We’re getting a little more momentum going on the downside today.  SPX completed the small H&S pattern I posted yesterday.  It targets 1445 — approximately the .146 Fib of the 1266.74 – 1474.51 rally.

DX completed its back test of the falling red channel and continues to show strong positive divergence.  The RSI chart shows substantial upside.

And, despite the Japanese vote of confidence, the euro is showing continued weakness — with another test of the rising wedge and a white channel line coming up.  The channel line intersects with a .382 Fib at 1.3060, so look for a bounce there.

We remain short from SPX 1462, but we can expect to see some bounces along the way.  As discussed in the last performance posting, I will likely maintain a core short position until we reach our ultimate target.  But, I’ll also provide thoughts on any foreseeable interim moves.

Longer term investors who wish to ignore the intra-day swings should feel free to disregard that info.  While, those who hope to capture the many 10-20 point swings along the way will have some useful (and hopefully helpful) information.

As of last week, the primary directional moves accounted for about 40% returns since inception on Mar 22.  The interim swings were good for an additional 55%.  So, pick your poison.

UPDATE:  11:15 AM

AAPL just broke through an interim channel line on the primary channel we’ve been following since early November.  This should set up another test of the channel midline and, more importantly, the H&S pattern neckline.

Since AAPL is an important bell cow, it’s important to know what’s at stake here.

continued for members…

A break of the neckline would ultimately target 306.  Though there’s a tangle of Fib lines in the 450-480 range that would likely serve as the starting point for a neckline back test.

I’ve tentatively placed Point D at the yellow .618 of 461.23, only because I like its proximity to the purple channel bottom.

If our analog holds up and we get a sell off to 1290 in the next couple of weeks, it’s not hard to imagine AAPL hitting that mark.  It’d be about 11-12% for each.

My biggest concern with this target, though, is whether the neckline will fall or not.  TPTB would likely defend AAPL — if only to defend the overall market. And, let’s not forget about the AAPL balance sheet which, with no debt and $120 billion in cash, could finance a hell of a stock buyback.

That being the case, this pattern playing out would require a powerful downdraft that knocks all stocks off their feet.   So, my best guess is a “strong enough” plunge (Mama Bear) that gets AAPL to the purple channel bottom (but keeps the bullish case alive) followed by a strong back test into February.

Our base case is that the Papa Bear market arrives in May.  So, the rest of AAPL’s decline could always occur at that point without the H&S pattern being broken.  But, we’ll cross that bridge when we come to it.

UPDATE:  12:15 PM

SPX appears to be back testing the broken neckline — currently at 1457ish.  But, for anyone playing the H&S or the bounce (or concerned about the upside), the pattern could reach 1462.97 (the right shoulder) before it’s in any jeopardy.

We’re safely below the 1459.56 Fib level (the .886 of 1474 to 1343), so that level should matter as we leak back up.  Any move higher would have me on edge.  A move higher than the right shoulder at 1463 would have me getting nervous.  And, a move beyond 1468 would have me hedged (at least.)

I’ll be keeping an eye on the RSI channels.  A break out of the 15-min channel should be compared to what’s happening with price.

Let me emphasize, I’m still very bearish at this time.  I presented some background analog data so those who are interested can see some of the factors I’m considering.  It’s also helpful, I think, to know that there is wiggle room with the time line.

While Jan 11 was the optimal date for the next leg down to complete, a casual glance at the time Fibs shows that timing is much less easily predicted than price.  We’re only 17 points off the high, with 160+ to go if the analog holds.

While it’s a possibility, I see the 2000 analog as the less likely outcome.  If I change my opinion about the likelihood of it playing out, I’ll certainly let everyone know.

UPDATE:  2:10 PM

ewtnewbie raises a good question below about the IH&S patterns on SPX.  I’ve posted about some of these in the past, but haven’t really pounded the table because: (1) they don’t fit the analog/forecast — which has done pretty well for us so far, and (2) they’ve occurred at a market top rather than bottom.

Inverted H&S patterns, or H&S Bottoms as Bulkowski calls them, can occur at tops — but they’re more likely to play out a bottoms or in the middle of a range.  Obviously, 1343-1474 would be in the middle of a range that extended to 1600.  But, that’s not the range yet.

Most of the ones that have completed over the past couple of months have probably failed.  An IH&S has “probably” failed when the previous shoulder is exceeded; and, it has “definitely” failed when the head is exceeded.

In the chart below, for instance, the purple pattern right shoulder was slightly exceeded by the Dec 31 low.  The red right shoulder was, too.

The yellow pattern still looks viable, and the latest downturn could be viewed as a back test of its neckline (currently around 1443.)  And, the green pattern is one that would complete if this decline reverses back up to 1470 or so.

The yellow pattern is important because it targets 1553ish — the 1.618 extension of the 1370 to 1074 decline last year.  A Crab Pattern completion at that level would be perfectly logical if SPX exceeds 1474.  A few manic days like Jan 2 and we’d be there (maybe Congress will delay dealing with the budget debacle again — how great would that be!?)

But, the analog, RSI channels and chart patterns I trust (more than a continuation IH&S) indicate more downside.  So, I’m inclined to lend them more credence for the time being.

My goal isn’t to always be right.  That’s delusional.  My goal is to be right more often than I’m wrong.  I’ll stick with what’s working…until it doesn’t.

There are literally hundreds of good reasons the market should go up or down.  Ignore them.  The only reasons that matter are the ones that actually move the market.  So it is with chart patterns.

At the end of the day, the ones that matter are the ones that play out.  And, so, I remain bearish unless the market tells me I’m wrong.

UPDATE:  2:40 PM

Moment of truth on the 15-min chart.  Can’t tell it from price, but RSI needs to hold the red channel and the white mid-line and break through the purple TL in order for any more upside to materialize.

BTW, the daily RSI turned where it was supposed to — providing some great negative divergence with the latest tag of the yellow channel top. The two previous tags were at SPX 1448 on Dec 18 and 1462 on Jan 2.

The purple mid-line is currently offering support.  But, if RSI declines to flesh out the latest iteration of the rising white channel, we should get to the bottom of the purple channel pretty soon.

The bottom of the latest white channel intersects with the yellow mid-line on Jan 28 — a date that keeps turning up in my charting.

UPDATE:  3:30 PM

The back test has officially completed.  No positive divergence above 5 minutes…  Will watch the little red channel for a sign of breakout or breakdown.  I’d consider selling longs if I were playing the bounce.

 

More later…