Going short here on the opening, as SPX failed to clear yesterday’s target and previous 2007 high of 1576 yesterday.

Note, we closed our long position just before the close yesterday at 1574 [CIW: Apr 16 – 3:45 in the members’ section.]

DX is signaling a rebound with the tag we expected of an important channel line.

While the EURUSD is showing weakness related to rumored downgrades of France and/or Germany.

There is channel support at 1.3087, however, so we’ll see how much momentum the pair can gather.

For SPX, the test will come at 1555.57.  We’ll look for a bounce there at the bottom of the rising purple channel and the 1.618 of the 1474 – 1343 plunge last Fall.  This Crab Pattern completion produced barely any correction at all back in March — quite a bullish sign.

Was the push beyond 1555 to 1597 merely a throwover that will produce a delayed reaction, or — as bulls are betting — will we successfully backtest it and move higher?

UPDATE:  10:00 AM

As we discussed yesterday, the rather complicated big picture has become fairly simple.  SPX has levitated higher since 1343 on Nov 16 within a (now) fairly well-defined channel (below in purple.)

As long as it remains in that channel, the overall trend will remain positive.  But, if the channel breaks down, we enter a new phase which will be different from the past five months.  Working against higher prices, however, are two important trend lines that stopped SPX’s advances at 1597:

• the TL drawn from the two previous 2000 and 2007 highs (red dashed line below)
• the TL drawn from the 1994 and 2003 lows (yellow, dashed)

It’s a battle between a rock and a hard place.

We went long at 1345 [Charts I’m Watching: Nov 16] with the expectation of retracing 61.8 — 88.6% (1424 – 1459) of the decline from 1474 before continuing lower.

Then came the fiscal cliff solution over the New Year holiday.  The overnight ramp job that followed was a thing of beauty, coming as it did while no one was looking — or was too hung over to care.  That was the first of many overnight ramp jobs in the futures market that have propelled this market higher.

UPDATE:  10:22 AM

SPX just reached our 1555.57  target and is almost to the 1553.39 Fib (the 1.618 of the 1370-1074 crash in 2011.)  I’m going to switch sides here at 1555 and go long, with stops at 1552ish.

UPDATE:  10:43 AM

Just got stopped out on our long position.  So, it’s back to the short side. Tight stops are advised, however, as Monday’s “tag” of the .786 was a near miss (1552.58 vs 1551.88), whereas this plunge actually reached it.

Targets in a few.

continued for members…

As we discussed Monday, the dip to 1552 on Monday could be characterized as a normal retracement of a wave higher or a Point B of a Butterfly Pattern.  Since we have now moved lower than 1552.58, the odds of this pattern playing out have just improved dramatically.

Butterfly Patterns typically complete at the 1.272 or the 1.618 extension.  In this case, that targets 1523 or 1503.

One quick aside: with the breaking down of the purple channel, we might see a backtest.  The most logical place for this would be the .886 at 1546.09.  Don’t know yet whether it’s worth an interim trade or not, but I’ll probably give it a shot as it could be worth 5-10 points.

UPDATE:  11:08 AM

Just got the 1546.09 tag discussed a few minutes ago.  I’ll try an interim long position but leave my shorts in place for now.  Potential bounce target range: 1552-1555.  Stops at 1545.

Some might wonder if this could be a Bat Pattern that completes at the .886 rather than a Butterfly heading much lower.  While we absolutely could get a stop here at the .886, it wouldn’t be a Bat Pattern — which requires a Point B at lower than the .618 Fib.

There was a potential Point B back up at 1580, but that reversal was dwarfed by the one at 1552.  But, this market has been heavily manipulated much of the past 5 months.  A minor infraction like busting a harmonic pattern would hardly come as a surprise.

As always, the way to protect oneself is with stops.   Right now, with dual positions on, we’re actually hedged.  If we were to push much higher than 1555, I’d have to reconsider the short.

I have to be away from the computer for 15 minutes.  I’ll post more shortly.

UPDATE:  12:22 PM

I’m back. SPX got up to 1551.93 – very close to our target range for the interim long taken above.  Those should be closed out by now, as a moment ago, we pushed back down below 1546.09 — meaning the slide should continue lower.

UPDATE:  1:40 PM

Getting a strong push up through 1552 here, so I’ll add an interim long position and keep the core short for now.  Target range 1556-1561.60.  Tight stops at 1550ish.

I’ve been studying the dollar chart for the past couple of hours.  I’ve written before about the way that DX approaching the falling white channel midline correlates with equities corrections.

In May 2008, when SPX rolled over for the last time before plunging another 775 points, DX bottomed out at 71 — establishing the bottom of the falling white channel and the beginning of the rising channel.

Since then, it has bounced back and forth within the rising channel, but never broken up through the larger falling channel’s midline.  Every time it came close, however, corresponded to a big equities dump.

UPDATE:  2:50 PM

BTW, just got stopped out of the interim long position.  The bounce only reached 1554 versus my 1556 target.  Will go with just the full short position for now, but will consider another interim long on any push up through 1552.

 The next support isn’t until 1540 or so, where we find the Apr 5 and Mar 19 lows and a potential H&S neckline.  It’s also the .500 Fib of the 1485 – 1597 rally.

UPDATE:  3:05 PM

Back to 1552 again.  Same drill…interim long with 1550ish stops. The alternative for non-active traders is just a stop on the short position at your comfort level.

As we enter the final half hour of trading, we should be on the lookout for the typical ramp.  If we should close back in the channel (1556ish) we could face a bit of a dilemma.  Recall that we adjusted the bottom of the channel on Monday to accommodate the closing low on the daily chart.  Afterwards, there were no tails on daily or hourly bars.

Today’s low would create the first one, which is technically a departure and is bearish.  Yet, this very manipulated market has broken more than a few “rules” in the past few months, and could ignore this one as well.

I’ll probably stay short into the close, but would urge anyone with weak knees to consider hedging or going to cash.  Initial claims come out at 8:30 EST tomorrow, and we could be looking at another gap opening.

UPDATE:  3:55 PM

Does this “last five minutes” fire drill ramp job annoy anyone else as it does me?  I’ll close the interim long here at the best price I can get at the close and leave the core short in place.  Shooting for 1556.50ish.

UPDATE:  3:58 PM

Almost at 1555, close enough for me.  Closing the interim long, full short.  Hoping I haven’t been suckered into something ugly…

If we close below 1556, it’s definitely beneath the channel bottom.  Again, the house has ignored the rules plenty of times lately.  But, I like the action on the DX and the VIX today, so I imagine there will be follow through mañana.

continuing…