pattern (dashed, red) at at 95.80ish.

UPDATE:  10:30 AM

Lots of little — and, not so little — H&S Patterns setting up.  The latest targets 1657ish.

UPDATE:  12:20 PM

ES got a bounce up through the neckline and is backtesting the broken purple channel — probably to the purple .618 at 1685, with a secondary target of the .786 at 1688.

That’s how much the S&P 500 futures initially sold off after Congress missed the official deadline last night.  Kinda sums up how much confidence we have anymore in their ability to accomplish anything.

There should be some follow-through — same downside targets as yesterday. Though, look for the falling channel top to also be tested in the cash markets when they open.

The dollar has almost reached our 79.60 target from Sep 20 [see: Quick Update] — briefly dipping below 80 this morning.

This is a somewhat optimistic target, as the potential for a much larger drop is very real.  When the rising red channel from April 2011 broke down on the 18th, it opened up many lower harmonic targets.

The most appealing one on the chart is 75.18-75.45.  This represents a .786 retrace (white grid above) of the red channel’s rise from 72.86 to 84.97, and dovetails nicely with the 1.618 extension of the smaller Crab Pattern in purple.

It’s too early to estimate the timing, as neither the falling white nor the falling purple channels are very well developed yet.  For now, I’m assuming around the end of the year — though it could easily push into April 2014.

Keep in mind that 80 is an extremely important level of support for the dollar index.  The Apr 1995 low of 80.14 marked the beginning of a 6-year rally that peaked at 121 in Jul 2001 as stocks were almost midway through their 2000-2002 crash.

UPDATE:  10:23 AM

SPX just reached the top of the falling white channel at 1691 (ES 1685) — great place to be short (with tight stops, of course: SPX 1696ish.)

UPDATE:  3:55 PM

With SPX about to close 10 points higher, I’d have to congratulate the PPT.  But, even the last-minute ramp job couldn’t produce a breakout.  I’d have no problem holding short in the E-minis overnight, as SPX only briefly peeked above 1696 and slipped right back down.

The E-minis themselves backtested yesterday’s H&S neckline at the top of a channel, but couldn’t hold the level and appears to be done (for now.)  The pattern looks like a breakout, smells like a breakout, even quacks suspiciously like a breakout.  I just don’t think it is.

I think it’s more of a fakeout, but would suggest stops in the 1696 range just in case.  Wouldn’t be the first time I out-thunk myself.

The USDJPY should have at least another 1.30 to go, and I wouldn’t be surprised to find that today’s rally was more about relief at not having crashed and burned than optimism about political prospects.

Don’t get me wrong.  If/when the Grupps get their act together, the rally should proceed with all due haste.  I just don’t see it happening just yet, and the charts offer just enough of a hint that I’ll give the bearish position a little more rope.

Keep an eye on DX, which really should tag 79.52 before stocks turn around.

GLTA.

 

 

 

With the future of the human race at stake (ok, maybe just a few percent off the S&P 500) Congress will probably give us their usual “they gave us no choice” solution (not) sometime after the deadline.  That doesn’t mean they will resolve anything (why start now?) and it certainly doesn’t mean the market will take it all in stride.

There are a number of bearish patterns setting up in the markets that should, at the very least, put a scare into folks.  The USDJPY has completed yet another H&S Pattern (yellow) within the right shoulder of the very large red H&S Pattern.

Interestingly, the gap down has stopped short of dropping through the IH&S neckline.  So, the jury’s still out on the potential for a vicious drop.  I suspect the pair will find its way down to the big red neckline or the yellow channel midline before long — perhaps getting a bounce off the falling white midline.  In any case, there’s a great deal of support in the 94.66 – 96.34 range.

The E-minis are selling off nicely this morning, with the original white .886 in danger of failing.  At the very least, I expect the purple channel bottom to be tested (1664ish.)

Note, the bottom of the purple channel caught the falling knives of Nov 2012, Dec 2012, Jun 2013 and Aug 2013.  So, it has a pretty good pedigree.  But, of course, a tag of the white channel — our downside case at 1590 for quite some time — remains on the table.

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After 18 cities in 10 days, it’ll be great to see my family and sleep in my own bed again. Still, I’ve really enjoyed touring the country and meeting so many interesting, intelligent and gracious people.

Thank you all for taking the time to sit down with me, share your thoughts, inspire me (and, feed me.)  I only wish I had done this months ago when I didn’t have documents to proof, auditors to hire and computers to network.

I’m gratified that so many of you will be joining me on the next leg of the journey.  The fund will have a live, password-protected website and documents ready to send out in a matter of days.  My best guess is somewhere between Oct 1-3.  Thanks for your patience.

And, I should be back in the groove re the markets by Monday.  These next few weeks should be very “interesting.”

In NY for the day, then on to Chicago tomorrow.  If you haven’t yet RSVP’d, tempus fugit.  The most up-to-date schedule can be found HERE.  Click HERE to contact me.

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While the rising red channel gave up the ghost after tagging the 1.272 we discussed last week, the potential remains for the channel to be simply widening. If so, this slide should be pretty much done and it’s time to jump in with both feet here at 1687.50.

Note, there was no .786 Point B back in July, so a Butterfly is a less likely ultimate outcome than a Crab Pattern, which terminates at the 1.618 (1767.63.)

We’ve already had the backtest of the 1586 high from 2007 (the yellow grid), though a second is always a possibility.  But, the more likely target is a steady grind up to the 1.272 at 1837 around Oct 11.

What’s the turd in the kiddie pool?  The three rising red channels — the latest of which broke down last week — are part of a larger system.

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The last time we did any heavy lifting on bonds was back on March 7, when it seemed to us that prices had topped out and yields had bottomed.  ZN had broken down from a rising wedge and was meandering towards the bottom of a long-term rising channel.

We saw more downside ahead, but wondered what was taking the “significant retreat” first called on January 21 so long.  Mar 7 marked the bottom of a 1st of a 3rd wave down, retracing nearly .886 of that wave by May 1 before things got rolling.

Since then, the retreat has been quite significant, dropping from 133’250 to 123’205 over the next four months and plunging right through the bottom of the rising channel.  From all appearances, we’re backtesting the channel —  probably at its intersection with top of one of the two potential falling channels.

Yields on the 10-yr got dangerously close to 3% before QE saved the day at a combination  .618/1.618 target range.

It’s hard to tell whether this move is done, as there are still higher potential Fib targets and a very viable alternative (in white, below) to the falling purple channel whose top TNX just tagged.

Even if TNX does continue to hold the rising white channel, it offers plenty of range.  A bounce at 2.14% around December 4 would represent a .618 retrace of the latest rise.  While, a push higher to, say, 3.2% in late October would flesh out the big falling white channel.

With QE tapering (if/when?) and another debt ceiling battle looming, neither is out of the question.  My crystal ball on those issues is more than a little cloudy at the moment.  So, we’ll continue to watch these key Fib levels and channels and let the market tell us which way it’s going.  In the end, price is the only indicator that matters.