ORIGINAL POST:  9:33 AM

SPX reacted off its .786 yesterday exactly as expected.   For those who played the Gartley Pattern and shorted at 1364.24, I don’t think this dip will be significant.  The potential Point D’s when we’ve put in a Point B at the .618 are:  Gartley at the .786, Bat at the .886, and Crab at the 1.618.

Of course, if we get much of a reversal at the .786, it opens the door to that Point D at .786 being shoved into service as a Point B in a Butterfly pattern — which gives us a potential Point D at the 1.272 as well.

In other words, a .618 Point B opens up the possibilities of the next reversal being at practically any of the higher significant Fibonacci levels!  The trick, with a smaller pattern like this, is to examine the various Point D targets and see which is most likely.

continued…

The two potential Point D’s that really catch my eye are the 1.272 at 1388.25 and the 1.618 at 1405.35, as these coincide with the .786 and .886 of the larger harmonic grid shown below (it’s also interesting to note that the smallest pattern above — the tiny purple grid formed by the intra-day dive and recover — shows a 2.618 at 1388 and a 3.618 at 1404.)

UPDATE:  10:00 AM

In the time it took to type and post that, SPX reversed and zoomed up to tag the lower trend line off the 1422 high (remember, there is a higher TL, too.)  This coincides with the .886 of the pattern we discussed above at 1369.18.

As I mentioned yesterday, this TL (marked as TL 1) poses a potentially more significant hurdle for the market.  As the chart below shows, it could mark the final destination for the bull run of the past six weeks  (though I consider TL 2 a juicier target.)

If we zip up through it, great.  But, if we stumble, it could be all downhill from here.  The prudent way to play it is with stops, though some traders will no doubt want to make a few bucks on any downside.  It’s worth noting that these levels are also the same at which the bull market topped out in May of 2011 (1370.58.)

I favor the higher TL scenario, but am by no means certain it will play out.  Evidence in favor includes:

• the inverse H&S target of 1404
• the red TLs appear more significant overall than the purple
• we’re not that far into the rising wedge
• no negative divergence on the daily chart
• the RSI chart doesn’t show significant resistance at these levels
• these prices don’t line up with other significant harmonics levels

Evidence in favor of the lower scenario?  Just read the headlines.  There is so much news out there — both reported and not — that justifies an unraveling of the highest order.  It’s almost impossible to tune it out.

I suspect we’ll be stuck at these prices or lower until the beige book comes out at 2pm EDT.   I’ll post more if we get any other significant moves.  Otherwise, I’m trying to post updates to COMP and RUT today.  Look for those posts in the next 60-90 minutes.

BTW, I am tentatively scheduling our first webinar for this Friday after the close.  I’m looking into having it recorded so those of you in Australia and Asia don’t have to miss your beauty sleep.  This first installment will be for newbies and those who are relatively unfamiliar with typical chart patterns such as TLs, channels, H&S patterns, etc.  I’ll post more about it soon.

 

UPDATE:  12:35 PM

So far, the market has “zipped right through” the lower of the TLs, the .886 Fib, and the 1370.58 May 2 high.  The next hurdle is 1377 — the .707 of the 1422-1266 pattern (purple) and the 1.618 of the 1335-1266 pattern (red.)

To get there means going right to the very apex of the rising wedge visible on the 30-min chart.

It’s unusual for a rising wedge to not play out — but not unheard of.   I can easily imagine an intra-day push to 1377 and close at 1369-70, but that’s pure speculation on my part.  There’s negative divergence building on the hourly and shorter charts, but still none on the daily.

Cautious investors will do well to adjust stops to reflect higher levels, keeping an eye on the acceleration channel we’ve been in the past two days.

More later.

UPDATE:  4:00 PM

SPX slightly expanded the little channel (red) it’s been following for the past two days.  This channel is part of a larger channel (purple) that’s guided prices for the past six days.

We did get the pull back to 1370 discussed above (actually 1368.70) but didn’t quite reach our 1377 harmonics, falling less than 2 points short of the 1.618 and the .707 discussed above.  But, importantly, we closed above the trend line I was worried about.

And, the daily RSI channel appears to have plenty of room to the upside.

There is room in the red channel above for slightly higher prices that are still within the purple channel.  The last time prices tagged the upper bound, they drifted sideways for two days before tagging the lower bound and starting up again.  This being OPEX week, such an outcome would not be unusual.

The closer we get to 1389/1404, the more important it will be to use stops.  We’re one or two strong days from our goal, but any little misstep could undo a lot of gains.

Good luck to all.