Charts I'm Watching: Jul 8, 2013

The eminis reached a natural turning point overnight, completing a Bat Pattern on the purple grid… …and tagging the .618 retracement of the drop from 1685 to 1553 in the process.

SPX should follow suit — meaning a very good chance of a pop and drop in our target range from last Wednesday [see: Fireworks Ahead.]

That’s why I won’t be surprised if, while no one’s watching on Friday, we reach 1638 — the .618 of the 1687 to 1560 correction.

A close today at 1618 — .618 of the decline since 1626 on Monday and the intersection of the falling red channel top and rising white channel midline — would set up a nice looking right shoulder targeting the downside.

But, it would also set up a Crab Pattern with a 1.618 extension at 1640.23, less than two points from the grey .618. Something to think about…

UPDATE: 9:33 AM

That’s good enough. I’ll short here at 1640, with stops around 1645.

There’s at least a 50:50 chance of tagging the .886 at 1643.49, but we could also see things unravel rather quickly with the .618 tag.

This morning’s push completes the long-awaited backtest of the purple channel — depending on how it’s drawn. I’ve revised it hundreds of times since SPX 1343 eight months ago.

It’s important to remember that backtests don’t always complete as precisely as we’d like — even when the channel is perfectly drawn. That’s why we use the harmonic patterns, and other indicators to confirm.

Note that USDJPY has reached our target from Jun 28:

USDJPY is pushing up toward the .786 retracement of its drop from its May 22 103.72 highs. Conspicuously, the intersection of the white channel midline and the .75 line of the yellow channel I show taking over is at that price (101ish) on about July 4.