The market bounced off truly abysmal employment figures today.  I suspect there’s one more push up to 1375-1390 before P[3] commences in earnest, probably around the middle of the month if the every 90 day pattern repeats (see 5/2 post.)

Showing up again to provide the bounce?  The trendline deriving from the Oct ’07 highs — which also grazes the Feb 18 top, the 4/6 top and the 4/20 – 4/25 shelf.  Today, it sits at about 1335.

The XLF has so far failed to retake a long-term trendline from August 2010.  It broke through support on 4/14 and has failed to rise above it four times in a row.  And, the latest push up has been on declining volume.

More importantly, a downward sloping trendline dating back to 2/18 lies just ahead.  If XLF can’t break through, look for a resumption of the downturn, targeting the mid-15s in the coming week.

The Deutsche Bank suit could have a huge impact on the financials — a new front in the mortgage wars. Deutsche surely isn’t the only bank guilty of “reckless lending” and hoisting bad loans on the government. I’m looking to play the downside on BAC, C and WFC, especially after this morning’s run up.

http://www.marketwatch.com/story/deutsche-bank-hit-with-us-mortgage-fraud-suit-2011-05-03

Yesterday’s OBL rally was impressively thwarted, leaving us with a bearish candle and a possible top — albeit several points short of the overhead resistance mentioned in the last post.  As expected, we broke down from the smaller of our two rising wedges.  The larger wedge remains.

One more push higher would make for a cleaner EW pattern (5 distinguishable waves of 5) and would provide a little extra technical overbought conditions to be put in place before the leg down.  Such a push could begin here, or from trendline support found at 1335 (see note below), 1320 (off the trendline formed from the 3/16 and 4/18 lows) or the bottom of the larger rising wedge from Mar ’09 (currently at 1295, which is support from the 4/18 low.)

Any push should be contained in the 1382 – 1293 range as discussed in the last post and would set up the long-awaited next wave down.  I’ll be keeping an eye on the daily MACD and RSI, both currently rolling over and forming lower highs, but not yet firmly in the bearish camp.

NOTE:  another important trendline was left out of yesterday’s post.  The line drawn from the Oct 2007 1576 high to the 2/18 1344 high and the 4/6 1339 high could come back into play in the next few days.  It was very strong resistance on 2/18 and 4/6 and could now provide strong support — possibly the bounce before leg 5.  It currently stands at 1335.  I suspect if we descend through it without difficulty, we should have a swift decline to 1295 or below.

These charts indicate a collision looming between:

(1) the long-term wedge started March of 2009,
(2) a more recent rising wedge starting April 15,
(3) the long-term resistance line dating back to the early 1990’s, and,
(4) the 78.6% Fibonacci retracement of the March ’09 lows.

Note, both wedges are very long in the tooth, meaning they’re just about played out.  If only the smaller wedge plays out, the target would be the lower end of longer term wedge, or 1295 — a support line from the Feb declines, tested again on April 15.

Price target if the longer term wedge plays out is 46 – 100% of the rise, indicating 320-700 points on the SPX.  The last time we had a long-term wedge play out was in May ’10, when SPX declined 210 points.  According to Tom Bulkowski the average decline for all breakdowns is 14%.

Rising wedges can and do fail to break down as predicted, but given the presence of long term resistance (20+ years, no less), the Fibonacci and what looks like topping MACD and RSI, my money’s on a significant decline.  The shooting star setting up on the daily won’t hurt, either.