Everything’s pointed up this morning. Best to get long and not question the why’s and wherefore’s.  In retrospect, I shouldn’t have questioned the fact that SPX was completing the patently obvious pattern yesterday.

The USDJPY got a sizable bounce off the .786 overnight…

…and should have room to move.

The S&P futures are nearing the point of exhaustion after a huge ramp in the past hour.

The .786 is just ahead at 1635.21, as is the purple channel .25 line.

UPDATE:  9:32 AM

SPX just tagged its .886 from the 1598 bottom yesterday and should at least backtest the yellow midline.  Good place to short here at 1632.41…

…which is also the .382 of the entire move off the 1687 top.  Stops around 1635.

continued for members…

UPDATE:  9:43 AM

Most of the action has been driven by dollar weakness the past couple of days.  The EURUSD soared, almost reaching the .618 retracement of the drop from 1.37 to 1.27 earlier this year.

It’s still on track to reach the purple .786 or .886 in July, but would first have to break out of the falling yellow channel and back into the even more formidable rising yellow channel that it lost in February.

The dollar, which was locked in its own well-defined rising channel, tumbled out of it in a very big way yesterday.  It also surprised by falling through the red channel .25 line and a longer term yellow .75 line.

This was a major reversal from a technical standpoint, and I can only assume it will go back and retest the yellow midline at 80.83-80.88.  There, it should find very good support.  But, all bets are off at the moment.

Take a look at the big picture for DX:

DX had recently pushed up through the white channel midline on its way to a test of the purple midline at the white .786 or even .886 and at the top of the yellow channel around Point D.

It faced resistance from the falling purple midline, but that wasn’t due to arrive until later in the year and should not have interfered with the white .786, anyway.

The little purple acceleration channel broke down so abruptly, it was no doubt the source of many bearish (equity) trades unwinding.  In other words — short covering by those who were focused on Hindenburg Omens and the drop through the bottom of SPX’s purple channel (which has obviously been redeemed.)

Several harmonic patterns were busted as a result, and the implications for risk-on trades have been huge.  DX is getting a very nice bounce at the .618 of the rise from 78.915 to 84.595 (in grey).  It’ll perhaps even backtest the broken purple channel or red .25 line.

But, it didn’t quite reach the bottom of the red channel, so I suspect we’ll see continued weakness to 80.81-80.88 before the slide plays out.  The equity market seems to suspect this as well, since SPX is at its high for the day even after a .77 bounce in DX.

 

UPDATE:  10:00 AM

The SPX refuses to slow down.  I’m switching back to the long side here at 1635, but am watching the upcoming .786 at 1636.19.

If we blow through the intersection there with the yellow channel .75 line, I’ll assume we’re heading back to the purple midline which I show at the red .618 of 1653.20.

Normally, we would expect a back test of one of these channel lines, but this move is showing extraordinary strength.  The next resistance is the .618 of the drop from 1661.91 at 1637.58.

UPDATE:  11:00 AM

SPX has blown through numerous harmonic and chart pattern resistance and is currently butting up against a TL (red, dashed) off the 1687 high at a level just short of the .886 retracement of the drop from 1646 to 1598.

If it fails at these levels, we could get a decent backdraft.   This is the same TL that brought us the reversal at 1674 on May 28 — which was a backtest of the broken red acceleration channel.

We have no such backtest in the works that I can see at the moment.  So, SPX should push through this resistance as well unless it decides to respect the .886 and reverse at 1641.02.  It has summarily ignored all Fib levels today, but trailing stops are always a good idea just in case.

If we get a substantial reaction off this TL, the bottom of the steep acceleration channel is around 1634 — with a host of Fib support levels and the yellow channel .75 line offering support between here and there.

My suspicion is that we’ll test the red .500 line at 1642.71 and, if able to push through it, will face a more serious reversal at 1653.20 — the intersection of the purple channel line and red .618.

UPDATE:  12:00 PM

Looks like we’re getting a little reaction on the .500 here.  I’m not sure whether its worth it, but I’ll open a short position at 1640 just in case.  If it gets going, the .382 at 1632 is a good potential target.  Stops at 1639 once we’re past it.

UPDATE:  2:30 PM

Just dipped below 1633, but I’m not sure the move is complete.  I’ll take profits on the short here at 1633, but be prepared to short again if we reverse off the top of the channel at 1637-1638 or any move back through the .25 rising white channel line.

I suspect this is the channel that’s meant to be formed when this move is done. If so, bottom of the channel is currently around 1627.50, but the bottom of it intersects with the rising white channel around 1630 towards the EOD.

UPDATE:  2:55 PM

Back to the short side here at 1639.  Stops at 1640ish.

While we’re waiting to find out…I’ll post some updated forecast charts to think about going into the weekend.

This was our forecast from back on May 21 after calling 1674 the interim top (it actually came the next day at 1687):

Here are the same chart drawings, overlaid with the actual market since then.

[Note the falling red dashed line running through the middle of the chart.  This was the H&S neckline from the tiny little pattern on May 21 that busted, leading to the May 22 spurt to 1687.  Interesting that we’ve pivoted around it many times since and are currently testing it again!]

I post this not to stroke my own fragile ego.  God knows (as do all of you) I’ve missed more than a few opportunities since then.

My point is that it’s not supposed to be this easy.  Most of the mistakes I’ve made in the past two weeks came from over-thinking the situation.  In this very tightly managed market, if it looks like an IH&S pattern will pay off, it will.  And, if an alternative bearish pattern looks like it could take prices below strong support, it probably won’t.

Currently, there’s a sizable IH&S setting up on SPX that would complete at 1641.91 and which targets 1687.

We need a little more of a right shoulder, and an A-B-C wave would make more sense for the decline since 1642.63, but if it completes by the end of the day we’ll probably gap up again.  If not, we’ll probably tag those lower numbers I mentioned up above.

It’s enough reason to change our stop on the short position to 1642.

Assuming we complete it either today or Monday, I imagine we’ll head back up and tag the red .786 or .886.

If we don’t, we’ll probably head down to one of those levels discussed above — likely 1632 or 1625.53.

UPDATE:  3:53 PM

Couldn’t wait till Monday, I guess.  We’re back to the long side here, looking for the .618 at 1653.20 on Monday.  These patterns are only effective with a close beyond the neckline, so don’t be surprised if the MM’s close it on the neckline rather than clearly beyond.

Even more fun would be a quick spurt up to 1653 at the close.  In any case, this clarifies things a bit.  I’m going to cash here at the closing bell.

The signals are all flashing higher equity prices.  Completion of the IH&S is merely the latest indicator.  But, more than half of the recent gaps open have been reversed in the opening hour.  It has led to excessive and unproductive trading.  I’ll be looking for opportunities to take positions once the overnight ramp jobs are completed.