Note to members:  I posted some good charts on VIX early this morning, so check those out if you get the chance.

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The futures are down about 5 points this morning, but might have found support at a channel line and .500 Fib after being turned back by a .618 Fib yesterday.  If they bounce back, however, is it just a backtest of the purple channel from last November?

The EURUSD certainly appears to be backtesting a recently broken channel line, and it appears to have more room on the upside.

SPX, having squandered an excellent chance to complete an IH&S that would take it up to backtest its broken purple channel, is fleshing out the grey channel we theorized would take over.  It just bounced on the .25 line – but after slipping through the key TL (red, dashed) from 1994/2002.

I’ll take the opportunity to short on the backtest if it fails to retake it.

UPDATE:  9:55 AM

It did, so I’m playing the short side — probably to 1598/1600 as we discussed yesterday.  Here’s a better look at what could end up being a flag pattern if the bottom of the grey channel holds.

UPDATE:  10:00 AM

Might be a tad early, but I’ll try a long here at 1602.40.

If 1560-1620 is A and 1600 is B, then C would be at 1660.  The .786 Fib of the slide from 1687 to 1560 is 1660.  Coincidence?  I think not.

As we discussed in the members section yesterday afternoon, a flag gets us back to the .786 or .886 Fib just as easily as the two H&S patterns would have — a little more easily actually.

But, first, SPX will have to slog back up through the TL from 1994/2002, bust out of the falling red channel and deal with the bottom of the purple channel — meaning either a brute force assault (a.k.a. ramp job overnight) or a slow choppy slog higher until the channel bottom reaches the .786 — around mid-July.

If you’re a bull, you have to be a little concerned that yesterday’s moon shot came within 8-12 points of the purple channel but couldn’t close the deal.  If you’re a bear, you’re positively giddy — but know how quickly that feeling can pass.  Me?  I’m a Gemini.

UPDATE:  10:44 AM

SPX has reached the red TL from 1994/2002 again.  A little .786 pullback from 1610-1611 to the intersection of the grey channel bottom and red midline (1603ish) would make for a nicer looking flag pattern.  A failure to retake it would be a sign that we’re falling back to 1586-1593 (always use stops!)

UPDATE:  11:15 AM

SPX poked up through the TL easily enough, and just tagged the grey midline at 1615.64 — very close to a .786 retrace of yesterday’s high.

I’ll take a short-term short position here for a pullback: either a retracement back to the red channel top at 1609, the grey channel bottom at 1605-1605… or possibly much more.

If that sounds a little nebulous, it’s because we’re at another one of those lovely turning points.  I’ll explain further in a moment.

Just want to point out there’s a potential little IH&S in the works that, if it plays out, points to 1631 (a shadow of the purple channel bottom.)  Ideal right shoulder would be a backtest of the red TL around 1610.

This makes stops on the short position around 1616 a very good idea.

Okay, big picture stuff…  the rise from 1560 to 1620 was roughly a .618 retracement of the drop from 1654 to 1560 — the red pattern below.  When we get a significant reversal at a .618 point, it opens up the possibility of a Gartley completing at the .786 (1634 in this case), a Bat at the .886 (1643) or a Crab at the 1.618 (1712.)

Each of those possibilities carries very different implications for both price and time, so we’ll examine them in the context of what currencies and VIX are telling us.

continued for members…

If we reach the .786/Gartley very soon — as in today — we’ll also be at the bottom of the purple channel… a perfect backtest.

UPDATE:  12:13 PM

SPX just backtested the red channel at 1608.47.  I’ll close the short position here and resume long, but be prepared to reverse course if it plunges beneath the red channel line at 1607ish.  A push below the grey channel bottom would be good confirmation.

Back to big picture…

Note that the IH&S we’re watching targets 1630ish.  The gap on Jun 19 is at 1629.22.  And, the red .786 is at 1634.10.  That’s a lot of interesting targets in roughly the same place.

It’s especially interesting given that they all intersect with the bottom of the purple channel in the next session or two.  Note the dashed purple line parallel to and just south of the channel…the level of the intra-day bottoms as opposed to the channel itself, which is based on daily candles.

A slightly stronger push would take it up another 4 points to the .618 of 1587-1560 at 1638.  The issue is timing.  To get there inside of the falling red channel, it really needs to happen today.

Why not Monday, you ask?  Note that SPX close on May 28 at 1630.74.  Wouldn’t it be special if it closed today at 1630.75, so they could call June the 7th up month in a row?

So, let’s say the market closes at 1630.75 today, leaving everyone feeling all giddy about beating the June swoon.  Monday comes along, new month, folks taking off for the 4th of July, looking the other way — great time to tank the market, right?

The dollar is obviously thrusting higher, tagging the midline of the big white channel earlier today. It tagged the .786 of the May 29 high, and is just shy of a .786 retracement of the previous peak (yellow D below) on May 23 — as in the day after SPX topped out at 1687.

The EURUSD has similarly retraced about .786 of its bounce off its May 17 lows.

 

And, USDJPY is pushing up toward the .786 retracement of its drop from its May 22 103.72 highs. Conspicuously, the intersection of the white channel midline and the .75 line of the yellow channel I show taking over is at that price (101ish) on about July 4.

A strong reversal there might return prices to the light blue midline at about 93.50.  If either of the H&S patterns in the works is completed, they point to about 83-84.

But, I’m perhaps being too optimistic.  There’s another channel that captures today’s high and turns down immediately, seen in yellow below.

And that returns us to the idea hinted at earlier today: that the market could be close enough to all those backtests that it doesn’t need to accomplish anything more today or Monday.  A failure to push higher, close the gap, tag the channel, book a positive month, etc. would be quite bearish.  Plenty of rallies fail at the .618 mark, and the daily RSI shows considerable downside risk.

VIX suggests we’ll go out on a high note.  The daily RSI chart indicates it could fall a little further to tag the bottom of the purple channel.

SPX has about 70 minutes to put on 17 points.  It completed the IH&S, but is lurking below the neckline.  The tendency lately has been to complete a pattern but not pay it off until the gap up/down on the following morning.  SPX could do that, closing at these levels and gapping up 17 points Monday.

If it has run out of juice, it could kick the bucket right here.  Either way, we should find out in the next hour.  And, whether it reaches 1660 or not, we should get a leg down afterwards — either setting up the higher Gartley, Bat or Crab patterns, or heading down to tag the bottom of the white channel.

It’s still down there.  My favorite spot is 1620, the intersection of the with bottom of the red channel and the grey .786 on July 8.  Since the purple B was a .786 retracement, we could be looking at a Point D that’s below the white channel bottom at 1495 around early October.

On the other hand, we could cheat a little bit and call the Jun 6 low our Point B and be looking at a Bat Pattern playing out to 1553 in mid-August — much more satisfying from a Harmonic standpoint.

If I had to go with a scenario, that would be the one that makes the most sense to me: a drop from either here or 1630 to 1567 around Jul 8 (red midline) bounce, then a drop to 1553 by mid-August — just in time for the new Fed chairman to “hint” at another round of QE at Jackson Hole.

I won’t hold long over the weekend – regardless of which scenario is to play out.  For any gamblers out there, I rather expect a gap and crap Monday. But, who knows?  SPX looks like it’ll close at or near the red TL from 1994/2003 around 1610, so I’ll go to cash here and call it a day.

 

 

 

continuing…