ORIGINAL POST

Another overnight ramp job, another failure to break out/down — prime territory for a pop and drop.

The eminis are up 10 points, so I’ll play along on the opening.  But, the dollar still hasn’t broken any new ground to the downside (or broken out).

And, the EURUSD is a hair’s breath from a potential reversal at the .618 Fib on the daily chart.SPX has several hurdles in order to break to the upside: the red channel midline, the grey .75 line, the purple .25 line and the purple .618 Fib.

UPDATE:  9:34 AM

SPX has reached the .red midline and purple .25 line.  I’ll go short here at at 1637.54 and see if it has the juice to push up through.  Stops at 1639ish.

Note that SPX closed Monday having completed a lopsided IH&S that targeted about 1700.  It fell yesterday to a point where it would have formed a more balanced right shoulder — which was about 10 points back below the purple channel .25 line.

After a strong bounce on a channel bottom such as occurred on Thursday and Friday (up 44 points) we would expect such a backtest of a channel line.  But, yesterday’s action established doubt as to whether this larger pattern would complete.

SPX regained the .25 line early in the session, only to turn around and give back most of the gains by the close.  This morning’s spike on the opening regained it momentarily, but in 15 minutes since, it has dropped back below yet again.

UPDATE:  9:45 AM

The red channel I’ve inserted is not well-established, but it is parallel to the red acceleration channel that guided SPX to its 1687 top (see the chart below.)

Looking at a close up, we can see this morning’s high tagged its midline and continued the pattern of lower highs and higher lows — in other words, a triangle.

Following a strong rally as it did, this pattern becomes a potential pennant (target 1673.)  But, the pattern would break down with a drop below 1626.20 or so.

I suspect the bulls will try to keep this pattern alive with a bounce at the red .25 line.  It intersects with the white .382 Fib here at 1627.15.

And, a channel drawn between the bottom and this point (in white, below) features as its midline an intersection with the white .618 (1653.20) at the closing bell — a hallmark of the market lately.

I’ll go long here, with stops just below the previous low of 1625.68.

BTW, there’s a channel on the 60-min RSI chart that is also encouraging.

If this turns into a bounce up to 1653, it will present some very interesting questions about the big picture.  I tried — and struggled — these past two sessions to put together a forecast that I felt confident enough to foist on my loyal readers.

If we get a breakout to 1653, the picture will be somewhat clearer — in the neighborhood of clarity, but not quite crystal clear.

continued for members…The two basic short-term scenarios I’m tracking can be seen on the 60-min chart below.

Each of them ends up at 1653.20 — the .618 retracement of the drop from 1687 to 1598.  We came close to reaching it on Friday (1648.69.)

In the first scenario, SPX heads sown to retest the bottom of the red & purple channels this morning — probably around the red .618 of 1617.51.  If I’m stopped out on the current long position, that’s my new interim target.

In the second, SPX breaks out of this pennant and heads straight to 1653 by the closing bell.

UPDATE:  10:54 AM

Just stopped out of the long position and reverting to short here at 1625.74.  Tight stops in case it reverses at the .886 of 1624.88 (a harmonic improbability.)  As detailed above, my immediate target is 1617.51.

UPDATE:  11:58 AM

SPX just tagged our target:  the red .618 at 1617.51.  Note the proximity of the small white 1.272 and the .236 of the 1687 to 1598 (1619.22) as well as the bottom of the purple channel and midline of the falling white channel.

I’m going long here at 1617.29 with stops at 1616ish.

SPX may have tagged the red .618 and purple channel bottom, but that doesn’t necessarily mean this is the bottom.  Reversals at the .618 often lead to Gartley completions at the .786 (1609.03) so keep your stops where you’re comfortable.

UPDATE:   12:15 PM

Just poked down below the .618 to 1616.36.  I’ll revert to the short side for whatever downside is left in this move – if any.  The .786 is 1609.03, which is also the site of the SMA 50 (1610.60.)

Tight stops on this move, as the location of the falling white channel midline is subject to interpretation and an overshoot on the purple channel bottom wouldn’t surprise anyone — given the 11 point event on the 6th.

There isn’t a reversal at the .618 to suggest a Gartley.  But, the big reversal up at the red .500 might suggest a Bat Pattern — the red .886 at 1603.98.  This also marks the location of the red TL from the 1994 and 2003 lows.

Of all those choices, my favorite is the red .786 at 1609.03.  It’s relatively close to the white 1.618 at 1612, is about the same level of overshoot as Jun 6, and fits with a TL from the last two lows that form the bottom of the little falling red channel.

UPDATE: 12:45 PM

I’m pulling the plug on the short side here at 1618.  I like the white channel midline as a stop, and can always revert to the short side if we can’t top the purple channel bottom.  Stops around 1615.

UPDATE:  2:15 PM

Just stopped out on the long position.  Back to a short position here at 1615.

The red .786 is still at 1609.03 and intersects the bottom of the falling little red channel in about 30 minutes.  As mentioned above, the .786 wasn’t set up by an earlier reversal, which favors the .886.  But, a .786 retracement is probably the most common of corrective waves — and doesn’t really need to be a Gartley.

By my estimation, we’re back down below the bottom of the red and purple channels.  Needless to say, a close below the channels would be problematic for the bulls — whose best outcome at this point would be a quick drop to tag 1603-1609 and recovery to 1618ish.  We could call the drop from 1648 a very deep corrective wave and go back to perma-bull mode.

A similar situation is setting up on the USDJPY — which has retraced about 99% of its last rise.  After falling out of the purple channel it’s been in since last August, it completed a .786 retrace of the rally from 92.56 to 103.72.

It bounced back strongly, retracing 50% of its drop.  It has the potential to complete a Bat Pattern back up to 102.73 (my leading scenario) by July 15 (my leading scenario.)  But, if it fails to hold 94.98, it would complete a H&S pattern that targets the 1.618 down at 85-86.

UPDATE:  3:28 PM

SPX got pretty close, but bounced at 1610.92.  Remember, the SMA 50 is at 1610.59.

I think it still has a little downside, so will hold a little longer.  But, any breakout above the white midline and I’ll likely go long.  If it’s going to bounce back to the purple channel bottom (1617ish), it had best hurry.

We started this morning talking about the dollar, which has yet to break out in any way.  It still hasn’t.

UPDATE:  3:46 PM

SPX might still have another leg down left, but it’s running out of time.  I’ll go ahead and cover here at 1613.  Going to cash for the night, though if SPX doesn’t close above 1617, I’ll probably wish I were short.