I’m back from vacation, refreshed and rejuvenated after 5 days in heavenly Lake Tahoe.  It’s exactly what I needed after a tremulous last few months in the markets.

IMHO, Tahoe is every bit the equal of Como, Louise or Lugano and belongs on your list — especially if you can avoid tourist season.

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Yesterday’s finish…  SPX reached our proposed Point B and, based on the eminis, should tag our proposed Point C in the opening minutes.

DX has reached our target of 81.111.  Also bodes well for a pop and drop…

UPDATE:  9:36 AM

I’m shorting here at 1700 — likely the full extent of a 2nd/B wave.  But, if not, the pullback should still be playable.

The USDJPY still shows more potential downside, but should get a bounce here at a channel midline and smaller scale Crab Pattern completion.

If the support doesn’t hold, however, the pair should reach our 95.44 target ahead of schedule, and could easily race down to the .886 at 94.66.  As we’ve discussed many times, the yellow midline should get a test — particularly now that the white channel has committed hara-kiri.

Over the past year, the pair’s moves have been highly correlated with the SPX (the light purple line.)

But, note the divergence since Jul 8.  Can SPX continue to ignore the pair’s demise?

UPDATE:  10:15 AM

So far, so good…

continued for members…UPDATE:  11:28 AM

I’ll take a protective short-term long position here at 1691 — core short remains in place.  Stops at 1690.75.

SPX reached the .786 retrace of the rise and just pushed higher than the 11:00 high — ticking positive in the process.

Assuming the drop from 1700 was the first of a 3rd wave (small scale), the bounce here might retest the dashed yellow TL at the .786 (1697.66.)  There’s also the risk that this morning’s high — at .618 of the drop from 1709 to 1684 — was only an A wave on the way to the grey .786 or .886 (1704 – 1707.)

I’m leaving the core short in place as it appears to me there’s a very good chance of the Crab Pattern posted yesterday playing out (I’d consider dumping it if we pushed higher than 1700.18.)  Note that the red B was about a .707 retrace, diminishing the odds of an ultimate .786 (Gartley Pattern) or .886 retrace (Bat Pattern.)

If the Crab Pattern plays out, the red 1.618 is at 1655.24 — the key level we identified back on July 30.  It’s the bottom of an important channel that I fully expect to be tested very soon.

UPDATE:  11:55 AM

The USDJPY looks like it’s backtesting the broken white channel midline.  The 60-min RSI indicates a moment of truth — the intersection of the falling white channel and the rising red one — right at 4pm.

My gut is this will coincide with SPX 1698, but we’ll see…

UPDATE:  12:40 PM

We reached the .886 pretty quickly.  I’ll close the interim long here at 1698.99.  Full short again, stops at 1700.20.

A move higher than 1700.60 would complete a rather lopsided H&S Pattern targeting 1715ish.

Update on DX…

…and, USDJPY…

Could we get a bigger reaction at the white midline?  Sure.  A move above the 60-min RSI midline would definitely do it.  It’s on pause at the moment — coinciding with the .886 move on SPX.  Stay tuned…

UPDATE:  3:55 PM

Everything’s been in stasis for three hours.  Can’t really tell if we’ll get another leg up or not, so I’ll go to cash at the close.

SPX came within 4 pennies of this morning’s high, then backed off — also 50 cents shy of an IH&S.  The failure to beat 1700.18 in the last three hours was bearish; but, the failure to crack 1684 earlier was bullish.

The eminis did reach the earlier high (exactly at 1697, but not a penny more) and came within .20 of an IH&S — but, didn’t complete it.  The momentum was easily there; it was as though someone put the brakes on in the nick of time.

This kind of manipulation always makes me nervous.  Completion of the IH&S would obviously have attracted long positions. By stopping short, the gains can be reserved for the after-hours players.  It’ll be interesting to see how the eminis move after SPY options close in a little while.