ORIGINAL POST: 9:25 AM
We’ve been studying a growing channel on SPX since 1266. If this morning’s futures action carries through into the opening and takes prices out of the channel, I’ll consider dumping our longs.
Here’s what I’m watching:
It’s a little early to say, but the SPX channel might also morph into a rising wedge.
continued…
Either has the potential to get prices to our target area of 1380-1405. But a fall from the presumed channel would necessitate a redraw of the channel/wedge.
The bullish RSI picture would actually benefit from a touch on the lower end of the breakout channel. But, again, a drop below the channel would change the picture considerably.
UPDATE: 9:35 AM
That was a clean break of the price channel, but RSI is still intact. I dumped my longs as discussed above, and will look to jump back in if prices firm back up at the lower RSI channel tag. This should also correspond with a back test on the last major channel down from 1415 to 1266.
A break below 1315 would take prices back into this channel and signify further downside potential.
UPDATE: 9:45 AM
There’s the RSI tag and channel back test right at 1315. I’m taking profits on a few shorts I put on with the channel break above, and will go long again here — with tight stops.
The only hesitation I have is that a rebound from these levels today would leave the daily RSI channel without a tag. And, the short-term bullish case would be much more compelling with a well-established RSI channel to the upside.
Perhaps the hint we’re supposed to take is a close around these levels today and rebound tomorrow.
UPDATE: 10:15 AM
Good housing news, at least on the surface. I’ll dig into it shortly. In the meantime, 1315 is holding.
VIX seems to have topped out very close to the Point C we forecast back on June 12 [see: VIX Forecast] — only a couple of days earlier than expected. I’ll watch VIX closely for hints that there’s more to this pullback than meets the eye.
UPDATE: 3:45 PM
As we anticipated in the 9:45 AM post, the market is set to close at 1315 — the intersection of the new upward sloping channel with a back test of the last downward sloping channel. Daily RSI is right on the money as well — perfectly tagging and therefore firmly establishing the channel I’ve been expecting.
Either this is a perfect setup to crush wishful thinking bulls or the market is set to begin a strong upside move from these levels.
Comments
7 responses to “Channel Watch”
hey again, Michael – my naivete is getting the best of me. if the VIX achieved its point C a couple days ago, shouldn’t it now be heading to point D in a rapid fashion? my understanding is that the VIX point D would largely sink up with SPX’s point C. am i totally off base? (it wouldn’t be the first time by any means..) or are you simply saying the VIX is a little late to the party, ie, will decline rapidly soon enough – thus confirming your SPX point C being 1390-1400 hypothesis?
“Rapid fashion” is nice, but never guaranteed. Yes, VIX’s low (D) should correspond with SPX’s C if in fact we go higher than 1363. And, unless this forecast blows up in my face, it’ll all happen over the next 2-3 weeks.
ahh – gotcha. that is where my disconnect was – i keep assuming the VIX is more anticipatory than it probably is and will behave as it has in the past (where as soon as the market got a whiff of future upside it was dropped like a bad habit) – late December 2011 comes to mind. so, in not seeing that action, my curiosity as to your thoughts on SPX’s point C possibly being 1363 got louder. thanks for the responses!
sometimes it anticipates, sometimes it just takes forever — like last July. If you’d been watching only VIX, you’d never have guessed a 200-pt plunge was right around the corner. Re 1363 — I don’t think so. But, I’m open to it, and am watching the current channel very closely. New post coming in a few..
Hello PW, how does today’s move affect the IHS? Is the IHS still on track? Today’s close seems to create the right shoulder.
It doesn’t, really. The neckline is around 1335, so this is a deeper back test than would be ideal. But, the pattern is intact unless the previous right shoulder is exceeded. Even then, it would probably morph into a slightly different pattern.
I see. Thanks! Oil and Euro did not drop as much as SPX did. Compared to Oil and Euro, it seems like SPX overreacted with the back test.
Meanwhile, the media explains that the drop in stocks was caused by the expectation of the failure of the summit on June 28. It is hard to believe that the media would be honest and anticipate something like that.
How many summit were successful in the past 3 years? Whether the summit is successful or not is not the point. It is a tool to simulate (aka manipulate) the economy (aka market)