Quick snapshot of the harmonics for the e-minis:
As anticipated, ES has reached the 100-day moving average. If it behaves as in previous encounters it won’t stop there; it will dip slightly below on the first test — probably the white .382 at 1757.46 after the open. The SPX needs to tag its SMA100 at 1769ish. The May 22 1765 high would be appealing, but that would mean breaking the Dec 18 1767.99 low (the rally designed to convince us tapering would be good for the markets.)
As we’ve frequently noted over the past few weeks since Dec 31 [see: The Top?] the rising channel should get fleshed out in any decent sized correction. Now that it has, the market must decide whether or not a 4.3% decline is enough.
Teetering at the edge of a cliff isn’t so bad if the cliff is a few feet high. But, as we’ve discussed many times (long before it was fashionable, I might add) this cliff is a mile high — thanks to Bernanke and friends. The degree of panic that has set in over a 4% correction is ample proof of the faith investors have placed in the Bernanke put.
The currency markets turmoil represents a real and potentially devastating threat. As detailed in our last major USDJPY update [see: USDJPY Dec 27] the S&P 500 has declined anywhere from 22 to 57% the previous three times USDJPY tagged the trend line it recently reversed off. The market’s future direction should be clear.
Yet, as we’ve seen time and time again, the FOMC, ECB, IMF, the MSM — someone has always swooped in and “saved” the market. Hence, the view from the crumbling precipice. I’ll post targets for both the upside and downside cases over the weekend.
to be continued…