The dollar’s falling wedge is breaking out as expected.

The USDJPY is backtesting the broken white channel.

The EURUSD continues to fade after completing a very deep retracement.

The eminis shot up 7 points overnight, but have given most of it back.

The retail sales number was disappointing, but not so much that the Fed should abandon plans to taper.  In sum, I see no reason not to continue to hold short.

SPX will likely take a run at the .886 at 1693.92 on the opening, but should fall back just as quickly.  I don’t believe it’s worth chasing unless it breaks above 1700.

UPDATE:  9:45 AM

So far, so good.

UPDATE: 10:25 AM

Interesting development on XLF…  A few days ago, we discussed the test of a key channel and another larger channel’s midline as well as the approach of some key Fib levels.

XLF reached two key harmonic levels in the past month, and nearly completed the 1.618 Fib (21.06) of a large Crab Pattern set up by its 2011 decline.

XLF didn’t quite reach 21.06 (yet), but it did fall beneath the channel midline (purple) and, this morning, it lost channel support (red) and horizontal support (the 20.35 high from May 22.)

If it doesn’t find some help in the 199.97-20.15 range, it could easily drop to the bottom of the purple channel — a correction of nearly 8%.

continued for members…UPDATE:  10:42 AM

SPX got a bounce at 1682.62 at the TL we’d drawn from two previous lows.  This is a little tricky, as it could form a neckline for another larger H&S Pattern.

Nervous types might want to take a protective long position here.  But, IMO, the .886 at 1679.93 is still on the table and this bounce should peter out at the backtest of the previous neckline at around 1687.

It bears watching, though.

UPDATE:  11:25 AM

SPX just moved through 1687, so I’ll take an interim long position for protective purposes — as a more robust bounce could reach 1696.  Stops at 1687ish.

UPDATE:  12:00 PM

SPX just tagged 1687 from above.  It still isn’t clear whether the perfectly formed smaller H&S will play out, or the larger one will go on to form a right shoulder.  I like the small one just fine, but am about 60:40 on whether it retains control.

I will watch for a move that’s less tentative before resuming a short position.

UPDATE:  12:42 PM

SPX just tagged the .618 of the move down from 1700.14.  I’ve noticed that each wave down from 1709 has been followed by a .618 retrace.  Ordinarily, this might set up a Gartley or Bat Pattern to the .618 or .786.  But, it’s been followed by a new low each time.

Our Point B was near the .707, so the current chart indicates a Crab Pattern at 1655.43.  I’ve had the .886 marked on the chart, but consider it an interim target relative to the 1.618.  That all changes if SPX breaks out, of course.  But, for now, I think the momentum continues south.

If I’m wrong, then the .786 at 1696.39 looks like the next most likely target — with the .886 at 1698.14 as the fallback.  So, set your stops accordingly.

I’m closing my long and resuming a short position here at 1693.

UPDATE:  2:13 PM

I have to run out for a meeting, but should be back before the close.  I’d stay short unless SPX moves beyond 1700.