The eminis completed a nice Head & Shoulders Pattern, but bounced off the neckline… right into a backtest of the broken purple channel midline.

The 60-min RSI chart shows the dilemma: support on the rising purple channel, resistance at the falling yellow midline.

I would normally give a 6-month channel midline the benefit of the doubt, but there have been many incursions over the past week.  And, the bulls know how important it is to hold the line on the H&S Pattern.

The US dollar isn’t a whole lot of help.  It found the support we anticipated at the .25 purple channel line, but hasn’t yet broken out of the falling white channel.

And, the EURUSD’s advance was turned back by the falling white channel as expected, but might have found support at a rising white channel line.

Today’s a big POMO day and the end of the month, so I suspect the bullish forces will be working overtime to keep the slide that the futures are indicating in check.

We’ll wait and see how the opening goes before giving up our long position.  Interim short only on the opening bell.  The SPX H&S hasn’t yet completed, and needs a close below 1643 — the line in the sand for this investor.

UPDATE:  9:35 AM

Got a bounce just slightly past the .236 on the purple grid, so I’ll take profits on the short position and revert to full long here at 1648.  Stops at 1648ish on the long position.

Remember, our long target from yesterday is 1666.69.

UPDATE:  10:05 AM

This morning’s stick save might seem somewhat arbitrary but, as is often the case, there’s a larger force at work behind the scenes.  And, I’m not just talking about the Fed.

It’s a channel, shown in red below, that picks up where the narrower red channel left off last week.  It fits with both the 1687.18 top (the .75 line) and the more recent 1674.21 top (the midline.)  And, now, its lower bound has caught a falling knife twice.

I suspect it will break down Monday.   But, for now, it gives SPX a shot at completing a Gartley Pattern up to our target at the purple .786 Fib line.  It’ll get another test shortly.

UPDATE:  12:20 PM

The red channel bottom survived its second test (a .886 pullback) and rallied to exactly the right place — the white .786 at 1658.78.

This sets up (but doesn’t guarantee!) a potential Butterfly Pattern.  Butterflies reverse at the .786 and extend to the 1.272 or 1.618.  In this case, the 1.272 is 1665.68 — only 1 point away from our 1666.69 target and the purple .786.

We should get a reversal here at 1650.97 (the white .236, to match this morning’s purple .236 reversal.)

UPDATE:  1:41 PM

Just a little warning, here.  SPX just completed a little H&S pattern on the 1-min chart that targets 1643.14.  Stops just below 1651 make sense here, though the .786 is at 1650.57.  So, maybe 1650 instead.

My likely reaction would be to go short for a trip to the neckline — which happens to currently be at 1643.50.

UPDATE:  1:56 PM

Finger on the trigger, watching to see if we get a breakdown through the .786 (1650.66 or 1650.06, take your pick.)  This is an obvious potential trap — the .786 Fib vs the H&S Pattern — so we’ll wait and see what happens…

UPDATE:  2:11 PM

Pulling the trigger.  Going full short here at 1650, targeting 1643 — but tight stops, in case all it’s doing is tagging the .886’s at 1648ish.  The move really wouldn’t confirm until a break of this morning’s low at 1647.62.

I show the larger H&S neckline at 1543.74, a little lower than my forecast would indicate the cross will occur.  In other words, this is probably either a deep retracement designed to stop out the bulls or an intra-day neckline tag designed to stop out the bulls.

UPDATE:  2:43 PM

Got the purple midline tag, but not quite the neckline yet.  Remember, it need not stop on a dime.  Some watching the neckline will expect it to keep going (it could!), and a little overshoot isn’t uncommon.

continued for members…UPDATE:  3:01 PM

Pulling the plug and going full long here at 1642.28.  Note that SPX just tagged the .886 (red grid) of the 1640.05 – 1661.91 rally between Wednesday and ThursdayUPDATE:  3:30 PM

I’ll switch back to full short at any drop through 1640.05.  Why?  Note that until then, this is a very deep retrace of the rise from 1640 to 1661.

We not only completed the red H&S and a larger one with 1661.91 as the right shoulder, but another which features the red channel bottom as the neckline.  It’s shown in purple below and targets 1635.

While SPX would need to close above 1645 in order not to trigger the yellow HS, it would have to close above 1652 or so to call the purple pattern off.

UPDATE:  3:47 PM

Full short here again at 1640.  Updated chart & targets in a moment.  1635.53 is one of the last horizontal support lines.  If that falls, the next stop isn’t until 1626 or so.

I’m going to cash at the close.

UPDATE: EOD

I have a lot more to study over the weekend.  But, this was exactly the day I expected….on Monday.   Things have definitely shaken loose.

Had 1631.67 come an hour from the close rather than at the close, I would definitely have continued to hold short.  But, there are a few signs that we’ll get at least a bump or backtest prior to the next leg down.  We’ve had a very good week, and I didn’t want to blow it all on a hurried call at the EOD.

SPX obviously never completed the Gartley I wrote about this morning, so the last two retracements were rather meager: a little under 78.6% and only 61.8%.   Completing the H&S Patterns obviously slammed the door on any immediate upside, though I can’t rule out a bounce — even a premature one — on Monday.

More later.