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The futures are up nicely this morning, with e-minis currently printing 1608 after trading as low as 1593.25 yesterday.

The dollar has backed off yesterday’s highs, but is till rushing headlong toward some important channel and Fib tests.

We’ll play along on the long side, picking up where we left off Friday where, once again, SPX closed in such a manner as to throw investors off the scent of the prevailing patterns.

UPDATE:  9:39 AM

The key this morning is poking through 1620.07, which was a close enough tag of the red .618 to open up the possibilities of a Gartley, Bat or Crab Pattern.  So far, SPX is content to loiter in the area of a .886 retrace from that high water mark.

The rising red channel was violated at the close Friday.  This marks the 5th day in a row where the most obvious TL from the recent 1560 bottom was violated in the closing 15 minutes of the session (marked with asterisks below.)

Each time except for the last, the market rebounded strongly the following morning.  It’s either some masterful manipulation, or SPX is exhibiting the kind of fragility we would expect if our forecast is to play out — or both.

Economic news this morning include a slightly better than expected Manufacturing ISM Survey.  It’s generally positive (50.9 vs last month’s 49.0 and expectations for 50.5) except for employment — contracting again.

I won’t put up all the Census Construction Spending charts and tables, as they’re available HERE for any data hounds.  The interesting facts I gleaned from the May numbers just released is that, while private residential spending ytd is up 25% versus 2012, private non-residential spending (offices, malls, warehouses, etc.) didn’t even keep up with inflation. Predictably, public spending dropped in nearly every category.

There’s no question that housing activity is picking up.  There is a question as to whether it’s sustainable.  This is May data — long before interest rates spiked.  In my experience, builders will build pretty much any time they have access to capital. So, as long as the mortgage market is semi-healthy, we should continue to see increased activity.  If it starts to falter due to higher rates, it could do a number on these numbers.

SPX just slipped up through Thursday’s high, so we’ll review our near-term expectations.

continued for members…

As we discussed Friday, there are a number of important potential turning points for this morning:

• the gap fill at 1629.22
• the IH&S target at 1631
• the red .786 Fib at 1634.10
• the grey .618 at 1638.72

Any one of them would suffice as a target.  Together, they make a very good case for a backtest of the purple channel, but not a penetration — at least just yet.

SPX is already running on fumes, up nearly 20 points on mixed economic news.  I assume that the gap will be filled, but I don’t hold out much hope for anything north of the Gartley Pattern completion at the red .786 unless it happens very quickly.

The index is already bumping up against the red channel top.  At this point, it would take an intra-day spike just to fill the gap.  I’ll try to do some fine tuning, but at 1626.18, we’re probably at least 95% of the way to the interim top for this backtest.

We have already tagged the red .707, which is sometimes all you get.  I wouldn’t blame anyone who wanted to take the money and run.

UPDATE:  12:20 PM

Not much change from the last update, but the bulls could potentially win just by waiting out the bears.

Note that daily RSI has broken out above both the white .25 line and the red TL.  If SPX reverses back down today — regardless of where it tops out — RSI will be back beneath both those lines and the downturn will be all but assured.

But, if the bulls can merely hold on till the close, the breakout is in the books and the market will be less susceptible to new lows.

Those who are trying to work the market higher know about the gap at 1629 and the Fib’s at 1634 and 1638.  They know that a tag of any of those will reverse the market.

You might wonder, then, about the red channel.  On the 15-min and 60-min charts, it looks like the targets need to be hit today in order to stay within the channel.  Again, if the bulls can delay the tags until tomorrow, they can claim a more bullish corrective channel (seen below in white.)

Note that this channel, a decent fit on the daily chart, would easily accommodate a tag on the grey .618 at 1638.72 tomorrow.  And, the implications of a reversal there/then would be much less negative.

I don’t think it’ll play out this way, but it’s something to be aware of.  The 15-min RSI, on the contrary, suggests SPX is basing here at 1624 for the final bump up.

We’ll look at the big picture in a few.  In the meantime, here are the current moving averages.

10:    1607
20:    1618
50:    1623
100:  1583
200:  1511

UPDATE:  1:45 PM

SPX just hit my stop at 1623.   I’ll take a short position here as protection, but it will likely catch a bid at the bottom (1612) or .25 line (1618) of the current channel.   The channel bottom is all the way down at 1612. The red .618 could also act as support at 1618.34.

UPDATE:  2:59 PM

SPX seems to like the new channel I proposed earlier this morning, because it’s getting a nice bounce at the .75 line.  I’m going to close the short position here at 1620 and revert to full long for a run up in the last hour.  Ideally, it’ll be a quick pop and drop.  Stops on this position around 1615ish.

UPDATE:  3:28 PM

I think SPX is going for door #3 — a sell off into the close to bring daily RSI back under control, then gap up in the morning to tag our targets.

I’ll go ahead and close that long position here at 1618 and go short for EOD selloff #6.  If I’m wrong, and it’s simply a bounce at the channel bottom (.618 of the rise) then I’ll possibly stay long overnight.  If it tags 1610 (.786) I’ll probably stay long overnight.

UPDATE:  3:49 PM

Daily RSI back down where it needs to be.

Maybe a little lower, say 1610-1611?  Will definitely go long again if it stays in this range.

Don’t know if it’ll happen again, but the previous such closes have been at the absolute low for the day.  Easier to shake longs out that way…

This is probably good enough.  I’ll revert to full long here at 1613.

EOD:

The final RSI charts look good for a bounce in the morning.  Today’s daily candle doesn’t exactly inspire bullish enthusiasm.  But, the strong upside targets at 1629-1634 should still be good for another 15-20 points — most likely a quick gap up to 1930 on the opening, followed by a pullback and a second push up to the .786 at 1634.

VIX seems poised for a pop, having retraced .618 of the rise from 12.26 to 21.91 and reached the bottom of a channel line on the daily RSI.

And NYA’s daily RSI also looks like it’s in search of a back test.

GLTA.