Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.
The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target. Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time. With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)
The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched. I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.
The slope of the white channel could potentially be shifted, as illustrated by the above chart. But, it would take a break out to reach the next higher Fib levels.
A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.) In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.
But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher. If it can hold the channel, the next move up should be explosive.
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