We’re all familiar “good news is good” and “bad news is good.”  Are you ready for “good news is bad?”  In a sign that things are becoming curiouser and curiouser, slightly better than expected employment numbers and flash PMI have sent the market down this morning.  Bullard, a non-voting Fe governor, made things worse by pronouncing QE3 iffy.

While the dip is slightly stronger than we expected, this is the back test of the neckline and .886 Fib (at 1404.64) we were expecting.

We’re flirting with breaking the wedge.  If this should happen, look for support at 1404.64.  If that level fails, then it’s likely down to the channel midline around 1390.

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ORIGINAL POST:  9:15 AM

The futures show how perfectly balanced things are at this level — with a step in either direction being very significant.

We tagged the IH&S target created back on June 19 yesterday, creating a double top after having broken the fan line off the Oct 2007 top.

We appear very likely to hit yesterday’s target of 1408 – 1410 on SPX after the open.  If it can hold those levels, we could see another leg up in the rising wedge.  If it breaks, look out below.

More in a few.

UPDATE:  9:35 AM

SPX had no trouble reaching our target range on the open.  Note that we have three chart features in play at the moment:  the rising wedge bound, a back test of the fan line (purple, dashed) and a little trend line drawn under the prices on the 60-min chart.

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In the wee hours of June 11, I pondered the possibility that the e-minis were forming an Inverse Head & Shoulder pattern [see:  Big Picture.]  I posted this chart, which showed that the target of such a pattern would be 76 points away from the presumed neckline — the exact same distance as the just completed orthodox H&S target from its neckline.

Of the road ahead, I wrote:

I’ve spent a lot of time lately agonizing over whether we’ll go back up and produce a new high.  The harmonic picture suggests we’ll put in a lower high — a point C which, less than A at 1419 (on ES, 1422 on SPX), would get the party started to the downside.

I can only imagine the amount of good money bears would throw away on puts and the like, trying to anticipate whether it was going to be a .618, .786 or .886 retracement.

Once we approached 1420, though, the momentum would shift to the bulls and an enormous amount would go into positioning for the upside.

What if it were simply a double-top?

Well, here we are.  The e-minis tagged 1420 about 45 minutes ago.

UPDATE:  10:00 AM

SPX completed its own “double top” just after the open.

This was as deep into the rising wedge we’ve been talking about as possible, and on the same day (but, not the same way) we speculated about last week [see: Moment of Truth.]

But, of course, it isn’t a double-top if prices keep rising.  Currently, the daily RSI shows no negative divergence whatsoever (although it’s present on every shorter time frame.)  If we blow through 1422, the upside targets are numerous.

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In a sign of just how over-extended this upside push has been, consider this rising wedge on the 60-min chart.  It’s not proof of an impending swoon, but put into context of our other charts, it sure has that feel.

As clean and simple as was the channel down from 1422 to 1266, the channel back up has been a mess.  I’ve redrawn it hundreds of times, as it continues to morph without rhyme or reason.   I sometimes peruse the Elliott Wave blogs out there, and I can see that many of them have also grown frustrated in trying to assign a legitimate wave count to this mess.

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Thanks for your patience today.  I’m taking advantage of the OPEX dulldrums (sic) to take a step back and evaluate the big picture.

Yesterday, in another low-volume meltup, SPX exceeded my 1411 target by almost 7 points.  Recall that 1411 was supposed to be the level to which the market would run if it slightly exceeded our 1404 target from back in mid-June [see:  OPEX Games & Fed Up Yet?]

My thinking at the time was that if we rallied all the way from 1314 (at the time) to 1404, the fan line from 1576 in October, 2007 would present a very tempting target at 1411.  Here’s the chart from June 20:

At the time, I also thought the neckline (yellow dashed & solid white lines) of the April-May H&S pattern would come back into play down the road.  The neckline played into my expectation of tagging the .786 Fib at 1389 by July 5, which of course it didn’t do until July 27.

I didn’t save that particular drawing set; but, here’s a very similar one I saved later that day with current prices applied.  The neckline did, in fact, come into play, but at the .886 of 1404.64 instead of the .786 of 1389.

more in a few…

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For those who didn’t catch it, here’s a terrific interview with ECRI’s Lakshman Achuthan on Bloomberg about a month ago.  In it, he discusses what exactly is a recession and why we’re already back in one — even though the MSM hasn’t recognized or acknowledged it.

The snoozefest continued yesterday, with SPX eeking out another 2-pt gain — and still below Tuesday’s 1410 high.  That makes eight sessions in a row with pathetically low volume and daily range.  Something’s gotta give.

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ORIGINAL POST:  7:30 AM

We got the long-awaited fan line tag a few minutes after the opening this morning.  We had been looking for 1411, but since that call the fan line has declined a bit; 1410 gets the job done.

The bigger picture is beginning to resolve itself.  The daily charts for SPX, NYA, RUT, COMP, DJIA, NDX, VIX, DX and EURUSD are presented below.

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