We open this morning with the RUT, which appears for all the world in freefall.
Note that this plunge, if it continues, will complete a rather nasty H&S Pattern around 900 that targets 840.
Which would put it in the neighborhood of the bottom of a rising wedge and the .618 of its leg up from 765.
Initial claims were off 18,000 rather than up slightly. And, the ECB, as expected, lowered interest rates by .25% — which will goose the markets a bit.
Will it be a lasting pop, or pop and drop? We’re not really supposed to care. Let’s hold our noses and jump in.
Taking a spin around the currencies… DX has had an interesting reaction to something supposedly so bullish…
And, the EURUSD isn’t exactly signalling a rally:
The AUDUSD, which we haven’t looked at lately, is on the edge of a cliff. Recall that it completed its yellow Crab Pattern a long time ago. It’s now pondering the white Crab Pattern to the 1.618.
But, it’s formed a triangle (yellow, dotted) that dates back to 2010…
That really looks like it should break to the downside — almost certainly breaking 1.00.
And, our old friend the USDJPY… looks like the bounce may be fizzling — if not downright reversing.
In short, the rest of the world continues to signal a downdraft in stocks. But, SPX is soaring.
We closed the short position that we adopted on the opening yesterday at the close for a small profit — even though it didn’t quite reach our 1580 target. I was worried that the ECB rate cut and predictable initial claims report would do…well, exactly what they have done.
We can assume that SPX intends to tag 1600 in the mix of everything. Could it happen? Sure, if certain things fall into place. Maybe even a little bit higher…
continued for members…For starters, DX needs to back test the yellow channel line it just whipped past and back off the white midline. Should be doable, though it might need to back test the broken purple channel first.
EURUSD would help by getting a strong bounce at the bottom of the purple channel shown below — perhaps to back test the broken white channel.
It’s SPX itself that would have to do all the heavy lifting, pushing through the top of the little purple channel that’s formed over the past week and, more importantly, the red TL from the 2000-2007 tops — about 1590.43.
The .786 is nearby at 1594.07 — as good a place as any for a reversal.
UPDATE: 11:15 AM
SPX just popped up through the TL and the .786 and appears to be reversing instead at the .886 of 1595.70. We could short here, but it might only be worth a couple of points — to back test the broken TL. So, let’s assume that it’s going higher and set stops at 1593ish.
UPDATE: 11:40 AM
Ah…now, I see. I had drawn the red channel to connect with yesterday’s low — and it just wasn’t jibing with the push past the .886. Now, we’re getting a reversal at about the .98 retracement, but with a revised red channel it’s obviously a channel midline.
It works perfectly fine if we put the bottom of the channel where it should have been — 1580 — rather than where it was interrupted (1581.28) by the PPT.
This pull back shouldn’t be more than a few points — a back test of the purple channel and red TL at most. So, I don’t think it’s worth shorting unless it gains momentum below 1593.
Note the small red IH&S Pattern — the red TL that’s parallel to the revised channel line. It’s not much, but it targets 1603.82. IMO, that’s a pretty good upside target for this move and is in keeping with the scenario laid out on Apr 30 [see: Breakout or Breakdown?] This was the chart we put up then.
I didn’t anticipate the very deep plunge we had yesterday — which has now been completely retraced, by the way. It was designed to shake out bulls, and I’m sure it did a very nice job. So, let’s slide the box over a bit.
It still looks like a decent scenario, especially now that we have a 1.272 (purple) to go with the red 1.618 at 1601.97. The yellow TL from 1994-2003 and the purple midline intersect today at 1:45 ET.
It looks like we’re going to get a pullback here, but we already exceeded the previous high. So, the harmonic upside is intact. Again, the key level for support on any pullback is 1593-1594.
Stay tuned…
UPDATE: 1:20 PM
Will it actually stay on track this time? Seems too easy…
The 5-min RSI is a great tool for timing the final few points…
Remember, a rise to 1602-1603 will hit two obviously important trend lines. A reversal here would come just 4 points shy of the IH&S neckline from back on Apr 15. It never has completed, but has come very close several times.
If it were to complete today, it would target 1650 or so. But, the right shoulder is already ridiculously large compared to the left. So, I’m not sure how many bulls are hanging their hats on this pattern any more.
But, it would also complete the red Crab Pattern, which some investors probably are watching. I plan on shorting the crap out of this. But, as always, there’s no guarantee this is the “big one.”
I just think this bull run is really starting to strain credulity. If I were writing the screenplay for this sucker, I’d put in a downturn just to fake people into thinking the markets were still rational.
If it’s going to happen, the timing looks like 2:15ish ET with a back test of the yellow TL, the .75 white channel line and the top of the falling channel. Good time to be thinking about stops…
UPDATE: 2:40 PM
The narrow channel was too good to be true. Just spitballing, but here’s one that could work…
With every passing hour that SPX doesn’t make it to the target, the odds increase of a pullback to the .886 (1595.70) or the .786 (1594.07.) At this rate, there’s an increase chance of completing the upside at the close on Friday.
If it carries over into another day, don’t be surprised if the pullback comes near the close today at as low as 1590.
Watch your stops…
UPDATE: 3:45 PM
Going into the final 15 minutes with not much happening. In the very short run, looks like we could get a little pullback before the final thrust to 1602-1603, but that’s not necessary. The target is well within reach of a last minute spurt.
Unless we break down dramatically, I’ll hold long overnight. If we tag our targets, I’ll take profits and possibly go short.
The worst potential here at the close looks like 1591.
I have a full afternoon of meetings and conf calls, but will try to post more late tonight.
GLTA.