The dollar continues to hang in there, with strong support at the bottom of the rising red channel and a potential bottoming pattern (IH&S.)

For now, it’s a bullish sign.  But, DX has been somewhat bipolar lately.  Moving in union with stocks until there’s a bump in the road, then shooting up more rapidly to reflect any rise in fear.

The SPX is in the midst of breaking out after completing its own IH&S.  I remain short-term bullish and will play the long side on the opening bell with an immediate objective of 1666 and then 1670-1672.

Friday, SPX broke out of the corrective falling red channel.  As long as it remains in the rising white channel, it has the potential to surprise on the upside.

This is day 3 of a potential Zweig Breadth Thrust.  As we reported last Thursday [see: The World’s End] the indicator broke through and backtested .40 (the ratio of advancers to advancers and declines) and needs to reach the .615 mark (shaded area) by next Thursday (10-sessions) in order to signal a break out.  It’s more than halfway there.

UPDATE:  9:53 AM

SPX reached our initial target — the red 1.618 and purple .382 combo at 1666.22.

We should get a pause here, perhaps to backtest the broken yellow neckline of the latest IH&S.  It’s playable, but likely won’t drop more than 1662-1663 as anything further would jeopardize the rising white channel.

Just saw a news flash that Dick Bove of Rafferty Capital downgraded JPM to “hold” since it is apparently the target of a “government vendetta.”

I don’t know about a vendetta…  JPM has received a pass at every turn, no matter the offense.  Any penalties it has received have been mere slaps on the wrist.  It would take boatloads of penalties to ever negate the largesse the Fed has bestowed on JPM.

JPM is one of the prime beneficiaries of QE.  I’d go so far as to say it’s practically a pure play on the likelihood of continued QE.  Thus, its chart is instructive.

A narrow rising channel broke down after a recent Crab Pattern completion (the purple 1.618 at 55.86 — which might have been the better place to downgrade the stock.)

But, the subsequent drop to the 1.272 (at 50.51) is a typical basing move before a potential next leg up.  And, note that there’s a bigger rising channel that would fit quite nicely — with a midline running right through 50.51.

There are plenty of other patterns at work here — not the least of which is the recent tag of the .786 (56.06) of the drop from its all-time high of 67.17 in 2000 to 15.26 in 2002.

If the Fed feeding tube were to actually be withdrawn, I can see JPM having plenty of downside.  But, the charts indicate the Fed is more likely to continue to prop up the financial sector for as long as it takes — and, that’s a very long time.

continued for members…

UPDATE:  2:50 PM

SPX is moseying slowly down to backtest the broken yellow neckline, probably at the white 1.272 at 1664.22 and the midline of a potential purple channel.

Note that it’s already backtested the .236 of the yellow channel which runs parallel and slightly higher than the yellow neckline (in reality, there’s no way to say that they aren’t one in the same and that the channel needs a slight adjustment.)

A reversal in the 1664-1665 area should provide the juice to run up and tag the 1670-1672 Fibs.

UPDATE:  3:13 PM

SPX just dipped below the 1664.22 level I wrote about earlier.  While I expect it will reverse in the last half hour of the session, it’s prudent to switch sides here just in case.

The next most likely areas for support are the white 1.00 at 1658.92 or the yellow .786 at 1660.

UPDATE:  3:23 PM

That should do it for the downside.  I’m switching back to a full long position here at 1657.12.    Stops around 1653ish, which would be a backtest of the red channel.

UPDATE:  3:50 PM

We got a nice bounce at 1656; but, absent a 14-pt bounce in the next 10 minutes, the steep rising white channel is kaput.  If 1656 holds, then the purple channel looks good.

We’ll probably get a little push lower on the opening to backtest the red channel @ 1652.62, but there’s no need — the purple channel is fully formed.  I’m holding long overnight.

The 60-min RSI is screaming backtest:

And, the daily RSI is in full agreement:

Even the Breadth Thrust seems to be in backtest mode…