We had a precise tag on the .618 Fib level late yesterday, which often suggests a Gartley Pattern completion at the .786 (1554. 94) or a Bat Pattern at the .886 (1555.80.)

As with all potential first waves down, a deep second wave retracement is always a possibility.  So, we won’t know for sure whether 1556.77 was the top until SPX breaks above it or breaks down beneath the rising wedge (the yellow TL) and the former low 1548.24.)

UPDATE:  9:45 AM

A breakdown here would be perfectly in keeping with the Crab Pattern completions on Monday (1553 and 1555.)  It also fits with the most common rising wedge scenario where breakdowns occur around the .786 Fib retracement (or .886) of the price and time from inception to apex.

By placing this RW in both time and price grids, we can see that the .786 Fib time ratio and the .786 price ratio have both been met.

But, if SPX can rally up past 1556.77, the .886 is still up there at 1559.7. which just so happens to intersect with the 1.618 extension of the price movement from 1530.95 to 1485.01 (and the 1.272 extension of yesterday’s drop from 1556.77 to 1548.24.)

On the other hand, any move down through 1548.24 damages the odds of a higher high.  So, anyone playing the bounce off 1548 should stay nimble and manage stops accordingly.

Remember that there are a couple of small H&S Patterns currently in play.  A close below 1548.24 confirms them.

UPDATE:  10:10 AM

SPX came within one cent of yesterday’s lows, which reminds me of yesterday’s rally to one cent above the presumed right shoulder of the little H&S we were watching.  This tells me that certain someones are working very hard to keep the bull story (technically) alive.

We’ve had several busted patterns in the past couple of weeks – patterns like the H&S that are normally quite reliable.  If SPX could break out of the RW itself, that would be a nice trick for the bulls.

Just like the rising wedge, the 60-min RSI channel that convinced me to take an intra-day long position just before the close yesterday is in danger of breaking down.  Looking at the 30-min chart, its easier to see the market’s indecision.

While we’re waiting for the short-term indecision to be resolved, let’s continue with the look at the big picture we started yesterday.  It’s been hampered somewhat by technical issues with the latest version of TOS’s charting software.

When I draw channels, they don’t stay put.  They expand to a width of their own choosing and can’t be put back.  It can take 5-10 minutes just to trick the software into placing one channel properly — which makes charting a real joy!

They assure me that tonight’s release will fix this and other, lesser issues.  So, hopefully I’ll be back to full speed.  It’s normally very good software, but the frequent releases are sometimes a pain.

continued for members…

UPDATE: 12:21 PM

SPX just tagged the .618 for the fifth time.  This time, however, it occurred at the upper bound of what I think is the operative channel.  A sustained push through and we should see those higher prices discussed above.

UPDATE:  12:35 PM

Just tagged the .786 at 1554.94, completing the Gartley Pattern.  Note that this Fib is roughly the same level as the yellow Crab Pattern 1.618 (the 1474 – 1343 pattern), so a reversal somewhere around 1555.77 would be in keeping with a backtest.

Exceeding 1556.77 would, as discussed above, likely point to 1559ish.

UPDATE:  1:50 PM

SPX just topped the .886 at 1555.80 and seems to have its sights on 1556.77.  If it’s going to fail, it should be here.  I’ll go ahead and close my ST long position here at 1556.20.  Another strategy would be to just place stops around the .786 or so.  Either way works.

If it breaks through 1556.77 I’ll eat -1 point, put the longs right back on and consider dumping my core short.  Why?

I like the look of the rising purple channel well enough.  Another bounce off the lower bound and I’d like it even more.

I also like the fact that we’ve moved solidly back above the rising wedge lower bound, the little white channel .25 line and the former H&S pattern right shoulder.

But, I’m not as crazy about the RSI charts, which now show negative divergence across the board and more than a few pesky channel tags.

Channels always work, of course, until they don’t.  So, I’m well aware of the possibility of a breakout.  We’ll watch and see what happens if/when we get a turn here.  If the purple channel holds around, say, 1554.40, then we’re probably going higher.  Otherwise, it’s a long way down.

UPDATE:  2:25 PM

That didn’t take very long…  nice reversal w/ a tag right on the channel bottom (1554.43)   that probably reset the shorter-term RSI.  Bulls need a reversal, and to pull back above the yellow RW line.