A positive durable goods report, mixed CAT earnings and the usual meaningless NAR drivel (this time negative, but being spun as a lack of inventory) have combined to drive SPX down 5 points.
As we discussed Friday, the bottom of the purple channel (1498) and/or midline of the white (1496.50) are good trigger points for those who play intra-day moves. Look for a bounce there.
The bottom of the white channel is currently 1485, the level at which a move lower would seriously undermine our current position. Otherwise, our core position remains long.
The dollar, which broke back down below a channel line on Friday, had a 2nd nice bounce off the next lower channel line, but as yet hasn’t broken out. The short-term harmonic picture continues to be ambivalent.
Keep an eye on the RSI channels, which still point lower in the short run amidst a general move higher.
The EURUSD continues to linger in double-top territory — also the completion of a Crab Pattern (small, purple.)
Note that this is also a .500 and .382 Fib of much larger patterns, so we should get a sizable reaction here.
I’m adding two pages to the website this morning. The first is a general discussion of harmonics trading techniques — something I’ve been wanting to do for months. Part 1 has already been posted under the harmonics section of the “learn” tab.
The second, which will be posted shortly, is a brief summary of my current core position and will be available under the “markets” tab. Many of you have asked for such a page, but I’ve hesitated because of the risk of misinterpretation.
Someone taking a quick look might see a long position, for example, without noting the commensurate high risk of a sharp downturn that was discussed in the daily post the day before. There’s also the risk that a short-term trade is misinterpreted as long-term, or vice versa. At tops and bottoms, when we’re waiting for the market’s stripes to emerge, core and short-term trades aren’t always easily distinguishable from one another.
Last, such a page will out of necessity be a snapshot — a peek at where things stood at the time of its posting. The outlook might have changed two minutes ago but not have been posted yet. Someone who reads the full daily post would realize a change is in the works, but this page wouldn’t yet reflect it.
But, with those caveats out of the way, I’ll post it later today for members only.
UPDATE: 11:30 AM
SPX bounced at the white channel midline as suggested earlier (1496.33 v 1496.50 target) and is back above 1500.
I believe our short-term forecast is right on track.
continued for members…
As we discussed last week, our target area of 1509 – 1518 has much to offer from a harmonic standpoint. I believe there’s a very good chance we’ll reach it in the next day or two.
All else being equal, my money would be on the upper end of the range — the larger and more established patterns — but clearly there’s a high degree of headline risk. So, it wouldn’t shock me if this is one of those times when we fall just a little short of the primary targets — meaning the top could already be in.
As always — use stops. And, if you can’t stand the thought of waking up to see the market gapping down 20 points, best to be on the sidelines. Because, as helpful as the little white channel has been to day traders, it’s a very steep channel that bottoms out around 1485 currently. And, the bottom hasn’t been tested since the 15th, so it’ s overdue.
In terms of timing, SPX has reached the .618 Time Fib (shown in red, below) of the smaller rising wedge. The .707 of the larger rising wedge (visible above) is Wednesday Jan 30.
I think we’re in need of a little catalyst to drive the market 10-15 points higher and achieve the capitulation necessary for the top to form.
The question, then, is what next? I’ve spent an enormous amount of time working on a medium-term forecast ever since we topped 1474. I wish I could say the answer is obvious, but it’s not yet. If there’s a big headline shock (sequester, ratings downgrade, disappointing FOMC announcment) there’s a very good chance we’ll head down to tag the bottom of the little rising wedge (currently at 1434) or the larger rising wedge (currently 1400ish.)
From 1515, these would be 5.3% and 7.6% corrections respectively — and would certainly take the current froth off the market.
more shortly…