Charts I’m Watching: Apr 3, 2013

ADP unemployment miss, FOMC gov’s publicly debating QEn, a growth warning for China even as PMI levitates and the Volcker Rule might not become law till 2014.

Yesterday’s last minute ramp in stocks has fizzled as expected, and we remain short from 1573 [10:37 update] a price that proved to be 0.66 from the high.  We have a 30-day forecast in place, now [see: yesterday’s 11:50 update]; and this morning’s sell-off is falling in line so far.

The dollar continues to channel properly, but is falling in concert with stocks this morning.  When SPX reverses around 1560-1561, look for DX to continue falling.

The EURUSD is bumping up against its channel top again.  This time, we should see a decent bounce — probably topping the 1.30 mark again.

The .786 retracement of the rally from 1558 to 1573 is at 1561.72.  The .886 is 1560.2.  Either would work as a tag of the rising wedge’s lower bound.

UPDATE:  11:07 AM

Just got the tag of the .886 at 1560.20.  I’m going to take profits on the short from 1573 and go long here at 1559, with stops around the previous low of 1558.46.

UPDATE:  12:15 PM

I mentioned earlier about the dollar falling as stocks bounce.  Stocks and the dollar have had a love-hate relationship for the past few months — at times ignoring the high negative correlation that characterizes the general risk on/risk off environment since Feb 2011.

The dollar’s next major move should be higher.  I see this as a temporary breather that should accompany the euro’s bounce, the yen’s last gasp higher, and stocks’ next little rally.

The dollar has been on a tear for the past two months, easily reaching our interim target of the .886 Fib retracement at 83.616.

But, completing this Bat Pattern means we should see a sell-off, as the daily RSI chart below supports.  Having broken the white channel midline, the next real support is the yellow midline.  If that falls, the next support isn’t until the intersection of the white .25 line and the bottom of the purple channel.

If that’s all Greek to you, just know that regardless of the longer-term prognosis, there is some downside risk here at these levels which supports the idea of a reversal from the Bat Pattern.

UPDATE:  1:10 PM

SPX just nudged below our stop at 1558.46 and briefly dipped below 1557.  I think this is all part of an effort to shake out bulls for the next rally, and don’t see it dipping much below 1555.57 without a significant change to our forecast.

If we reverse off of 1558.47, I might change my mind.  But, it looks like the 5-min RSI is staging a breakout to go with the price breakout.

I’ll keep an eye on the red and white channels.

UPDATE:  1:32 PM

Just popped down through support on RSI.  So, I’ll play along on the downside, next target 1553.30 – 1553.38.  If that doesn’t hold, look for 1549.

UPDATE:  2:25 PM

SPX broke out of the 5-min channel and just back-tested it.  But, there’s no guarantee that this isn’t the start of some RSI chop while price works its way lower.  1552.10 works nicely in terms of the upside possibilities (see yesterday’s forecast), but it’s pretty much no-man’s land in terms of existing harmonic and chart patterns.

I’m inclined to stay short for the purple channel bottom at 1546.08 or the 1.618 at 1549.09, with stops at 1558.47ish.  But, anyone who doesn’t mind the extra trading might consider going long here — with the understanding we might run into trouble at the channel top (small falling white) at 1558 or so.

While we’re waiting for the channel to resolve itself, let’s take a look at what these extra 10 points on the downside means to the odds of reaching 1576 or higher.

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