The ramp has arrived. “Bad news is good news” has returned in the form of a GDP miss (1.8% versus 2.4%) that conveniently reinforces the importance of continued QE.

I’m reluctantly going long on the opening and will look for the next appropriate place to short again.  With a break through the red channel midline, the most natural spot is the red TL from 1994/2002 at 1609 or the red .500 at 1607.  The .786 of the recently completed Crab Pattern (in white) is in the mix at 1610.21.  The key will be retaking and holding 1598 and the psychologically important 1600 level.

UPDATE:  9:35 AM

SPX squirted to 1603.58 on the opening, and should have enough momentum to test the levels mentioned above.  Breaking through the June 6 low of 1598 was important to the bulls case that the drop from 1687 is corrective, not impulsive.

It’s not conclusive, as the drop from 1654 to 1560 could still be considered the first of a third wave down — though the wave form doesn’t really support that view IMO.   Breaching 1598 increases the odds that the above mentioned drop is complete, and that SPX is more likely to retrace deeper than was otherwise expected.

From a harmonic standpoint, a reversal at 1560 instead of 1553/1555 feels incomplete.  So does the push back through the red channel midline without a last tag on the bottom.  But, as we discussed yesterday, this market is highly susceptible to manipulation.  A just in the nick of time 25% GDP miss — on the 3rd estimate mind you — is evidence enough. The fact that it happened in the futures markets reinforces the fact.

Of course, all this matters only if you believe in Elliott Wave theory.  A quick reversal back below the red channel line — while leaving wavers crying foul — could still favor our original target of 1553/1555.

The reversal at 1661.91 and subsequent drop to 1622 and later 1598 is a great example of maintaining downside momentum after the (seemingly) spoiler rally on June 3/4.

UPDATE:  10:56 AM

SPX is all dressed up and has no place to go.  Having broken through resistance on an obvious ramp job, it’s now having trouble finding true believers in the cash markets to take it any higher.

It dipped below 1598 and might even re-test the TL from the 2000 and 2007 tops at 1594.20.   The little purple channel below is speculative, but is the best I can come with at the moment (I’ve revised the purple channel from the one posted here at 10:33 as I think this one is more likely if SPX can hold 1593 in the next 30 minutes or so.)

Note the clear path to the purple 1.272 at 1608.64 and the 1.618 at 1621.78.  If SPX exceeds that level, there’s a gap to be filled at 1629.22 which would constitute a backtest of the broken purple channel (from 1343 in Nov 2012) as we discussed yesterday.

The purple channel could easily be part of a larger channel such as the white one shown below.  Its midline crosses the white Point B at around 1632 late today or early tomorrow — so that might be too aggressive a goal without more Fed lighter fluid on the fire.

While we’re waiting for that drama to play out, I’m going to return to the gold charts I almost finished last night (ran out of toothpicks to keep my eyes open.)

After posting that, I’ll return to detail the changes to our equities forecast we began discussing yesterday.

UPDATE:  3:35 PM

Just posted the gold update HERE.  We’ll continue with the equities forecast.

continued for members…

SPX has climbed a very narrow channel to within spitting distance of our daily target.  I’ll probably try a short position when we reach 1607 or when the channel shows any weakness.

UPDATE: 3:43 PM

SPX just dipped below the channel, which is enough for me.  I’m shorting here at 1606 — explanation to follow.

There is potentially another 1-2 points upside in this particular wave.  A redrawing of the channel indicates a probable backtest of 1598 and, if that can’t hold, potentially much more downside.

RSI charts on every time frame are negative, and suggest a quick return to 1598, possibly even by the close.  If it doesn’t reach 1598 by the close, I’ll go to cash.  Otherwise, I’ll hold short.

UPDATE:  4:00 PM

Here’s what I saw that got me excited about a reversal at the close.  The 60-min RSI had just tagged the top of the falling white channel where it intersected with the yellow channel line and reversed.

Daily RSI had similarly tagged the underside of the white .25 channel line and was dropping back toward the purple midline.

This was occurring as RSI backtested the .25 line of a much bigger channel shown below in yellow.