ORIGINAL POST:  9:15 AM

The ugly NFP has been called “not ugly enough” to bring on more QE immediately.  Let’s look at how the current 10-pt ES loss might shake out on the opening.

continued…

SPX RSI looks like it could tag the other side of its channel — which would be a good thing for the bulls.  A 10-pt loss today and another Friday would almost certainly land RSI into the intersection of the lower bound and TL # 4 — again, a nice place from which to launch a new leg up.

That much a drop in RSI wouldn’t likely be enough to take prices all the way back to the other side of their channel.  So, we’re either looking at follow through on Monday or a turn around out there in the middle of the channel.

An intra-day tag of our solid white channel line at 1347 would be nice.  Either way, it should be playable for nimble traders.  I’ll take a nibble on the mid-line cross.

VIX looks like it could head back up and re-test its last H&S neckline at the intersection of the falling wedge upper bound — probably around 19-19.26.

Its beautifully-formed RSI channel will finally be broadened into something more sustainable.

Maybe something like the dashed purple channel?

UPDATE:  9:40 AM

The plunge looks like it could be contained at these levels.  The ES 60-min RSI has hit a strong TL of support, and the daily SPX RSI has tagged the target discussed above.

It’s important to remember with the daily RSI that the chart reflects the end of the day values.  In other words, if RSI dipped to 45, but closed at 55 — that intra-day dip wouldn’t be visible on the daily chart.

Daily RSI really likes to make nice, neat channels lately — even when the intra-day picture is less tidy.  So, an end of day departure from the well-formed channel would be a big deal.

So far, VIX isn’t buying into this swoon — up to only 18.25 at its high.  Unless things get and stay uglier, its daily RSI might even close back inside the existing channel.  It’s nudging up against one of the internal channel lines (yellow.)

It’s easier to see from a bigger picture:

 

UPDATE:  10:00 AM

The most significant chart I’ve seen all day is the dollar.   Its daily candle is completely outside the channel that’s been guiding it for years.  And, check out the daily RSI — a radical departure from its channel of the past two months.

Either we get a rapid reversal of today’s rise (meaning a rapid rebound in stocks) or this is a real game-changing development.  I’m inclined to go with the reversal thesis, and will take profits on my shorts at this point.

Check out the long-term channel in purple.  We have three strong tags on the upper bound, three tags on the lower since 2001.  These tags, of course, are very significant reversals.  Each one of them represents a major change in the dollar’s trend.

This chart is the strongest argument I know for a continuation of the upside for stocks. It’s also the leading cause of my indigestion — as it represents perfectly the importance of this moment in the stock market.

Either the dollar soars with the declining euro and stocks are likely in for a significant setback, or the dollar obeys the channel and stocks continue on their merry way.  This is a weekly chart, so the choice isn’t necessarily so immediate as I just made it sound.

This was the forecast before the latest H&S failed to play out.  Now, the idea of DX dropping to 79.25 by July 20 seems preposterous.  It’s a 4.86% drop in only 10 sessions.  Still, what a cool Bat pattern it would make.

A similar move in EURUSD would imply a rise to 1.29.  Right now, it’s in danger of blowing the potential Bat pattern.  Watch to see if we can hold 1.2287. Can SPX register 50 points in ten sessions?  Very doable, especially if Brussels were to go well Monday and Tuesday.  Such an outcome might easily move the dollar and euro 4-5%, too.

Take a closer look at SPX’s RSI.  The last two times we tagged the lower bound of this latest channel (June 4 and June 25) SPX soared 65-70 points in only five sessions.  My gut tells me it’s time to get long here at 1350 for a big week next week — as long as EURUSD can stay above its previous low of 1.2287 and DX can stay below 83.67 (keeps the Bat patterns alive.)

Though I wouldn’t be surprised if we put in a reversal off an intra-day low of 1338ish on Monday — just to completely shake out any remaining bulls.  A nice, long bottoming candle would complete the picture.

If I’m wrong, I’ve squandered 12 points or so (probably a good argument for staging in any bets on the upside — half now and half on Monday.)  It’s a toss-up between trite and overused quotes: “live to fight another day” and “no guts, no glory.”

The price channel’s lower bound looks to be around 1338.  As I’ve said all along, a close beneath the price channel’s lower bound is a good sign to get short and stay short.

I have to run out to a lunch meeting.  I’ll leave you all with one last chart for the day.  Pay particular attention to the RSI channels.  Good luck, all.