The ECB will do “whatever it takes”, which I guess now translates into strong-arming the Russians into bailing out Cyprus.  Still no break out on the EURUSD, though.

It makes sense to play along with the upside, but keep stops close.  It’s questionable whether this rally will have any legs. The dollar looks like it’s finding support here.

UPDATE:  09:33 AM

Looks like a pop and drop by SPX standards.  That was the .786 of the move down from 1563.62 (purple) and the .886 of our proposed path to 1576 (white.)  Full short again, stops at 1561ish.  Revised charts in a few minutes…

UPDATE:  09:55 AM

The daily chart tells the picture well.  I need to redraw some channels, but the prominent features are:

• large 1474-1343 Crab Pattern completion at 1555.57 (yellow)
• large 1370-1074 Crab Pattern completion at 1553.39 (red)
• small 1530-1485 Crab Pattern completion at 1559.32 (white)
• small rising wedge broken at 1563 top
• long-term TL and channel top at 1560

UPDATE:  11:10 AM

SPX continues to position itself for a run at 1576.  The 5-min chart shows a small potential Crab Pattern with a 1.618 at 1577 and a Flag Pattern targeting 1576.

It has broken back above and backtested the purple channel midline and retraced nearly .886 of its drop from 1562 and a little more than .786 of the drop from 1563.62.

While it’s positioned for 1576, there is no more certainty than when we first broke 1555 on the Mar 14 overnight ramp job.  The large, bearish patterns listed above have still not produced the kind of sell-off they normally do.

And, it’s all because of the cheerleaders’ determination to be able to tout a new all-time high for the S&P 500.

In addition to the little Crab Pattern (purple) that targets 1577 and the flag pattern targeting 1576, there’s an obvious effort to construct an IH&S pattern targeting 1580.  It could benefit from a lower right shoulder, but bulls must beware of crossing back beneath the purple channel midline.

The S2 shoulder isn’t quite legit, BTW, as the neckline doesn’t quite connect on the left side.  But, the S1 shoulder is quite a ways down there.  So, if the pattern plays out, be prepared for some serious chop.

UPDATE:  1:00 PM

With the FOMC announcement a little over an hour away, let’s resume our chat about the big picture.  If it seems like we’re “lost in the reeds” as one reader so aptly put it, it’s because we are.

The large Crab Pattern completions promised a good-sized dump last week at 1553/1555.  Instead we’ve inched higher.  Why?  These patterns completed in the middle of harmonic no-man’s land: the gap between an .886 retracement and a double-top.

The .886 retracement (of the 1576-666 crash) produced a 9% reversal back on Sep 14.  Since then, SPX came screaming back to retake the 1576 all-time high — but slammed into the Crab Patterns and a very important channel line along the way.

Now, it doesn’t know what to do.

Double tops usually produce reversals, too — sometimes meaningful ones as we found out on October 11, 2007, when SPX scooted up past the 1552 top from 2000 by a whopping 24 points before dropping 58%.

The 2000 top itself shows just how “messy” tops can be.  Here’s the finished picture in perfect hind-sight.  It’s a very crowded chart, but every pattern on there had a say in how the top unfolded.

Once SPX broke out of the falling purple channel, it had “permission” to pursue several harmonic patterns in the works.  SPX shot up 66 points in that one day — blowing through every Fib level between .618 and 1.000.

It finally came to rest at 1458, completing a Bat Pattern at the purple .886.  But, the small white 1.272 was just above at 1477, as was the rising purple channel midline and the 1.272 from a much larger pattern seen below.  An IH&S target waited at 1497 – tantalizingly close to a nice round number of 1500.  The all-time high of 1478 from two months earlier beckoned.

SPX got up to 1477.33 before reacting, falling to 1466 over the next two days.  Close, but not quite.  Someone watching closely might have noticed the Flag Pattern it constructed, targeting 1562.  Someone else probably pointed out the biggest Crab Pattern target of all — the 1.618 extension of the 13% correction from 1420 to 1233 from Jul-Oct 1999.

I don’t know what the catalyst was, but on Mar 21, 2000 (that date sounds awfully familiar) SPX shot up through the channel midline, the cluster of Fibs around 1477 and, importantly, the 1478 high and raced up toward those higher targets.

On Mar 24, it reached 1552.87, which cleared the IH&S target at 1497, the purple 1.272 at 1519 and the last remaining Crab Pattern at 1535.  What ultimately stopped it?  The .75 line from the big purple channel dating back to Jul 1999 — almost to the penny.

Total move: 17% and 227 points in 20 sessions.  Could it happen again?

continued for members…

UPDATE:  2:00 PM

Zerohedge put out a great comparison of today’s FOMC statement to the previous ones.  The biggest change seems to be the new language regarding fiscal policy: “fiscal policy has become somewhat more restrictive.”

Bernanke Q&A coming up.

My plan is to hold short unless SPX moves back up through 1563.62.  Any move beyond 1560 and I’ll have my finger on the button.

Why?  Though there’s at least a 50:50 chance that we’ll tag the 1576 high, the greater risk is still to the downside.

I doubt Bernanke would ever intentionally say anything that might send stocks down even a few points.  But, if the rally fails, the market could tumble significantly.

If it shoots up to 1576: (1) there’s a very good chance of a quick reversal; and, (2) stops will protect our short position on any move above current levels.   I’ll continue watching the dollar and the euro, of course.

The dollar has a little room before it bumps into the bottom of its channel – now 7 weeks old.  It has considerably more room to the upside, where the top of the channel sits at 93.98 — 1.5% above current prices.

Here’s the closeup:

The EURUSD continues to be constrained by its falling channel – despite two recent attempts to break out and change the trajectory.  If a breakout fails, the bottom of the purple channel is .03 below today’s high at 1.2668 — a potential 2.4% drop from today’s highs.

UPDATE:  12:40 PM

SPX just moved up through the yellow TL and completed the (rather ugly) IH&S. If it holds true to form, it will close at the IH&S shoulder line/LT trend line of (1559-1560) and make its move overnight.

I think the odds of the move to 1576 just increased to the point where I’m going to go to switch to a long position here.  I’ll hedge mine, but anyone who doesn’t have the means to hedge a trade should consider going to cash overnight.

I think we’re likely to have 1-3 days of higher prices that top out between 1576 and 1593.   More in the morning.