UPDATE:  3:30 PM

The dollar’s had a good run today, but might soon be running into some technical headwinds.  In a harmonic pattern that’ll probably end up being a Crab, it’s currently at its 1.272 XA and 2.618 BC extension.

A properly formed Crab should see it reach its 1.618 XA extension at 75.153, but to get there it’ll have to break out of the falling wedge it’s been in for over a year. 

UPDATE:  2:20 PM

Just got back from my local BofA.  Several video screens in the lobby looped an in-house documentary about the thousands of BofA employees who volunteer in their local communities, making this a better world.  Strange, no mention of the several hundred foreclosures being processed daily… or, the $8.5 billion being offered to settle foreclosure fraud charges.

All the Suits were gathered around the branch manager’s computer, probably wondering whether they should spruce up their resumes after reading senior management’s latest missive:

As we discussed at the time, the Buffet deal was a great deal for Buffet… but, not so much for BAC shareholders.  Apparently, some of the employees see it that way, too.

When questioned about the deal, CFO Thompson could have said that Buffet’s investment was a “powerful endorsement of the value of the company” or “an opportunity to partner with one of the greatest investors of all time.”

No doubt thinking about his own rapidly evaporating stock options, he replied instead that Buffet’s investment was a “strong validation of management.”

He went on to say that BofA told the old coot to take a hike the first time he tried to give them money.  He just kept coming back, apparently annoying them to the point where they took his $5 billion just to get him to go home.

If you’re reading this, Warren, my door is always open. 

UPDATE:  1:30 PM

Just completed a bearish Gartley pattern on gold (GC).  Indicates an initial downside target of 1770.

But, the cult of Gold followers seems to be shaken only by margin increases, so we’ll see if this plays out or not.  Re margin, there should be another increase any day now given the volatility lately.

UPDATE:  10:15 AM

The bearish Gartley pattern has played out perfectly, reversing just past the .786 Fibonacci level.   And, Fan Line B has continued to hold.  As mentioned many times before, the intersections of multiple fan lines (from above and below) often serve as important turning points.

A look at the big picture.

ORIGINAL POST:  9:15 AM

Can’t have a recovery without an improvement in unemployment…  I’m looking for any glimmer of hope in this morning’s NFP report, and have yet to find it.

From Briefing.com:

And, the BLS:

UPDATE:  1:00 PM

XEU v SPX:  syncing up nicely the past couple of weeks, as they’re both an anti-dollar play.  Ordinarily more of an inverse relationship.

PM’s playing the same role,  with GLD and SPX moving together as an anti-dollar play.

USD v SPX:  inverse relationship a bit stretched right now….

Has that “something’s gotta give” look about it, as the dollar rally hasn’t been fully reflected in SPX.

UPDATE:  10:50 AM

The dollar responded well to today’s economic news.  DX has been in a falling wedge within a larger falling wedge, and broke out last week.  We had a nasty backtest last Friday the 26th that has since reversed.  DX is once again threatening the longer term trend line that’s limited its upside since Jun 10.

5 YEAR – DAILY

1 YEAR – DAILY

BREAKOUT ON 60-MIN

One way or the other, DX will be forced out of its falling wedge by the end of September.

UPDATE:  10:10 AM

ISM data out, and not as bad as many expected thanks primarily to a troublesome growth in inventories. Increasing inventories are a sign of confidence, as business owners are increasing their stocks of products in anticipation of greater sales.  In an expansion, increasing inventories are a bet that’s likely to pay off.  In a contracting/slowing economy, they signal that someone made a bad bet.

The trend across the board is not pretty.  From briefing.com:

A reminder, this is a survey of purchasing managers’ attitudes about business conditions.  An index above 50 indicates conditions are better, and below 50 indicates they are worse.  Because it’s not generated by a department of people who can be fired by Congress or the White House, it is not considered to be “managed” as are many DOL and DOC reports.

Exports continue to cling to a positive score, benefitting from a cheap dollar — a factor that might not last much longer.

ORIGINAL POST:  9:20 AM

From Briefing.com, a nice view of labor productivity and costs.  Not a healthy path, to say the least.

UPDATE:  1:00 PM

I’ve seen some huge manipulations of economic data before, but the July factory orders numbers from Census take the cake.

Total for all manufactures goods fell almost 7.5%, from $472B to $437B.  This is huge news.   So, why wasn’t that the headline, instead of…

Because, through the magical seasonal adjustment process, it was reported as a $446 to $453 billion increase.  The durable goods component fell from $213B to $186B, but was seasonally adjusted to a $197B to $202B increase.

The rest of the report is filled with stuff that has manufacturers shaking in their boots, but you’ll never see it reported as such.  That would be negative and might scare investors who, apparently, can’t be trusted with the truth.

Quick note on the ADP numbers, which are always amusing and seldom accurate.  The 91K (versus 100K expected) doesn’t include the striking Verizon workers.  So, the real headline should be 46K versus 100K.  A bit more of a shortfall, no?

Likewise, the Challenger Gray job cut numbers were reported as a sharp drop in layoffs.  The reality is that YTD job cuts are at 363K versus 2010’s 335K.   The 2011 v 2010 monthly comparisons continue to look bleak.

And, finally, the ISM Business Barometer out of Chicago hit a 21-month low.

UPDATE:  10:30 AM

Rising wedge inside a rising wedge on the 5-minute chart.

More importantly, a bearish Gartley pattern just completed on SPX.

I’m always a bit skeptical when a Gartley point X isn’t at a clear pattern high or low.  In this case, it’s a distinctive point from Aug 3, but was clearly part of a continuing downturn that was larger in scale.

I might have been tempted to ignore it all together, except for this bearish Gartley on AAPL, the point X of which is at AAPL’s all-time high.

And, this, COMP at a major backtest of its neckline.

And, this, NDX (Nasdaq 100) backtesting its SMA 200.

There are other indicators, but you probably get my point.  We’re at an inflection point here, where there’s plenty of reason to be cautious regarding the upside.

If we close above Fan Line B, I’ll be very surprised.  I won’t be surprised if we put in an interim high at 1230.

ORIGINAL POST:  4:00 AM EST

I redrew Fan Line B to eliminate the shadow from March 16th.   It’s still hanging in there as the limit of this latest move up.

As noted yesterday, it intersects right here with not only yesterday’s high, but Fan Line #4 (from Jul 09 via Aug 10) as well.

It also intersects with Fan Line G from the Apr and Nov 10 highs and a very important Trend Line from  the Feb 18 highs that also marked the Apr 18 and Jun 16 lows.  They’re all marked here as purple lines.

For FL B to hold, we’re going to have to reverse tonight’s futures rally.  My gut is that something in this morning’s economic reporting — PMI, Factory Orders or Employment — will start us off in the right direction.

UPDATE:  12:50 PM

The more I look at Fan Line B, the more I like it as the upward limit here.

I’m having second thoughts about 2011 having slowed relative to 2008.  I’m looking at the alternative — that we’ve sped up again on a relative basis — and am growing more comfortable with it.

I might just have to get over the fact that we had hardly any blips on the way down to the 1101 bottom.  But, I’m not ready to abandon a 5th wave down just yet.  To do so means the 22nd’s 1121 low was a truncated 5th, and I’m just not buying that.

Consider the Fibonacci similarities if we accept the alternative.  These levels are drawn off the patterns highs — i.e. 1576 for 2007 and 1370 for 2011.

We’ve retraced to just above the .382 level twice, which is just what happened in 2008.  In 2008, the valley in between was a .618 retrace; 2011’s was a .886 retrace.  If this comparison were to hold, prices should head back down in the next few days for a proper wave 5 at new lows. 

It gives me a little more confidence that we have a rising wedge and obvious divergence, seen here on the 15-minute chart.

There’s plenty of important economic news coming out in the next few days — the perfect catalyst for the next leg down.

UPDATE:  10:20 AM

Consumer Confidence plummets from 59.2 to 44.5.  Expectations Index even worse, from 74.9 to 51.9. 

Case-Shiller 20-City Home Price Index is also out.  Prices rose 3.6% from the 1st quarter, but are still off 5.9% from 2Q 2010.

And, from the folks who would have reported Lincoln’s assassination as “Excellent Play Enjoyed by Nearly Everyone”…

Don’t forget the growing contract cancellation problem.  Yun refers to it here rather obliquely, but this will be a larger issue going forward given the plunge in consumer confidence we’re watching.

UPDATED 10:00 AM

Yesterday’s rally, the 6th in 7 days as talk radio crowed all day, was either the result of (depending on whom you believe):

(1) an increase in consumer spending;
(2) relief that New York was spared; or,
(3) Bernanke’s “many options” to stimulate the economy.

I’ll leave NY alone; readers will no doubt have their own ideas about whether it being spared was a good thing.  The increase in spending was accompanied by a decrease in income and increase in debt — definitely not a good thing.

Bernanke’s speech was hardly encouraging.  If people believe he has the ability to save the economy, then he’s won half the battle.  In fact, it’s so much better than actually instituting QEn and having investors discover that it won’t stop the next slide.

Okay, quick thoughts on patterns.  The H&S; is kaput.  Ditto the bullish Butterfly and the triangle.  What we’re left with is a bearish potential harmonic pattern and a few interesting fan lines.  BTW, Fan Line B finally stopped yesterdays’s rally, as it did on Aug 5, 15 and 17.

First the harmonics:

Note that the C point is at a .786 retracement of AB.  The question is where’s our point X, which would determine how great the AB retracement is?  The most interesting point to me is the August 3-4 high around 1261.20.

It puts point B at a .618 and makes the pattern into a potential Gartley.  Point D’s on Gartleys are typically at the .786 retrace, which here would be 1227.  The .886 would be at 1243.  The next moving average to the upside is the 50 day at 1259 — further confirming that as the highest possible target in this pattern.

These points also happen to coincide with a couple of interesting fan lines, so they bear close watching.  I already mentioned Fan Line B, which was the terminus of Monday’s rally.

Other fan lines to watch on the upside are Fan Line #4, at 1220 and Fan Line A, at 1249.  Line #4 is also the level of horizontal resistance from the fractally similar pattern last November.  Fan Line A is potentially very important as it’s the same fan line that stopped this past June’s slide, and also marks the low from the Mar 16 plunge.

It’s also worth noting we’ve retraced to approximately the .382 level off the May 1370 highs.  While it wouldn’t be very satisfying from a harmonic standpoint, there’s a small possibility that the Fibonacci level of .382 and Fan Line B are enough to stop this rally here.  After all, it was Fan Line B that stopped the afore-mentioned Mar 16 plunge.

UPDATE:  9:45 AM

We are very close to the .886 Fib retrace at 1198.51.  If we hold here, it bolsters the Butterfly and H&S; cases nicely.

UPDATE:  9:30 AM

Real Disposable Income down, spending and inflation up.  Not a good recipe for growth, unless you’re talking about credit cards and car loans.

This rally should fizzle between 1190 and 1199.

UPDATE:  12:25 AM

Link for tomorrow’s economic data.

We’re expecting personal income, spending and prices at 8:30 EST.  Shouldn’t be any surprises, as this data has been largely been covered in other reports this past week.

Keep an eye on the Butterfly pattern.  Remember, we’ve put in our X, A, B and C points already.  Point C came at 1190.68 on Thursday (the .786 level) but could be replaced at the .886 level of 1199 if prices exceed 1191.  If we reverse hard off either of those prices, look out below.

Also, note that Point A marks the top of the head of our H&S; pattern, and Point C marks the right shoulder.  The H&S; target is 1040, essentially the same as the Butterfly target at the 1.618 extension.  Gotta love coincidences.

Just a quick note…the discrepancies between the two tops have all come at times like this — when there was a great deal of confusion and dissension, especially in the bear camp. 

I will be traveling Monday – Wednesday, so intra-day posts will be spotty at best.  Good luck to all.

ORIGINAL POST:   9:15 PM

This is a very confusing time, with many of the indicators I watch slowly turning bullish — but with a total lack of uniformity,  on very low volume and in the face of awful economic news.   I attribute the failure of the market to turn down to the highly anticipated Jackson Hole affair.  Investors have been hyper-focused on the prospect of another round of QE.

Bottom line, I think the 2007/8 vs 2011 comparison is still in play, but with the current period “slowed down” by this distraction.  It’s happened several times before.  The idea probably sounds a bit odd, but I noticed months ago that the biggest difference between this and the 2007/8 market was the speed at which the topping pattern unfolded.

In February, this market was completing the topping pattern at a faster pace than did the 2007/8 market.  By May, the speed had caught up.  By June, it was running a little slower; and, if I’m correct, it’s continued to slow relative to back then.  Consider some move comparisons:

                                     2007/8                                     2011 equiv.

                       7/7 – 8/16/07  (20 days)                2/22 – 3/16/11  (16 days)
                       9/17 – 10/11/07  (16 days)            4/16 – 5/2/11  (17 days)
                      10/11 – 11/26/07  (30 days)           5/2 – 6/16/11  (32 days)   
                      11/26 – 12/11/07  (11 days)           6/16 – 7/7/11  (14 days)
                      12/11 – 1/9/08  (19 days)               7/7 – 8/9/11  (23 days)
                      1/9 – 1/23/08  (9 days)                   8/9 – 8/26  (13 days so far)

Here’s a picture of the late June 2011 divergence.   The market had bottomed just like in 2007 and was headed back up.  But rather than a 10-day rally to an interim high, we had a significant hiccup after 4 days when the administration foolishly tampered with the strategic petroleum reserve.

The market tumbled back to its lows and had to restart the rally.  It eventually reached its comparable target, but took an additional several days.

I believe the timing divergence is at play again.  Instead of oil manipulations, the prospect of Bernanke letting loose another round of QE simply stalled the current market.

As of Friday, we were running 4 days “behind” the 2007 equivalent.  This gave a number of chartists (myself included) pause.  It seemed as though bears didn’t have the cajones to finish the job it started, and bullish sentiment (and price action) has started creeping back in.

But, in my opinion, we’re simply taking longer to process the 4th wave, with points A-B-C-D corresponding to 2008’s 1-2-3-4 on the above chart.

A number of bears are calling the 8/22 low of 1121 a truncated 5th wave.   I’m no Elliott Wave expert, but I find this explanation dissatisfying.  Such a powerful 3rd wave should have more follow-through than this wimpy little triangle-looking action.

Consider the 2008 equivalent.  There’s a very obvious triangle-looking a-b-c thingy (told you I wasn’t an EW expert) in the 4th wave position from 1/9 – 1/15/2008 that corresponds nicely to the triangle we’re currently tracing out.  I consider it a pennant, and these are usually continuation patterns.

It’s also entirely likely that we’re trying to trace out a similar harmonic pattern.  In 2008, the triangle formed a nice little Butterfly pattern that took SPX down to a 3.00 XA extension.

As of this past Thursday, we completed points X-A-B-C of a Butterfly pattern.  Typical 127.2 and 161.8 extensions would locate point D at 1072 or 1035 respectively.  I like these numbers, as they correspond nicely with some of the other targets we’ve been eyeing (H&S;, etc.)

A 3.00 extension would mean 888.  I’m not currently looking for anything that extreme (but certainly wouldn’t complain.)

There are a lot of other indicators sending mixed signals.  For this reason, I’m going to handicap this idea of mine at about 60/40.  If I’m wrong, we head back up to as high as 1250 before heading much lower.  So, I’m not terribly concerned about timing, as the ultimate destination is the same.

In any case, we should know in the next few days.  There has been a surfeit of horrid economic news, and one of these days very soon it’s going to overwhelm the Plunge Protection Team’s best efforts.

UPDATE:  1:00 PM

While I’m searching for the Oreo’s, I want to make a small point regarding the timing of the moves over the past two days.  If the 56-pt decline had all taken place yesterday and a 45-pt rally today, most of us would view this as an obvious retracement of an impulse move down.

Also, watch the rising wedge on the 5-minute chart.  It also argues for a reversal here.

UPDATE:  12:35 PM

Having trouble getting past the 20-day moving average at 1180.93.

Look for a possible turn here.  We have a Butterfly pattern turning point at 1176 (the 1.272 extension) and 1187 (at the 1.618.)  Also, check out the RSI channel on the 15-minute chart.

Note today is a scheduled POMO settlement date.  They purchased $439 million in TIPS yesterday, but probably had billions more available to the Plunge Protection Team given how important it was that the market not crack on the no QE news.

You can find the NY Fed schedule here.

UPDATE:  11:25 AM

Little bat or crab setting up on DX.  If a bat, my top choice, it should reverse around 74.05.  A crab at the 1.618 XA extension would target 73.64.

UPDATE:  10:55 AM

Will the right shoulder hold?  This is about as close as you can get…

Meanwhile, the dollar backtested its falling wedge and is attempting to break higher.

UPDATE:  10:30 AM

The market’s not thrilled with no new quantitative easing, falling 25 points before snapping back for a backtest of the H&S; neckline.  If the neckline (or even the right shoulder) holds, the next stop should be 1121.

Excerpts from Bernanke’s speech (full text here) courtesy of CNBC.

ORIGINAL POST:  8:50 AM

Just a reminder, today is a POMO day.

Bottom line on the 2nd GDP revisions — a mixed bag, in line with expectations, evidence of an economy still stumbling along.  I doubt it gives the Fed enough ammunition for QE.

GDP was revised downward from an annual rate of 1.3% to 1.0%,  in line with expectations and confirming the slowdown underway.  The first quarter real increase in GDP was 0.4%.

The biggest revisions were to exports (lowered from 6% to 3.1% increase) and inventories (lowered from $49.6 billion to $40.6 billion.)  Corporate profits rose 4.1%, increasing $57.3B in Q2 versus $19B in Q1.  Yet, corporate income taxes fell $3B versus a Q1 increase of $17.6 in Q1.

Consumer spending was revised upward from 0.1% to a still marginal 0.4% — the lowest increase since 4Q/2009.   Inflation, as measured by the personal consumption expenditure index, rose 2.2%.  Real disposable personal income was revised upward from 0.7% in both the 1st and 2nd quarters to 1.2% in the 1st and 1.0% in the 2nd.

From Briefing.com:

And, from the DOC:

I’ll admit, after watching more than a few patterns fail over the past day or two, I was feeling a little snakebit. 

On Tuesday, we completed a nice little bearish butterfly pattern at the 1.272 extension.

But, the next morning, we were up 20-points in spite of horrid economic news — nailing, instead, the 1.618 extension.  Thankfully, a quick reversal followed, confirming the butterfly.  Miller time, right?

Of course, the reversal was a headfake.  I watched dejectedly as SPX soared and my ego slumped.  Fifteen points later, I was on my third Excedrin of the day, wondering where my wife hid the Oreos.

My only hope was a little H&S; pattern that looked suspiciously like the one a few days before, and a shabby little rising wedge.

I snapped a picture, but didn’t have the heart to show it to you, my faithful partners on this bear hunt.  My fears were realized when the market rode BofA to the moon this morning.   I was clearly no match for Warren.

My only hope was to criticize the deal, get a few million people to read the critique, sell their BofA (and everything else, while they were at it) and bring stocks back to the neckline of my pathetic little H&S; pattern.  Not too much to ask, right?

Apparently not.

 The completion of the pattern should send SPX down to 1120.  But, the really cool part is that it completes a bigger, not-so-pathetic H&S; pattern that could send SPX to 1040.

Recall that 1040 is one of those key targets we’ve been talking about, as it corresponds with the last major low of last summer’s swoon.  That particular low is, itself, the origin of gobs and gobs of important fan lines, so I think it’s pretty über-important, itself.

Will it all unfold as planned?  We’ll see what GDP and BB have to say about it tomorrow.  Irene might even slip in a word or two.

As for me, I’ll be glued to my monitor — Excedrin and Oreos nearby.   Okay, maybe some champagne on ice…just in case.

UPDATE:  9:00 PM

UPDATE:  2:25 PM

Another way of viewing today’s H&S; pattern…  If it completes at 1156, this one potentially takes us all the way to 1121, also completing the larger pattern with the 1032 target.

UPDATE:  2:00 PM

This morning’s spike has been successfully beaten back.  The reversal leaves a head & shoulders pattern on the 15-minute chart. 

Potential is to 1130, just 9 points away from completion of the larger H&S; pattern with potential to 1032.

For all the excitement around the Buffet/BAC deal, the after-effect is a perfectly-formed bearish Crab pattern that should quickly erase this morning’s bump and then some.

UPDATE:  9:25 AM

BUFFET’S BILLIONS BAIL OUT BOFA

BofA has 10.09 billion shares outstanding, with a market cap of $63.85 billion.  For his $5 billion, Buffet gets cumulative preferred stock with a 6% dividend and redeemable with a 5% premium.

The real plum?  He also gets warrants on 700 million shares at an exercise price of $7.142857 each, good for 10 years.  He paid zilch for the warrants, so at the indicated opening price of 8.83 (vs yesterday’s close of 6.99) BH has already recouped $1.2 billion of his $5 billion (on paper, anyway.)

Looking at it another way, if BAC recovers to 14.28 or more, he’s essentially got his preferreds for free. He can reap the $300 million in annual dividends on essentially a zero investment going forward. Pretty healthy IRR, wouldn’t you say?

Why would BAC offer Warren & Co such a sweet deal?  It had no choice.  Warren, who from all accounts is a sweetheart of a guy, knows a desperate borrower when he sees one.  And, this settles that pesky question as to how desperate BAC really is.

Terrible news for the shorts —  131 million shares worth.

INITIAL POST:  9:20 AM

Initial claims of 417K versus expectations of 400K.  The futures promptly dropped 5 points, but are now spiking on news of Berkshire Hathaway’s $5 billion capital infusion into BofA.

UPDATE:  EOD

Not much time to write tonight, so I ‘ll make this short and sweet.

Pretty impressive run by the bulls today, but still on low volume and marginal breadth.  At the very least, I have to expand the channel I drew yesterday.  I’m still confident that this is a 4th wave up, with the 5th to come very soon.  But, sheesh, I’m feeling a bit lonely in this point of view.

Many of the indicators I watch are on the brink of turning bullish.  But, they’re on the brink, not beyond.  This tells me we’re at an inflection point, as today’s close at the .618 Feb retrace level would indicate.

Besides all the obvious, I’m watching the dollar these past couple of days.  It’s been in a gigantic falling wedge for almost 1 1/2 years.  In May, it began traversing from one side to the other of this wedge, hugging a TL that offered great support until July 21, at which point it found support at a lower line.

Shortly afterwards, DX started tracing out a falling wedge that just completed.  We broke out today, and are currently in backtest mode.  If the breakout holds, the next resistance isn’t until at least 75.25. 

The next day or two should be very interesting.

UPDATE:  1:15 PM

The folks in our Conspiracy Department just floated an interesting idea past me.  If you’re a big investment bank or advisory firm and are angling for Ben to break open his piggy bank Friday, do you really want a big, fat rally on the books in the days leading up to decision time?

If this thing gets going to the downside, don’t look for them to stand in the way.

UPDATE:  1:00 PM

Little H&S; pattern backtesting on the 5-min chart (redrawn on 1-minute.) It’s even completing its own little butterfly pattern.  Should reverse at 1169.

UPDATE:  12:15 AM

Additional potential targets for the Butterfly pattern, based on retracements/extensions of the DA leg:

0.618 = 1142
0.786 = 1133
0.886 = 1128
1.272 = 1107
1.618 = 1089
2.000 = 1069
2.240 = 1056
2.618 = 1036
3.000 = 1016
3.618 =   983

Just a reminder, the H&S; pattern we’re tracking has potential to 1032.

UPDATE:  12:00 AM

Another great way of looking at the harmonic picture from the past few days is the Butterfly pattern started at Friday’s high.

The pattern requires a .786 retracement of the XA leg (the first one down) and ends with a 1.272 or 1.618 extension of that same leg.  This one is almost perfectly formed.

Butterflies are among the more precise patterns, and frequently lead to a sharp reversal that consumes the entire upward move.  I use the .618 Fib as my initial target, with 1.272 and 1.618 extensions as the ultimate goals.  In this case, that would correspond to targets of 1142, 1107 and 1089 respectively.

The big H&S; pattern we’ve been tracking, the Big Ugly, is starting to look quite lovely.  It completes at around 1121.  Obviously, if the Butterfly pattern plays out in any meaningful way, it will complete and give us plenty of ammunition for a downdraft I’ve been expecting.

One way to play this would be to initiate shorts or puts here, with stops at the 1175 level.  It also makes sense to keep an eye on the RSI trendlines.  The 60-minute still hasn’t broken yet, but the 5 and 15-minute charts have broken their trend lines and are in backtest mode.

I think the market will pick up on this and start heading down very soon.

UPDATE:  11:00 AM

We just had a nice reversal off the .618 Fib line and the channel I posted about earlier (TOS does a poor job of keeping TL’s where they belong when you switch from daily to 60 min, so the upper line is redrawn here as the faint red line. )

The bears won’t be out of the woods, however, until the RSI trend line (red, dashed) is broken.  Until then, this pullback could be just a correction of the temporarily overbought condition.  Stay tuned.

UPDATE:  3:40 AM

The dollar is showing some strength overnight. 

I’ve been watching DX, wondering if it was ready to break out of the falling wedge it’s been in since…forever.  Now it’s in a falling wedge within that falling wedge, and seems to have found good support in the white dotted line.

Note that the crab pattern that played out so perfectly at the 1.272 extension has, with a retracement to the .50 level, morphed into a potential bat or even crab pattern.  The .886 (minimum) level would be all the way up at 80.635.  Such a rally would no doubt be deadly for stocks.

ORIGINAL POST:  3:00 AM

Today’s push to 1162 was the perfect follow-through to a pattern in which I hadn’t put a lot of stock — the inverse head and shoulder pattern I posted about at 11:45.  It called for a rise to 1161.

The rally also completed a bearish Butterfly pattern (one of a few), the 127.2 extension of which was at 1163.38, and established a better looking right shoulder than we had before for a larger bearish H&S; pattern.

The big question now is follow through.  Volume and breadth were light today.  For all the excitement, SPX was stopped cold at the 10-day moving average and the gap from Aug 10 on the daily chart.  And, the histogram is still in negative territory.

Further,  I don’t see five waves down yet.  And, this bear market isn’t a great candidate for a truncated 5th wave.   I would like to see more evidence of capitulation before believing the upturn is here.

Last, I think there’s a good chance the H&S; pattern we’ve nearly completed plays out.  It has potential to 1032. 

We’re in a steep and narrow channel (white lines) down from the July highs.  The top trend line of that channel will be the key as to whether we continue down or break higher.  There is also a corresponding trend line on the RSI that I’ll be watching like a hawk.

There’s also a good possibility that the trend line (red, dashed) from the May 2 high, together with the channel top TL, will combine to form a falling wedge for the eventual bounce back up to test the previous 1258 lows.

Unless we get strong follow-through tomorrow, I’m operating under the assumption that the bears are still in control and we’ll establish a new low around 1067, with 1040 and 1010 being subsequent targets. 

UPDATE:  12:25 AM

Fan Line C to the bears’ rescue!

I count that as five rallies stopped in their tracks (Aug 9, 10, 19, 22 and 23.)

Not bad, Line C, not bad at all.

 

UPDATE:  11:45 AM

And a counterpoint, an IH&S; pattern on SPX completing at 1143.  It has potential to 1161.  If it plays out, it would certainly gussy up the Big Ugly pattern, evening up the shoulders very nicely.

If this rally extends as a result, it might end up looking something like this:

Note the 1161 target coincides pretty well with a 1.272 extension of a larger potential Butterfly pattern.

UPDATE:  11:15 AM

An update on Big Ugly — the larger H&S; pattern we’ve been watching.  It has bearish potential to 1032. 

UPDATE:  10:40 AM

Little Gartley setting up on the 5-minute chart.  Should reverse at the .786 retrace at 1140ish.

UPDATE:  10:00 AM

US new housing sales continue to tumble, coming in at 298,000 versus expectations of 310,000.  June was revised down from 312K to 300K, so don’t be surprised if July’s aren’t similarly adjusted.

And, a reminder, these figures were for the calendar month, meaning the full impact of the stock market slide won’t be felt until next month.

And, from the Eurozone, an update on German economic conditions/expectations from the Center for European Economic Research.  Pretty dismal readings.

The view from there is that the German economy is sliding.  Those who ranked the German economic situation as “good” fell from from 90% to 57%.  The Eurozone “good” rating fell from 13% to 6%, while “bad” leaped from 10% to 25%.

And, what do they think of the good ol’ USA?  “Bad” grew from 40% to 58%, with “good” sliding to an absolutely horrid 1.1%.  According to news reports, the McGraw-Hill board is preparing pink slips for the survey participants.

ORIGINAL POST:  2:00 AM

Perhaps it’s the S&P; news, but the futures are making another bull run tonight — currently up 11 to 1134.  A note of caution:  at 1140 there’s a potential inverse head & shoulder pattern that would complete.  If it plays out,  it’s got upside potential to 1180 or so.

Why do I always preface these predictions with “if it plays out?”  Because none of these indicators are foolproof.  They’re all subject to being overtaken by important events, politics, fed action.   Think Fukushima, QEn, etc.

Here’s a H&S; pattern on the eminis that didn‘t play out, just this morning.

It was just as well-formed, and had nice downside potential to 1092.  This evening’s runup to 1134 might negate it, since the right shoulder has been exceeded.  Or, has it?