UPDATE: 9:40 AM
But wait, you say, what about the dollar’s rebound? Glad you asked. It was a tag on the 1.272, and since we saw a reversal a little higher at the .786 it’s a legit Butterfly Pattern.
However, note that in reaching the 1.272, DX broke down from the purple channel that’s guided it higher since January. As such, the 1.272 is unlikely to stop the decline. Look to the 1.618 at 80.825 — also the scene of the red .618, white .500 and purple .382 — which would make it an equally legit Crab Pattern.
That additional drop should be enough to help equities make the next push higher we discussed late yesterday.
Decent rebound so far. Should be out of the woods, but keep those stops where you’re comfortable. A break below 1587 would likely mean a downdraft to 1580 or lower. I’ll set stops there.
BTW, we’re conditioned to think that a push lower such as we had this morning is bearish — a reminder of the risk in holding stocks. But, from a technical standpoint, that’s often not the case.
Note that the little rising wedge we were watching this morning (yellow, dotted) featured an apex around 1604 on Friday. In essence, it limits the upside and the time in which to reach it.
If the 1587.86 low SPX just made holds, the new rising wedge apex is much further out in the future — and, at higher prices.
RSI also gets reset with a move lower like this, clearing the way for more upside — if it’s in the cards.
UPDATE: 1:00 PM
UPDATE: 1:11 PM
Somehow, in this “random walk” down Wall Street, the marvelously efficient and unfettered SPX managed to stop one nickel above yesterday’s low of 1586.50. Since that was a 55%ish retracement of the 1577 – 1597 rise, a Bat Pattern is a good possibility.
If so, the .886 is down at 1579.84. Note that this is also roughly the level of the 1.618 extension of the 1586 – 1597 rise — hence my earlier note that a drop through 1586 would likely result in 1580 or lower.
The FOMC announcement is coming up at 2PM ET. The market’s acting like it knows something bad is coming…
Remember, 1586.50 is the key level. First support after that is the .618 of the 1577-1597 rally at 1585.20. So, use stops judiciously.
UPDATE: 1:40 PM
Just broke through 1586.50 and then some. The .618 coming up…
After that, the .786 at 1581.84 and the .886 at 1579.84. The .886 is the one that lines up with the most significant support: the .25 line of the purple channel from 1343.
UPDATE: 1:52 PM
I can’t imagine the Fed tightening in any way today. So, I continue to see this as a corrective wave in an overall move higher. But, we’ll always play along on the short side as long as they want to play that game…
UPDATE: 2:00 PM
No change. Downside? Just kidding.
Hmm… fiscal policy constraining growth. Continues to see downside risk. Could increase or reduce QE. One dissenting vote… Esther.
UPDATE: 2:20 PM
SPX broke out of the little falling channel and is back-testing the broken yellow TL. As before, a push through the last low (1584.70) opens up 1580. Trailing stops are a great idea.
UPDATE: 3:15 PM
SPX just pushed below 1584.70. Back to the short side targeting 1580, with stops at 1586ish.
Just tagged the .786. It should head lower to our 1580 target, but I’ll take an interim long position for the bounce, stops at the 1582 entry. Core short still in place. Charts in a few…
Going to cash at the close. I suspect we’ll drop to 1579ish either in the closing minutes or in the morning, but either way it’s not worth the risk of the overnight position.
Charts in a few…