ORIGINAL POST:  9:15 AM

The futures show how perfectly balanced things are at this level — with a step in either direction being very significant.

We tagged the IH&S target created back on June 19 yesterday, creating a double top after having broken the fan line off the Oct 2007 top.

We appear very likely to hit yesterday’s target of 1408 – 1410 on SPX after the open.  If it can hold those levels, we could see another leg up in the rising wedge.  If it breaks, look out below.

More in a few.

UPDATE:  9:35 AM

SPX had no trouble reaching our target range on the open.  Note that we have three chart features in play at the moment:  the rising wedge bound, a back test of the fan line (purple, dashed) and a little trend line drawn under the prices on the 60-min chart.

continued…

I anticipate that we’ll not break the wedge at this point — not with the Fed minutes coming out later this morning.  And, when was the last time that Fed minutes disappointed?  They’re written in such a way as to be completely bereft of bad news.

I’m going to go long here at 1408.60 and try to play an expected bounce higher we talked about yesterday. If we break the wedge, I’ll resume shorts as quickly as possible.

UPDATE:  9:55 AM

We got the bounce I was expecting, with 1408.51 as the low thus far.  We just tested the upper bound of our little channel at the .786 retracement.

Look for an attempt to push lower to fail somewhere around 1410-1411, and provide support for a Butterfly pattern that will complete at 1415-1417.  Such a move will broaden the channel — at least.

UPDATE:  11:22 AM

The breakout/Butterfly failed and we’re back testing the 1408 lows.  As before, a decisive push through these levels and I’m short again.  We’re flirting with breaking the wedge.  If this should happen, look for support at 1404.64.  If that level fails, then it’s likely down to the channel midline around 1390.

UPDATE:  11:50 AM

The wedge is holding for now in the 1408-09 range.  The following chart lays out the major influences in this range.

Yesterday’s push above the former high might have broken out to the upside if not for the wedge upper bound.  The push lower might have run into the 1370s’s if not for the lower bound (and still could.)

As it turns out, the wedge lower bound intersects right here with the former neckline of the Feb 3 – May 7 Head & Shoulders pattern that got the trip to 1266 started.  It’s easier to see on the daily chart.

UPDATE:  2:35 PM

Another day of deer-in-the-headlights markets…  Strange patterns everywhere.  The dollar/euro standoff we discussed last night was decided in favor of the euro — even before the Fed devalued the dollar with stronger hints of QE3.

Even though DX broke out of its falling wedge, it fell right back in and appears to be heading toward the lower bound at 81.47.

This also means a test of the purple channel line just below — which might help determine which set of channels will hold sway in the coming weeks (red vs purple below.)

The red channels have been regulating movements within the purple channels.  While I wouldn’t rule out a brief dip out of the purple channel to tag the 1.272 at 80.83, the purple channels have the better pedigree.

For now, I’ll consider the falling wedge broken and call it a channel down to 80.83 — which also happens to be the .618 of the 7% rally from May 1 to July 24.

EURUSD, in the meantime, has essentially completed the Gartley Pattern we anticipated a week ago [Wake Me When it’s Over], climbing to within .0015 of the .786 at 1.2552.

 

The red, dashed line overhead should provide meaningful resistance from that point forward.  This is a well defined channel from April 11, 2011.  The purple channel lines have been regulating movement within it.  As indicated on the chart below, EURUSD is well-positioned to decline to the 1.272 (a Butterfly Pattern) at 1.10.

A reminder, Point B’s at the .618 or less can and do become Bat Patterns, too.  In this case, a run up to 1.2617 would just about fit within the red channel line.

UPDATE:  7 PM

Gold broke out of its long-term triangle pattern with today’s Fed statement regarding QE3.

More in the next post.