Channeling a Top

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.

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