With Cyprus saved, the sanctity of the EU intact, and a US budget deal passed, we can all go back to watching the market ratchet up 10 points/day, right?

Here’s the fundamental problem.

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The only remaining Harmonic target for e-minis is the white 1.618 at 1562.30 – 1.8 points from today’s high.  And, the all-time nominal high is 1586.75.  If ever there was a case of picking up pennies in front of a steam-roller…

Then, there’s the RSI chart — which shows the eminis creeping up on two intersecting channel midlines.  Not a good sign for bulls, unless it can somehow punch through.

RSI channels have much more wiggle room than Harmonic patterns.  But, the potential for a breakthrough, especially at these levels, isn’t that great.

UPDATE:  10:30 AM

On SPX, the problem is more acute.  There are no remaining long-term Harmonic targets. As I wrote last week:

As I’ve detailed already, there are many reasons for the market to take a big ol’ dump.  SPX has barely reacted since completing several large, important Harmonic Patterns.  But, it seems to be positioning itself for a run at 1576.

The patterns below have all been constructed in the past 10 days, and theoretically pave the way for 1576 to be reached.

• a potential Crab Pattern (purple) with 1.618 at 1579.10
• the red IH&S Pattern targets 1583
• the white IH&S Pattern targets 1572
• another potential Crab Pattern (red) targets 1572.69

We’re getting a reaction off the neckline of the red IH&S Pattern again (5th time), and it’s going to take some doing to push up past it.  Don’t expect it to go easy, if it does.

UPDATE:  10:50 AM

We got the reaction off the neckline discussed just above.  I believe this is the channel that’s meant to get us to 1576 — if we can.  If so, the downside should run its course by 1555.57.

Note that the dip off this morning’s highs could be construed as a backtest of the yellow 1.618 Fib line of the 1474-1343 drop last Fall.  Alternatively, it could continue to the red 1.618 at 1553.39 (the larger 1370-1074 plunge in 2011.)

It is most likely designed to shake out a few bulls for the final push which, if the channel is correct, would reach 1576 at the white channel midline tomorrow morning.

UPDATE:  11:00 AM

So, the red Fib it is.  I’ve adjusted the white channel to better fit the tag of 1553.44 (5 cents above the 1.618 at 1553.39.) Note that this morning’s high, by exceeding 1563.62, busted the potential Harmonic Pattern to the downside.

I am full long here.

Here’s a view from a little higher orbit.  I like this white channel much better, as the expanded version (with the top as a midline of a larger channel) is a great fit with the price action of the past month.

Note we should also get support at the falling purple channel line around 1550.70.  These aren’t channels so much as they are stair steps.  Each time SPX pushes up past one, it tests either it or a previous one.  Stops should be at the bottom of the yellow wedge — about 1549.

More charts shortly.

UPDATE 11:50 AM

Got a little lower than I expected.  But, that should about do it for the downside.  The purple “channel” line provided the stop, but again, the yellow rising wedge bottom is the ultimate arbiter of whether the rally will materialize or not.  A break below 1549 makes it highly unlikely.

The dollar suggests it will hold — for now.  Remember that DX broke down from the purple channel as we expected late last week.  The Cyprus news sent the euro soaring (the dollar plummeting) yesterday, and this morning it completed a nice backtest of the broken channel — not to mention a tag of the top of the newly formed falling red channel.

The initial plunge retraced about 50% of the Feb 1 – Mar 14 rise in less than an hour, potentially setting up a Bat Pattern (green) to the .886 level at 79.429.

Of course, a push above 83.42 — such as would accompany an equities rout — would invalidate that pattern.

The EURUSD retraced exactly 88.6% of yesterday’s rally and, in so doing, backtested the falling purple channel.

If equities are able to hold the rising wedge, look for a return to somewhere between the midline of the new proposed channel (white) at around 1.2943 and the white .886 at 1.3076.

UPDATE:  12:30 PM

The purple channel line has held so far and, given the passage of time, the bottom of the yellow rising wedge is fast approaching.

Note that this morning’s decline to lower than 1553.04 really futzed up the small red Harmonic Pattern.

The initial rise to the .786 (Point B) set up a potential Crab Pattern to 1572 discussed above.  Dropping below invalidated the chosen Point B, but didn’t leave an alternative in its place — since Point B’s can’t exceed Point X (the inception at 1561.56 (review the rules HERE.)

Frankly, I’m surprised the bulls didn’t defend 1553.  It’s a strike against the move to 1576 — which, of course, could be their intent all along: make a move to 1576 look inevitable, suck in some weak bulls, then pull the rug out from under them.

I’ll leave the red pattern in for now, as its Fib levels might still be relevant.

When Harmonics and price channels are a little confusing, I often check the RSI channels.  In this case, they support the idea of a turn here at SPX 1549-1550.

This morning’s push to a new high helped 60-min RSI break out of the falling purple channel to tag the top of last week’s proposed yellow channel — only to see it return to the the bottom of the channel right away.

I would normally be tempted to draw a more gently sloping channel that would accommodate the spike up.  But, I find a more aggressively sloped channel more appealing.  Consider the falling white channel below.

It would suggest this move to the lows of the day is over, and that a rapid ascent to tag the intersection of the light blue rising channel and top of the yellow channel where I’ve drawn the small circle.

A third tag on the bottom of the yellow channel would require a slightly lower move for SPX — perhaps an intra-day test of the rising yellow wedge as discussed above.  Note that the 25% line of the large purple channel dating back to 1343 is just below at 1548 — essentially the same level as the .786 (1548.12) which would complete a Gartley Pattern.

I’m not thrilled with the idea, but I would allow a little more leeway with the 1549 stop discussed above — perhaps as low as the .886 at 1545.99.)

Last week, in discussing the possibility that we might be replaying the 1972 market [see: Containment & Other Fairy Tales] I wrote:

That period when SPX approached the previous high, highlighted below, just seems awfully possible here.  I’m not too happy about it, as it could be a real ball-buster.  But, I think it bears watching.

Since Mar 14, SPX has ignored the completion of a 485-pt Crab Pattern, a 131-pt Crab Pattern and two completed IH&S patterns.  I’d say “ball-buster” was precisely the right term.  Patterns bust all the time, but when this many bust all around the same time it’s usually a sign of market makers trying to shake weak hands (would-be bulls) out.

IF we get a stop here at the .886 of 1545.99, then the purple channel has done its job. And, we could reasonably assume we’re about to construct the 3rd of a 3rd wave up. It’s a heck of a lot further to 1576 than it was this morning, but I’m going to assume that’ still the agenda.

An almost equally appealing alternative, one more in keeping with my original hypothesis, is that we just set up a Crab Pattern that points to 1530.94.  A sustained push below that purple channel line (1547.38) and, more importantly, the 1543.44 previous bottom would be a very strong signal.

UPDATE:  3:30 PM

Everything’s as clear as mud, now.  Following this morning’s failed Crab Pattern, failed breakout above a 20-yr trend line and failed IH&S Pattern completion, SPX broke down and retraced .886 of the last leg up (1543.55 to 1564.91), falling through the bottom of a small rising wedge in the process.

It found support at the .25 line of the channel dating back to Nov 2012 (purple, from 1343) and momentarily bounced back into the the falling wedge before breaking down again.  I’ve heard people refer to the market as a “scam-turd” before, but this is ridiculous.

To make it all the more interesting, the small red harmonic pattern that targeted 1572.69 (I unofficially discarded it this morning due to Point B problems) has been replaced by a new red harmonic pattern that targets 1576.46.

The man behind the curtain is going to a lot of trouble to position SPX for 1576.  I suppose I shouldn’t question it.  The most frustrating outcome today would be to close at either 1557.77 or 1562.78, so don’t be surprised…

UPDATE:  4:15 PM

A quick look at the dollar’s finishing position…  fish or fowl?

More later this evening.