ORIGINAL POST:  10:00 AM

As Reeodd pointed out yesterday, there is a potential H&S setting up on the 60-min chart.  I’ve been a little leery of it, as its completion would certainly alter the timing of the forecast currently in place.  It’s highlighted below, and it targets somewhere around 1280.

As we saw with the last major H&S top at 1422, when H&S patterns don’t complete, it’s sometimes with a bounce just above the neckline, rather than going through the neckline and playing out.  Here, a bounce at the neckline is what would keep us on track with our current forecast.  But, it’s not at all assured.

continued…

A completion of the small H&S pattern would alter the look of the larger IH&S we’re tracking.

It would make for a much more balanced right shoulder.  Note the the left was 8 sessions long, and the head was 9.  An 8 session right shoulder would put completion out around June 21.  And a dip to around 1292 or so would even out the shoulder line — the white dashed line between the “S” and the “S?”.

It would also allow one last tag of the red channel center line, and more firmly establish the pink channel by putting in a second lower bound reference point.  I’ve drawn the alternative path lower with a dashed purple line.

There are a few ways to approach this dilemma.  One would be sell/short now with stops at the recent high of around 1325 and see if it plays out.   The other would be to hold long and watch that 1312 level like a hawk to see if the pink channel mid line is violated.

The alternative shoulder line of the IHS is shown as the dashed yellow line, seen better in the close up below.  That is another important level of support, and one at which you could draw a line in the sand.

UPDATE:  10:30 AM

The daily RSI chart shows the duality of the road ahead.  There’s no rule that says the break out from the red channel has to be broad and robust, but it’d be a little more believable if it were.

The new yellow channel up I’ve sketched in shows RSI in only the upper half.  A completion of the IH&S without a more serious dip to round out the right shoulder would likely stay in that top half.  While, a better formed right shoulder would likely take RSI down to around the asterisk or lower, better establishing a nice channel up that has some staying power.

Whether we do it now or later, I think that channel has to fill out some.  The two previous lows correlate to the left shoulder and head of our IHS pattern, so it would be nice if the right shoulder could share that same TL.

For now, I’m going to keep my eye on this TL — the bold yellow dashed nearly vertical line on the 60-min chart.  If we can stay above it, I’m cool with a little volatility.  If we break it with any gusto, I’m thinking hard about switching sides to pick up a few points on the downside.

UPDATE:  12:00 PM

Watching the Dimon hearing on C-Span…  a vivid demonstration of the shortcomings of our political system — where money buys special treatment.  A few senators with no JPM presence in their state or who are trying to burnish a tough guy image are asking the right questions, and everyone else lobs softball questions that give Dimon a chance to demonstrate what a smart, thoughtful sweetheart of a guy he is.

Meanwhile, it gives me a chance to clean up some charts.  Here’s a clearer picture of the H&S parameters on the 60-min chart.  I’m watching the fan lines on the index and its RSI.  If the latest red fan line is broken, there’s a pretty good argument for the right shoulder to fill out some.

If, on the other hand, RSI breaks the purple line to the upside, then the original forecast is more likely to play out.

UPDATE:  2:45 PM

Both the price and RSI fan lines are about to be broken.  If they are, I anticipate we’ll get a move to at least 1306 (the H&S neckline) — possibly lower.  I’m going to go ahead and close my longs here at 1318 and go short — but will keep a close eye (and tight stops) in case this is a fakeout (50:50.)

There’s a good chance for some whipsawing here, but I’ll take 50:50 odds in hopes of picking up another 20 points (10 down and 10 back.)

UPDATE:  EOD

Closed down 9.30, a little off the lows of 1310.51.  The bump at the end looks like a back test on the 60-min chart…

…as does the daily chart.