The currencies played out exactly as we expected overnight — but the equities ramped anyway.
The eminis are showing +10 right now and are likely to test the Jun 19 high after a miniscule reaction at the .886 Fib level.
In so doing, ES have pushed up into the purple channel. With the FOMC June minutes released tomorrow, it appears to be the only play the markets have: ramp as far and as fast as possible before BB reiterates the Fed’s intention to taper if/when.
I am a bit surprised TPTB don’t try to build more of a base for a meaningful rally. I guess this falls into the category of “get while the getting’s good.” Far be it from me to stand in the way.
A 10-pt pop on SPX doesn’t run into any resistance other than the Jun 18 high, so I’ll play along on the long side on the opening, but watch for any pullbacks near 1654.19. The gap from Friday will apparently remain open for now.
A 10-pt pop also leaves SPX in no man’s land: 10 points shy of the .786 at 1660.03, but 5 points over the line separating the purple channel from reality.
UPDATE: 10:05 AM
The 10-pt ramp job has been pared back to a 5-pt rally that’s stuck at the purple channel’s lower bound.
I’ll go short here at 1646 on the off chance that we’ll get a back test of the white channel top and or gap fill down to 1632. Tight stops on this one, though, as it might just as well be a back test of the broken purple channel bottom.
From a trading standpoint, this is a bit of a quandary. If you expect the FOMC’s minutes to boost the market, the .786 and .886 of the 1687 to 1560 decline are just overhead to provide resistance at 1660 and 1672 respectively.
If you expect them to disappoint, we’ve already pulled back from the purple channel incursion and, despite what intra-day height we reach, are likely to close at the channel boundary. What more is there?
I suspect SPX will remain in a trading range for the next 24 hours — with current prices pretty well indicating investors’ current expectations re the Fed.
If this situation seems vaguely familiar, it should. On May 21, the market rallied on expectations that Bernanke’s testimony the following day would be bullish. One of the biggest ramp jobs in recent memory followed that night, and SPX shot up 17 points in the opening hour on May 22, only to provide a great shorting opportunity at 1687.
The forecast I posted on the 21st called for a drop to 1600 in early June, followed by a .786 retracement to 1670 and a subsequent drop to 1560 before a rally to 1823 around the end of the year.
Here are the charts from back then [see: If It’s Tuesday]:
We got the drop to 1600 right on schedule. But, instead of rallying to 1660 next, we got another leg down to our 1560 target two months ahead of schedule. Now SPX is working on that retrace to 1660.
To me, the wave picture is a mess. At 1560, we had a nice little A=C corrective move down from 1687. A push above 1654 would certainly help confirm that 1560 is all the correction we’ll get anytime soon.
But, there are three potential problems that need to be overcome first:
- SPX dropped out of the purple channel back on Jun 19
- the currencies are positioned as though a correction is imminent
- the white channel bottom was never tested
I’ll take the next hour or so to review the big picture.
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