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I’m closing my long position position and going short this morning. If SPX can break above the key levels we discussed yesterday afternoon, I’ll change my stance.

As I discussed last night in Trading for Fun & Profits, the market is at another critical turning point.  After topping many levels of resistance, SPX is nearing some of the most important.  A break above can usher in much higher prices, while a reversal here could do a lot of damage.

It’s no wonder that the market has bounced back and forth in a fairly tight trading range for the past week.  We’re likely to see more whipsawing over the next couple of days.  So, those who like to remain above the fray could wait for a break above 1603 or below 1580 and not miss too much of the action.

The dollar should base here between 81.920 and 81.956.  81.67 is the key level to hold.

The EURUSD has a little more harmonic upside potential, but that channel line could prove problematic.

USDJPY continues to have downside risk to the bottom of the purple channel.  It intersects with the white midline around the .618 of 95.47.

UPDATE:  10:30 AM

AAPL is getting a lot of attention for its “breakout.”  Recall when we last charted AAPL [see: Is It Safe?] on April 19, we noted the presence of a channel line that should support a rebound.

“the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce.  Whether it turns into something more than that will depend on whether it break free of the falling channel from hell…  AAPL should find support at the .75 line of the white channel around 380-385.”

I was a little off, as the actual bottom was 385.10.  But, it’s back to that channel bound discussed and is thinking about breaking free.  Unfortunately, it’s also reached a .618 Fib line that could spoil all the fun.

It needs to close above 437.54 in order to be considered safely out of the woods.  In fact, a failure and close below 429.70 would be quite negative – at least in the short run.

UPDATE:  10:40 AM

SPX is getting a bounce off its lows of this morning. It should run its course by 1592.  Any higher would be cause for considering switching sides.

UPDATE:  11:00 AM

An update on the bounce…

I’m taking an interim long position here, stops at 1591ish.   Key level = 1593.47 — the 2000-2007 TL (red, dashed.)

more in a few…

UPDATE:  11:50 AM

SPX just moved back through the long term TL mentioned above, so I’ll close my short position and play the upside. This leaves us full long at the moment, though this could obviously still break either way.

The IH&S neckline is currently up at 1599.63, and the channel midline is around 1598.26.  Look for a backtest of the broken TL.

For anyone who doesn’t enjoy being caught here in the surf zone (does anyone?) here are the approximate key levels to watch:

• TL (red, dashed) from 2000 and 2007 tops: 1593.44
• previous high: 1597.35
• purple channel midline: 1597.48
• the neckline of the almost completed IHS (yellow) at 1599.82
• TL (yellow, dashed) from 1994 and 2003 lows: 1600.22

It was that last TL that stopped SPX on the 11th, so that’s the most important.  Topping it means exceeding the other three, so it’s obviously bullish.

And, as we discussed late yesterday, the failure to tag the IH&S neckline  — now at 1599.82 — could be quite significant.

If the current backtest of the red 2000-2007 TL holds at 1593.40 or so, there’s another little IH&S waiting to complete at 1595.75 that targets 1604.53.

But, there’s a significant point of confusion coming up that I’m sure the market makers will take advantage of.

continued for members…

Within the next couple of days, the IH&S neckline, purple channel midline, TL from 1994 and 2003, another small IH&S target, and the 1.618 extensions of the latest Harmonic Patterns all intersect — shown below in the purple box.

We can safely call it 1600-1603, and it ranges from tomorrow morning (May 1) through the end of the session Thursday.

Given the way the market’s been going, there’s an excellent chance that we’ll arrive at this critical point in the closing minutes on Thursday — the night before NFP, ISM Services data and Factory Orders all come out.

The thing that jumps out at me under that scenario is that we could reach all those targets without ever completing the large, yellow IH&S pattern that targets 1640+. Remember, it didn’t complete yesterday.  It came up about 1.11 short, then tumbled 10 points.

UPDATE: 3:55 PM

I’m closing out my long position here at 1597 and going to cash for the night.

It’s not that I don’t think it can go up a few more points in the morning.  I just don’t like sitting overnight in something that might have moved as far as it’s going to.  Those gap openings are a killer.