UPDATE:  11:45 PM

Very strange day in the markets…   Earlier this morning I posted:

Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.

What did we get?  Another false breakdown that bled off positive sentiment and overbought conditions, setting the stage for the melt up to continue.  Really gotta learn to keep my big mouth shut!

It doesn’t bother me to have made a small gain on the day.  It’s just that the reversal was, IMHO, another completely bogus move — made possible by a few rather lame news items on pathetic volume.

Pending home sales are up?  Really?  Check out the actual numbers published by the Realtors (as if they could possibly be taken seriously…)

Jan 2012 was up 2% from December, 8% from Jan 2011.  As I always say, though, ignore the seasonally adjusted numbers.  “Seasonally adjusted” is simply another term for “manipulated.”  These people, even more so than most of the outfits who publish economic data, have an agenda.  They want us to believe the real estate market is better.  If we do, we’ll buy more homes, and they’ll get to keep their phoney baloney jobs, gentlemen.  Hrumphhh.

The real numbers are labeled “not seasonally adjusted.”  If we are to believe their raw data, January 2012 pending sales were indeed higher than December 2011, at 78.2 versus 63.8.  But, the index was still lower than any other month in the past year — going all the way back to Jan 2011.

Wait, you say, index?  What index?  Oh, yeah… these numbers aren’t actual reported contracts on homes, but an index derived from a survey of 100 MLS’s and 60 large brokers — all of whom also have an agenda.  An index of 100 relates to the average level of contract activity from 2001; so an index of 78.2…still pretty much sucks.

Then, there are the issues of quality of sales (foreclosures/REO versus traditional sales) and the lovely little ramp up in foreclosure activity just getting underway. 

BTW, there’s a great piece over at Naked Capitalism on the scam foreclosure “fix” being offered by the OCC.  Check it out.

UPDATE:  1:00 PM

SPX up 4 on the day, 15 pts off this morning’s lows at 1370.48 for the day’s high.  For anyone watching, this puts us only .10 way from where we started in May.

Now, like then, we have negative divergence on the daily and hourly charts — the purple TL on the RSI — and MACD that looks like it really wants to roll over. 

The rising wedge, normally so reliable, managed to widen a little with this morning’s head fake.  As I’ve discussed several times lately, these normally reliable patterns have been redrawn many times over the past two months, with dips that fail to follow through to the downside.

The net effect, however, is a gradually decreasing slope to the melt up — meaning that over time we will get to the top of a hill.  The rate of change graph illustrates this phenomenon pretty clearly.

We got a double top on AAPL to go with the one on SPX — tagging the RSI TL on the 60-min chart as we discussed earlier.  I’m putting on a little position (5 Mar 510 puts @ 5.95) in our portfolio with the intention of bailing on any follow-through to the strength, or adding to a pullback.  I’ll put in a tight stop just above the previous high.

UPDATE:  11:45 AM

German Parliament approved the latest Greek bailout package.  Markets reacted by soaring .00001% higher.

UPDATE:  10:45 AM

Closed out the rest of the AAPL puts on the break of the 60-min RSI TL — evidence it was more than a back test.  Took a small loss on these, leaving me up about 1.1% on the day.

Before

After

I would be tempted to take the long side, but that purple RSI TL coming down off the recent highs is bothersome.  From the looks of it, it’ll be tagged within the next couple of hours and could serve as another reversal point — probably marking at least a double top.  The daily pattern shows no signs of a reversal, despite the fact that we’re well overbought and  operating in nose bleed territory.

With SPX back in positive territory, I’ll look for new entry points with lots of dry powder. I don’t usually

UPDATE:  10:05 AM

The decline, which seemed to be pretty solid just after the opening, is fizzling.  We saw a good bounce off the 60-min RSI, and haven’t seen the rising wedge break just yet.  Worst case scenario for the bears is yet another false breakdown that bleeds off positive sentiment and overbought conditions, allowing a further melt up.

I closed most of my shorts, scalping an overall 2% daily gain on the portfolio — leaving half my AAPL position just in case the bounce is just a back test.  BTW, AAPL is just a way for me to take the contrary position on the market’s overbought condition.   I’ll jump back in if it appears we see a more significant break with a completed back test.

ORIGINAL POST:

On Friday, I constructed a $100,000 portfolio to track the actual trades I had been making.  It doesn’t reflect my cost basis in my existing position, but it’ll allow us to follow specific positions on an ongoing basis.  I’ll generally limit individual names to 5% or less of total equity.

This portfolio will be growth oriented, but significantly less aggressive and active than my usual trading style. I will utilize ETFs heavily, and options less so — so I have some adjustments to make.  I’ll rarely put on anything that looks like a fixed income instrument, unless there’s a price move I’m trying to capture.  I’ll try to update it daily with targets, stops and the like as appropriate and will post trades as they occur.

I continue to hold a short bias, with small put positions on AAPL, MSFT and SBUX, calls on VXX, a short position in GLD and a small spread on SPY.  Current positions include:

• 10 AAPL Mar 510 puts @ 7.5
• -25 GLD ETF @ 172.13
• 25 MSFT Mar 32 puts @ .88
• 25 SBUX Mar 47 puts @.49
• 5 VXX Apr 20 calls @ 5.20
• 20 SPY Mar 136 calls @ 2.16
•  -20 SPY Mar (Wkly) 136 calls @ 1.42

It’s a fairly non-committal portfolio at the moment – almost 90% cash.  While I am still bearish on the market, I’m waiting for more confirmation before diving in more aggressively — particularly on SPX.  A broken rising wedge would be a good start…

I’ll try to post charts on each of these positions throughout the day as time permits.  My first task is to make a decision on gold.  The daily chart is showing significant negative divergence, but the 60-min chart is threatening to break out of the little channel it’s been in.  More later.

SBUX daily RSI broken trend line.

AAPL 60-min RSI broken TL and reversal off the .886 on the Bat pattern.

More later.

Those wacky Fed governors are at it again — Bullard going on about how housing won’t recover for years, and Williams pounding the table for aggressive stimulation (QE.)  Big surprise, but the dollar is plunging — even as a House bill is introduced to strip the Fed of half its mandate (the stimulation half) and transform it into an inflation fighter/dollar protector only.

In Williams’ back yard, Stockton, CA is mulling bankruptcy.  This city of 300,000 souls is California’s 13th largest and a hub of the Central Valley’s agricultural activity.  From 1998 to 2005, real estate values tripled.  Since then, they’ve crashed so badly that Forbes considers Stockton America’s “most miserable city.” Official unemployment stands at 18.4%, and the crime rate (2009) earned Stockton the distinction of being America’s 5th most dangerous city.  Oddly enough, an $18 million cut to the police department budget hasn’t helped.

If Williams has his way, the Fed will buy up even more MBS than it already has in Operation Twist.  It will drive down mortgage rates to the point where buyers will show up in droves, bidding up real estate and saving the economy.  The fly in the ointment, of course, is that lower interest rates mean a lower dollar.  A lower dollar means higher prices for such luxuries as gas for the Family Truckster (CL topped 109 a few minutes ago.)

Will the thousands of foreclosed-on families in Stockton (the highest foreclosure rate in the US) jump back in the market if mortgage rates come down 50 bps?  100 bps?  Will banks suddenly relax their underwriting criteria?  Will cities like Stockton, operating at huge budget deficits thanks, in part, to a mismatch between property taxes and profligate spending, suddenly wake from their financial comas?

As Bullard himself said: “central bankers are having difficulty crafting policy in this recession and subsequent recovery because this is the first in which debt levels were too high.”  Do ya’ think?  These bozos are caught between a rock and a hard place that they, themselves, erected.  Once the debt genie is out of the bottle, he’s very difficult to stuff back in.  The only solution, as Stockton is learning the hard way, is to reduce the debt to the point where it’s consistent with the ability of the underlying asset (the city) to service it.

Whether you’re Stockton, Vallejo, Greece, Portugal or the good ol’ US of A, taking on more debt won’t fix the problem of too much debt.  At some point, the lenders who made all those stupid loans are going to have to face the fact that they made some very bad decisions.  They’ll have to accept the inevitable and book the losses that are already hiding in their phoney baloney balance sheets.

It will be hard.  It will be painful.  Most banks, thanks to their servants at the Fed, will survive.  Homeowners, taxpayers and investors will get slammed.  But, hey, with the Dow over 13,000, why should we worry?

UPDATE:  1:15 PM

AAPL hit the (presumed) Bat target and has paused around 522.  If it holds, look for the downturn to resume.  If not, then the new target is 529.25.

Meanwhile, FactSet reports that, absent AAPL and AIG, last quarter’s S&P; 500 earnings growth would have been 1.1% rather than the 5.9% reported thus far.   Wow.

UPDATE:  10:40 AM

Meanwhile, the dollar continues to slump, dropping through key support — reportedly in response to expected additional QE (despite protestations to the contrary by various Fed gov’s.)  It’s dropped below its Feb 9 low, but is looking very oversold in the short run.

If it can’t remain above 78.43, I think we’re looking at a drop to the 1.272 of 77.938 or even the 1.618 at 77.311, right next to the SMA 200 at 77.275 and a pretty clear channel line.

ORIGINAL POST

I’m hearing this grating refrain a lot lately.  Besides friends, family, clients…I’m asking it of myself, staring into the mirror after a market like yesterday’s when time seems to stand still.

One of the indicators I’ve been watching is AAPL.  A thousand shares in 1997 would have bought you a used Aerostar van.  A thousand shares today would buy you a brand new 56′ Beneteau.  AAPL is a leader amongst increasingly narrow leadership — a bell cow among lemmings.  As AAPL rumbles to new highs, bulls party like it’s 1999.  But, when AAPL stumbles, it takes the bulls down a notch — sows a few seeds of doubt.

This morning, AAPL is flirting with the .886 of what might be a Bat pattern.  We talked a few days ago [see: Just Do It] about AAPL’s run-in with the trend line from 1994, negative divergence, the Crab within a Crab pattern, etc.  Since the Feb 15 high, however, our attention has been on whether it was capable of making a new high.

For one thing, the smaller of the two Crabs has a 529.25 target that we didn’t quite reach (we came up 3 pts short.)  But, the reversal to 486 off the 526 high was impressive enough that we didn’t care all that much at the time.  Now, as SPX is inching back towards 1370, I find myself caring.

We’ve retraced nearly 88.6% of that 526 – 486 drop.  Regular readers will recognize .886 as a Fib number associated with Bat patterns.  They’re set up by Point B’s at less than a .618 retrace of the XA leg.  In this case, our Point B was right around the .500 level, so there’s a possibility it’s a Bat.

The other alternative, however, is a Crab pattern — which features a Point B up to the .886 retracement.  The difference is in the outcome.  Bats reverse course at the .886.  Crabs go on and extend — typically to the 1.618 level, but sometimes further (2.0, 2.24, 2.618, etc.)

One way to play a suspected Bat is to short just prior to the Point D, with a stop just beyond — in case it turns into a Crab.  The other imperative is to watch other technical indicators for evidence of a turn.  In the case of AAPL, we have a pretty impressive TL on the 60-min RSI that suggests 521.86 will be the end of the retrace.  But, I’d put a stop just above 527 just in case.

We got up to 521.10 this morning — close enough, in my book for the pattern to be considered complete.  But, I’d want to see a sell off before considering it done.  SPX has exactly matched its intra-day high from Feb 21 of 1367.76, and seems to be thinking about a run higher.  Whichever path it takes, it’ll be easier if AAPL leads the way.

Stay tuned.

ORIGINAL POST:

SPX just completed a little inverse H&S; pattern that points toward 1372 — the same level as the inverse H&S; and just above the May 1370.58 high.  I don’t know whether we’ll exceed 1370 or not, but it’s a watershed mark for investors — especially those who care about Elliott Wave theory.

This morning’s attempt at a sell off had no juice behind it, and the bottom of the rising wedge held once again.  Hitting 1372 would take us back to the upper bound of the rising wedge.  And, the beat goes on…

VIX is off 1 pt as of this writing, taking prices as far south on the falling wedge as possible with re-entry.  On the other hand, there’s a TL on the RSI that supports the idea of a bounce.  And, divergence is positive on both the daily and the hourly charts.

SBUX trying to rally, but the 60 min channel is holding so far. 

The problem is the daily RSI TL, which looks like it’s not ready to break just yet.

I’m closing the rest of my position for a slight loss and will try to reenter on the back test around 49.

**************

Re XRT, off the cuff I think the magic number is 64.44.  There are overlapping Crab patterns that both point to the same price at their 1.618 extensions, and the rising wedge has plenty of room to accommodate it.  The RSI and MACD would argue for a turn here, so maybe we see a dip along the way (59.96 @ 1.272?) to set up some negative divergence for the final push.

more later.

UPDATE:  EOD

NDX is still stuck at the apex of its rising wedge.  Looks very vulnerable here, with an RSI TL tag and MACD rolling over to boot.

A lot has been written about AAPL, and its ability to bounce back above its recent highs.  Remember, we saw its reversal coming a mile (well, 36 points) away [see Feb 11: More Crabapples.]

The stock had poked up above a trend line that extended back to 1994 (log scale), was neck deep in a rising wedge and was flashing very strong negative divergence.

Best of all, it was completing a Crab within a Crab pattern – one of my favorite short setups.  Here’s the chart from Feb 11 showing the trend line that, if broken, would result in a Crab completion at 529.

The rest, as they say, is history.  AAPL got within 3 points of our target, then fell 40 points to 486 — leaving a very bearish looking topping candle in its wake.

Since then, it’s retraced about 78.6 of its losses; and, most financial writers are calling for new highs.  While anything’s possible for this amazing company, there’s still a good case for further declines.

For one, rising wedges like touches on both boundaries — and the lower bound is down there around 415 feeling very neglected.  Second, Crab patterns are wont to retrace .618 of their XA moves, which in this case would be to around 426.  And, last, AAPL is running into trouble with respect to its RSI chart.

Tags on the yellow and the red RSI trend lines have marked some pretty significant sell offs.  While 40 points is nothing to sneeze at, it doesn’t compare percentage-wise to some previous tags (e.g. 12.6% in July 2011, 9.5% in Sep 2011, 16.1% in Oct 2011 and 27% in Apr 2010.)

The yellow TL, in particular, exhibits some pretty massive negative divergence.   Back in October 09, when that TL originated, AAPL was hovering around $200/share. 

On the hourly chart, AAPL appears to be back testing the yellow, dashed RSI trend line.  Unless the bottom falls out, it will likely complete a little Bat pattern — tagging the .886 Fib at 521.77 at about the same time it runs into overhead resistance from that red, dashed TL.

From there, we could see a continued decline to the lower bound of the rising wedge for a 15-20% decline from recent highs — a plunge that would likely accompany (if not precipitate) a general market decline.

Stay iTuned.

8:15 PM: This just in…check out the interesting post over at Zerohedge re the largest hedge fund holdings.  AAPL comes in as the most crowded trade in the bunch. 

UPDATE:  12:30 PM

Right on schedule, the bounce we talked about a bit ago (1355.53 vs 1355.87, oh well…)

The 60-min RSI has tagged a trend line that could resist any further downside.  Decision time.

The daily chart RSI shows the back test of the previously broken trend line (in yellow) and the establishment of a new line (red) we need to break in order to confirm a downward break of the corresponding rising wedge.

Note:  got stopped out on my remaining gold short position (for roughly a break-even) since prices have moved beyond the back test of the recently broken channel.   I’m looking at 1800 as a likely re-entry point.

1802.70 is the 1.618 of the developing Crab pattern and should result in another touch of the fan line that brought the last reversal.  I’ll be especially interested if we see negative divergence continue to develop on the 60-min chart.

SBUX is rallying after a nice 5-day sell off from its rising wedge break.  Judging from the 60-min RSI, it should reverse here and resume its decline.  My target is 47.40, or a tag of the lower RSI TL, whichever comes first.

I still have half my original position left, and will let it ride unless we break the downward sloping TL on the RSI — probably around 48.35.

I’ve been tempted to blow out MSFT shorts, but until it can break the Apr 23 2010 high (31.58) and/or overcome the neg divergence, I’ll hang in there.

It hit 31.68 intra-day today, but reversed off that to close down .54% at 31.27 — so far, a triple top that’s failed to keep up with S&P; 500 or NDX.

Among other high-flyers, GOOG is tracing out a H&S; pattern in the wee small hours of its rising wedge.  A break below 565 could see it revisit its June 2011 lows of 480.

ORIGINAL POST:   11:00 AM

Don’t you just love waiting?  After a prolonged melt up like we’ve had the past two months (feels like six), we’re all more than ready for a turn.  Even the bulls are getting antsy.

As we discussed yesterday, there are multiple risks to the bull case immediately overhead.  In the meantime, we completed a little Crab pattern on Monday that should see SPX back down to 1348 or so (.618 of the XA distance.)   But, watch out for at least a pause at 1355.87 — the wedge lower boundary and horizontal support off the Feb 15 high.  Depending on selling volume, the decline could reverse there and go on to tackle some of the overhead targets.

A decline to 1348 would be significant in itself, but of more significance is that it’ll take SPX below the rising wedge that’s formed over the past three months.  This wedge has been broken before, and has handled it by widening the original path.  Since it’s been about as trustworthy as a central banker, we’ll watch this one very carefully.

More later.

UPDATE:  1:50 PM

SPX faces a gauntlet of overhead challenges, seen here on the 60-min chart:

Previous High:             1370.58
Inverse H&S;:               1372.00
Butterfly 1.618:            1375.47
Gartley (2007) .786:     1381.50
Rising Wedge Apex:    1392.23

RUT Bat and Crab pattern highs continue to hold.

NDX, like just about every other index, spent the past few days churning.  Its RSI, also like just about everything else I’m watching, is back testing a broken trend line and is beginning to show negative divergence on the daily chart.

ORIGINAL POST:

At long last, the Greek deal is done.  But, there’s lots of hair on the deal, and the market is rightly unimpressed with the futures up a mere 3 points at this writing.

The melt up has the potential to tack on another 12 points in the eminis — with a 1376.85 Butterfly pattern completion up ahead.  This is a smidge higher than the May 1373.50 high, so it has the ability to rewrite a lot of Elliott Wave history.

It also roughly coincides with the most generous rising wedge I can draw — not to mention the inverse H&S; pattern.  First, the big picture:

And, a little closer look:

The rising wedge formed with the fan line from Mar 09 is obvious (though I never thought it would grow to include the Oct 27 aberration.)  It also has a lot of open space near its upper bound, making it look a bit hinky.

Drawing a tighter upper bound (purple line) looks a little better, but it also looks a little less ominous.  So, pick your poison.  I think the Butterfly will spell a reversal, especially given that it’s in such close proximity to the previous high.

Just like SPX, the eminis didn’t quite reach their Gartley target at the .786 Fib level of 1389.66 back in May.  If, for whatever reason, we should overshoot the double top at 1373.5 or the Butterfly at 1376.85, then the original Gartley level should produce a strong reversal.

  
The corresponding values for SPX are shown in the chart below:

Note that they’re a little more compressed in SPX, and that we’re already within striking distance of any of the three — close enough, in fact, that this rally could fizzle at any time. 

Go back and study 2007.  Remember the 90’s bull market finally topped out at 1552.87 in March of 2000.  And, though there were plenty of reasons for the market not to make it back there after plunging to 768, by October 2007 it came back to 1576.09 — 23 points higher than in 2000.

Then, as now, the majority of analysts saw besting the old high as a clear sign of higher prices to come.  Of course, we ended up with a lower low, shedding 58% in the next 17 months.

What I’m trying to say is, the bear case is not dashed if we exceed 1370.  We have two other very strong causes for a reversal waiting in the wings.  And, the commonly accepted EW count can be dead wrong without it meaning we should ignore the crumbling global economic picture, not to mention all these bearish chart patterns, and suddenly turn bullish.

More later.

Just came across this fascinating quote over at Zerohedge.  It speaks volumes.  The most chilling part is the last five words of the attribution.

“Whoever controls the volume of money in our country is absolute master of all industry and commerce…and when you realize that the entire system is very easily controlled, one way or another, by few powerful men at the top, you will not have to be told how periods of inflation and depression originate.” – President James Garfield, two weeks before his assassination.

Still traveling, so this will be brief.

Yesterday’s action has shaken the faith of lots of bears, exactly what you would expect under the circumstances.  Despite the fact that SPX set a new high and is closing in on 1370, the push has been on narrow leadership and weak volume.

My premise is that the situation in Europe is not going well and, since we’re talking countries rather than companies, this will end worse than Bear Stearns/Lehman/AIG.  I don’t see anything on the horizon that will “fix” the problem, although resolution could be delayed if the EZ possessed the political will/unity to do so. For that contingency, I maintain stops at a reasonable level.

I believe EURUSD has completed a nice back test of a big-ass H&S; pattern that just so happens to target 1.12 — the bottom of the flag pattern that’s been tracing out for the past 4 years.   I think the next move down will be very significant, probably skipping a channel or two on its way down.

There’s a little H&S; pattern that’s set up over the past three weeks that’ll start the ball rolling with a break below 1.30.

The dollar fell yesterday, but it felt more corrective than impulsive.  We’ve made a series of higher highs and higher lows since our Feb 7 call for a turn — despite the fact that SPX hasn’t cooperated in the least.   I haven’t touched the chart from back then, because the fan lines continue to do their thing.

Could anything go wrong?  Sure.  Note that the yellow dashed fan line that provided the last turn could also serve as a nifty neckline for a H&S; topping pattern.  If prices touch that line, I’ll give up my bullish position and let the dust settle.  But, for now, I’m still looking at a target around 87+ — the top of the flag pattern.  It will correspond with a powerful equities dump.

I was stopped out of my VIX calls yesterday, but have jumped back in at a lower price.  Looking at the chart, we’ve made a lower right shoulder on the IH&S; pattern.  Until it moves lower than the head, it’s still intact.  Today’s low makes for a very convincing back test — without even re-entering the falling wedge.

XLF hasn’t participated in SPX’s new high, completing a goofy Gartley with a back test at the .786 of its recent slide.  I added to my bearish position there.  Likewise with Starbucks, which completed its own rising wedge back test with a Gartley pattern at a .786 retrace.

Gold continues to move sideways after leaving the upward sloping channel the other day.  I think it’s tracing out a flag that should see it back below 1700 in the next few days.

And, last, because I have to dash…  SPX just completed another Crab pattern at its high for the day.

SPX is still backtesting its rising wedge — just at a higher price (which none of my other positions did, BTW; nor did AAPL.)

But the thing that kept me from blowing out of the position yesterday was the fact that its RSI never regained its trend line.  For now, it’s simply a back test of a rather meaningful trend line.

I won’t be able to post again until tomorrow, as I’ll be attending a friend’s funeral and wake this afternoon.  I wish you all good luck.

ORIGINAL POST:  2:30 AM

I’m traveling over the balance of the week, so posts will be a bit spotty.

After bouncing around quite a bit, SPX ended the day on a solid down note.  We closed below the rising wedge, but not quite enough to put a fork in Wave 2 just yet.  I’m looking for a close below 1340 (Tuesday’s low) for starters.

Ideally, we’ll see a bounce up to 1350 to back test the wedge and complete a small H&S; pattern before heading south.  Given that Friday is OPEX, I think it’s actually fairly likely — unless we have the massive sell-off that’s entirely possible with a market that’s this far stretched on the upside.

Daily RSI broke its trend line, and has a ways to go before finding support.  My gut tells me 1355.87 was the Wave 2 top, so I’ve added some short positions.  I’m long puts on SPY (tight stops), SBUX, AAPL, XLF and MSFT and calls on VIX on the IHS completion.

I’m also long the dollar and short the euro and gold.  I’m expecting the euro situation to worsen over the next few days, and at least a .05 move in EURUSD in near term.  Look at the past patterns and you can get an idea what can happen when EURUSD jumps channels.

Weekly

Daily

AAPL came very close to our 529 target and reversed hard.  At 19% of the NDX, it should take the rest of the tech sector with it.   MSFT completed a well-defined Crab a few days ago, and is reversing nicely now.

Gold continues to come under pressure, although prices have been choppy.  I expect it to sell off with the rest of the market next week, if not sooner; but, I’d bail at a move over 1765.

I’ll add to positions if/when the downside gets going, but am the equivalent of about 40% net short, with options comprising about half of that. 

One thing I’m considering doing on the new website is posting actual trades in a model portfolio.  If this interests you, let me know.   The only tricky aspect is putting on trades that the average investor would feel comfortable following: ETF’s, long puts and calls, spreads, straddles (nothing fancy).  I would stay away from futures and most individual stock names.  Please give me your thoughts.

Good luck to all.

UPDATE:  3:30 PM

Revised H&S; picture for SPX.  Whether this holds or not, we’ve clearly broken down below the rising wedge.  The trick will be to close below it and, specifically, below yesterday’s low of 1340.83.

UPDATE:  2:15 PM

VIX just completed the IH&S; pattern we’ve been watching for several weeks.  The nominal target is 25.85 — more than enough to feed the next biggest pattern up the food chain.  This, in turn, will feed a bigger pattern, etc.  See the big picture repercussions here. 

This should get things going for SPX, currently off 4.64.  If we close below 1340 today, 1355.87 will look like the Wave 2 top.   It’s 2.02 above the 1.618 extension on our latest Butterfly pattern (from 1333 to 1300) and is a remarkable 95.03 retracement of the 1370 – 1074 decline.

UPDATE:  1:00 PM

Looks like a beautiful shorting opportunity in Starbucks (SBUX.)  I can’t resist the Mar 46 puts at .42.

UPDATE:  11:45 AM

AAPL off to the races again today.  A reminder, 529.25 is the 2.618 extension on the big Crab pattern we’ve been watching [see: More Crabapples].  We’re also in nosebleed territory, having poked up through the trend line that dates back to 1994.  Look for a serious reversal, maybe enough to mark the top.

UPDATE:  11:00 AM

Well, that has to be one of the weirdest openings I can remember.  The futures were fading fast as the opening bell approached.  The cash market had little to no momentum at all, having reversed off the Butterfly pattern I discussed in the prior post.  It fell from 1358 to 1350.75 from 7:30 to 8:15, feeling trés motive, BTW.

We saw a 50% retrace back to 1354 from 8:15 to 9:13; then, another motivey plunge got going.  As 9:30 approached, the eminis were at 1350.75 — well below the head of our H&S; pattern — and heading south fast.  With any luck, the pattern would be left intact and we could get started wrapping up Wave 2.  If only life were that simple.

The cash market opened and market makers, recognizing the huge shooting star being formed in SPX, freaked out.  Not being the types to let a bearish pattern stand — especially with OPEX coming up in two days —  they threw everything including the kitchen sink into the market.  

They ramped.  What should have been a down or flat opening (futures were at 1350.75, versus yesterday’s cash close of 1350.34) and pumped it up to 1354.72 — 40 cents higher than the previous close and perfectly good H&S; head.

Does it kill the H&S; pattern?  Yep.  It certainly sows seeds of doubt into the EW count, since we now have a higher high — scam turd though it may be.   If nothing else, it extends Wave 2 another hour/day/week until something too big to sweep under the rug comes along.

I almost forgot to mention…the news snippet that upset the bulls’ apple cart last night.  Among other things, it appears that TPTB across the pond aren’t so sure that the conditions they set for bailing out Greece were enough.  They’re “mulling whether to delay a full bailout package for the country [Greece] until after the country’s elections.”  In other words, they want the pledges of the currently elected officials and those who haven’t yet been appointed elected.

This is the EU version of demanding another shrubbery.  Demands to cut down the mightiest tree in the forest with a herring are sure to follow.

Right on cue, we get this priceless quote from Greek President Papoulias, who “tore into Germany’s finance minister, the Netherlands and Finland for taunting the country’s troubled recovery efforts as Athens fights to stay in the euro zone and avert default.”

I do not accept having my country taunted by Mr Schaeuble, as a Greek I do not accept it….Who is Mr Schaeuble to taunt Greece?  Who are the Dutch?  Who are the Finns?”

According to unnamed sources, Mr Schaeuble became quite agitated at Mr Papoulias’ reaction.  At great personal expense, I have obtained this secret footage of the exchange.

ORIGINAL POST:  2:30 AM

I posted the other day about the rising wedge on SPX and, specifically the eminis, commenting: “it has to break down or break out…something’s gotta give.”  Well, how about a break down and break out?

SPX broke below its rising wedge today.  Shortly before the close, it back tested the wedge, looking weak as it did so.  Then came the spike.  Apparently someone leaked the news that the Chinese had decided they could solve the world’s financial problems (or, at least Europe’s) and SPX spiked almost 10 points in a jiffy.

By the time the news was actually released several hours later, the eminis had spiked another 11 points.  As I write this, they have rallied so far as to complete a little Butterfly pattern at the 1.272 extension at 1355.75, so don’t be surprised if the whole thing reverses back to GO.

Looking at the cash market, the level at which we open matters a lot.  If we exceed 1354.32, the H&S; pattern craps out — not the end of the world for bears, but it changes the count a bit.   Many EW practitioners have been calling for a slightly higher 5th wave to end Minor 2.  As long as we stay below 1370, all is well in Elliott World.

BTW, we’re seeing the same kind of divergence we saw 24 hours ago — with equities up much more than the corresponding anemic bump in EUR and AUD.  Don’t you suppose that if the euro problems were solved, we’d see more of a reaction in the currency than in US equities rather than less?  Just saying…

Stay tuned.