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.

continued for members…

UPDATE:  11:00 AM

For those playing the break out through 1425, I would close any short-term longs here at 1431.  I just don’t see the .786 at 1446 in the near future.  We’ve tagged the top of the alternate falling (purple) channel I posted earlier this morning — at the intersection of the top of the rising channel we’ve been following since the 1343 bottom.

SPX is way ahead of the other indices (other than NDX, thanks to AAPL and INTC.)  But, AAPL and INTC are both bumping up against channel lines, so absent a break-out their moves are unlikely to last.

NDX itself has completed a Bat Pattern, so further immediate upside is unlikely.

AAPL has an .886 just above at 551.37 — also the top of the falling white channel, not to mention the .500 (purple) of the 505-596 move.

And, the daily RSI is pushing on the channel mid-line.

XLF completed the Gartley at 16.11 we discussed a couple of days ago, not to mention a very ripe rising wedge — all while tagging a RSI channel mid-line.

The point made then was that the market would need the financials to fall in line before starting the downturn in earnest.  And, the financials were a tick or two away from reversing.   Bottom line: reversal likely imminent.

UPDATE:  12:00 PM

RUT daily big picture shows a back test of the huge rising wedge (yellow) at the .618 retracement of the drop from 868 to 763.

A pullback to find a Point C should soon get underway.

The daily RSI looks particularly bearish.

UPDATE:  1:40 PM

Taking a look at the dollar…  The RSI suggests this is nothing more than a back test of channel mid-lines in a move higher.

The rising channel is holding, also at .786/1.618 Fib support…