ORIGINAL POST:  9:30 AM

It concerns me that SPX has broken out of  its RSI channel, but nearly every other index has not.  It’s entirely possible SPX is merely showing leadership and the rest will tag along, but I rather suspect that SPX is getting ahead of itself.

There’s a channel line just overhead at 1337.30 or so that should limit the current rally.  Given the way the futures behaved over night, in equities, the dollar and the euro, I’m going to fade this ramped up opening and see if it settles back down.

More shortly.

UPDATE:  10:00 AM

Here’s where we left off last week.  I’ve eliminated all the fan lines except those which recently came into play.

This chart paints a reasonably clear picture of a medium-term bullish scenario.  The latest dip looks to have much more in common with the .236 time ratio action than the 0.00, .146 or .386.  That is to say, we should be out of the woods for the time being (though there’s technically a window of another week or two before we can be completely sure.)

Turning to the shorter-term picture… If I overlay one of the systems of channels that have done well in guiding the past several years, the channel line I mentioned in the 9:30 post is visible just overhead.

I should mention there’s potential fractal of sorts at play.  I’ve been burned by these as often as helped, but a mirror image of the past six months is one potential scenario.  It would look something like this:

But, I think it’s more likely that some of our fan lines will continue to play an important role in preventing new lows prices in the immediate future.  I think we’re probably going to go back and back test the RSI channel — meaning a drop in SPX, possibly as low as1303-1308.

UPDATE:  1:30 PM

The dollar has remained in a very well-defined channel since it peaked on June 1.

I expect it to remain in this channel until it fulfills the H&S target of 81ish.  The channel ranges from 80.75 to 81.04 on June 15, which history tells us should represent an interim high for stocks.   I’m looking for a bounce there, pretty much along the lines of our June 1 forecast (the yellow line.)

Such a channel doesn’t leave much room for stocks to appreciate, though.  It’s an additional argument for a volatile and choppy rest of the week.

Here’s the forecast I initially drew back on June 1.

I was obviously early by a couple of days leading up to June 1.  But, the market beat me to the tag of the intersection of the two red channels with the white channel line at 1338 that I expected to not occur until June 13th. I’m going to fine tune the timing and prices a bit and go with this forecast for the moment.

Don’t take the next leg down as gospel.  I think it’ll be choppier than that, testing as low as 1303.47-1308.88 over the next few days leading into OPEX — where I imagine we’ll finish around 1340.   I’ll be looking for more opportunities to short anytime we near that white line, and get long every time we get near the lower white line.   Buy and hold folks would probably do well just to ignore the volatility, but traders can do well in markets like this.

If prices break above that upper white line, it’s a whole new ball game.  It will likely correlate with the RSI back test and establishment of a new channel heading up.  But, I don’t expect that to happen until another test of the white channel line, and preferably the midline of the new, red upward sloping channel as well.

I’m short now, and will continue to play the swings until we show signs of a broad-based break out — including the other indices — upon approaching 1335.  If we get a nice decline between now and then, we’ll set up a potential Inverse H&S pattern targeting 1400  — which just so happens to be my July 25 target.

Stay tuned.

I hope everyone is enjoying the new site.  We’ve had a pretty good run, and I’m happy to report administrative issues have not been too overwhelming.

The one exception is that several users have been locked out of their accounts once or twice.  An automated message is sent out by Digital Access Pass (DAP) — the application that runs the “back office” while I try to come up with something intelligent to say.  The message informs a member that there have been too many login attempts from their email address from multiple IP addresses.

After you email me in a panic and I reset it for you, you get another automated message informing you that your account is again in good standing, but that sharing is strictly prohibited and may result in your account being shut down.  It’s written rather tersely, implying that you are a thieving scumbag (I’ll see what I can do about the wording.)  But, I’d like to avoid these issues in the first place.

DAP seems to have a pretty good memory.  So, if you logged in from your girlfriend’s computer last month, then again from your iPhone, iPad, laptop, and your mom’s desktop, this evening, it will probably shut you down.   Don’t take it personally; it’s a machine.

Likewise, if you lent a friend, co-worker or stockbroker your password so they can see for themselves why you’re doing well with your investing, the system will take note of that, too.  Again, computers have a very long memory.

If it happens to you for whatever reason, email me and I’ll reset it as quickly as possible.  If it happens multiple times due to some mysterious glitch, I’ll reset your membership and get you a clean slate.  If, on the other hand, you’ve already “shared” with friends or colleagues, just know that DAP will send you that threatening email sooner or later.

One solution would be for your friend to get their own membership.  Rates have gone up, but our “performance” has been pretty strong.  We’re up about 26% as of today’s close — in only 11 weeks.  Anyone who hasn’t made their membership fee back many times over hasn’t been paying very close attention.

Current members who refer a new annual member get an additional 3 free months tacked on to their own membership.  So, refer 4 friends and get another whole free year.  Not bad for sending an email or making a phone call (does anyone do that anymore?)

The other solution is a group membership.  Two annual members are just $500 each, a savings of $200 off a single membership.  There are other breaks at 10, 25, etc. — great for investment clubs, brokerage offices, etc.  If, like me, you have no friends, introduce yourself to that guy you always see cursing his eTrade screen at Starbucks.  And, if you don’t see a deal that works for your situation, let me know and we’ll work something out.

I’m putting in some very long hours to make this site successful.  The more members we have, the more time I can put in on the blog.  I don’t know what it is yet, but there is a magic number out there that will allow me to spend full time on the blog.  So, help me help you.

Last, and on a completely unrelated note, I occasionally get emails from folks looking for a a quick opinion on something or another.  Just so you know, I rarely look at my email during trading hours unless it’s one of those “your account has been locked” emails or it’s a day when absolutely nothing is happening in the markets.  The better chance of getting a quick response is to post it in the comments section of a post.

I know Disqus is a pain, and I’m working on finding a good alternative.  But, it’s all we have.  If I can break away to answer a quick question right away, I will.  But, if I’m in the middle of writing a time-sensitive post, my obligation is to the membership at large.  I’m putting in 18 hour days lately just trying to stay on top of what the market’s going to do next.  So, if I don’t get back to you quickly, please be patient.

I happen to know there are some pretty smart members on the site, some of whom might have an better opinion than I’d have offered in the first place.  So, talk amongst yourselves; it’s a good thing.

Thanks to all of you who have joined in these past 11 weeks.  We’re off to a great start, and I hope everyone’s having fun and learning a lot.  Once the dust settles, I’d like to explore conference calls or online educational sessions.  And, once there are more of us concentrated in various places around the world, we can look into get-togethers.

I’m putting the finishing touches on a really cool post that’s been in the works for a couple of months.  I hope to have it up tonight, but it’ll probably be early tomorrow.  Have a great evening.