We got the reversal we were looking for last Friday, but as detailed in the last forecast there is still some uncertainty as to the ultimate outcome of this latest rally.
We remain short from 1462, but a stop in the 1466-1468 range would be prudent. A rally through 1474 changes our forecast, as discussed yesterday.
The euro bounced off the bottom of the rising wedge we’ve been tracking as expected. There is negative divergence relative to the Dec 7 low; so, in all likelihood, the larger wedge should break.
The daily RSI shows the two options quite well — a bounce off the yellow channel line or just a back test of the broken purple channel line.
The dollar continues to move in tandem with equities. It rose last week as SPX rallied, and is off today. But, like EURUSD, there is marked divergence on the daily chart since it broke up through the top of the red price channel and retested the bottom of the white price channel.
It reversed at the .786 of the B-C (purple) drop. And, the 1.618 extension of this move is the same level as the .786 of X-A: 83.10ish. This would set up a tag of the white channel mid-line somewhere around Jan 22-23 (the .886 intersects with the mid-line around Mar 6.)
I posted quite a bit over the weekend about the SPX forecast, so I won’t rehash it here. Suffice it to say we need to see some follow-through on the dip this morning in order to get anything going on the downside.
The 15-min chart shows a potential H&S pattern that targets 1443. But, SPX will need to reverse before 1468 for it to play out.
I’ve updated the channels and harmonics for the most recent top. In general, they confirm the current forecast. But, there is plenty of wiggle room.
continued for members…
Consider this chart which is drawn using arithmetic scale. It clearly shows the rally up from 1343 could be nothing more than a bounce between the 25% line and the mid-line of the large white channel. It looks good as a purple channel back-test, too.
It even works if we expand the purple channel to include the 2010-2011 top. Note what happens if we expand the falling white channel that captured the 2011 correction. Turning the top of that channel into a mid-line results in the following chart.
Note that we now have two nice channel line back-tests in a row: the June and Nov 2012 lows.
These lows are on one trajectory — the 25% line; while, the tops are on a lesser slope — forming a rising wedge that’s being back-tested (as drawn below) or one that’s simply getting closer to an apex.
Note also that Friday’s high precisely tagged a fan line connecting the 2007 top to the Sep 1474 top. It makes for a nice channel top, too.
More later…