Yesterday’s forecast remains in place. SPX tagged our initial upside target — the SMA200 — and barely fell back before tagging our second — the top of the megaphone pattern.
This was impressive, given that USDJPY clearly broke trend.
But, as regular readers know, there is very strong support just below at not only the white .618 at 120.23, but the critical yellow .618 at 120.11. I don’t know anyone who doesn’t expect the pair to be supported there.
Besides, CL — the new star on the algo scene — more than made up for USDJPY’s slump with an impressive ramp that saw it break through August 24’s lows.
continued for members…
SPX’s megaphone is very well formed.
And, I fully expect SPX to pop out over the next few days and at least test 2100 in the coming week — if not make new highs. But, if USDJPY’s behavior this morning is any guide, it will require a leap of faith to capitalize on it.
Over the past few months, nearly every big rally or plunge was preceded by a head fake of some sort. The latest example was last Friday’s meltdown into the close which broke the best-fitting rising channel. It left a bearish taste in one’s mouth.
Come Monday, of course, SPX embarked on a 3-day, 55-pt rally. I expect the same here. If traders aren’t too sure it’ll break out, they won’t pile in on a low-day ahead of a holiday weekend. And, that means fewer profits for TPTB to share with us muppets.
If they want to make it really uncomfortable, they can run SPX down to the SMA20 at 2056. A 7-pt drop would shake out most bulls. They could even let it slide to the .618 at 2049.51. We never had a backtest there.
So, as I mentioned yesterday, here’s a chance for swing traders to test their faith. We could have a big reversal off the megaphone as happened on the 16th. We could open Monday having gapped down 40 points. But, I think whatever damage is done today will be a head fake.
If you will indulge me, then, I’d like to leave the squiggle watching to you, and focus on some big-picture charts that I think you’ll find interesting. I’ll create a separate post for them, and swing back by here if anything unexpected happens between now and 1PM.