Lots of red out there this morning.  SPX just retraced .886 retrace of yesterday’s spike higher – a good place for a bounce.  We should get a bounce here, but keep an eye on the primary target: the purple channel midline, currently around 1642.19.

UPDATE:  10:00 AM

SPX just bounced up through the falling purple midline at 1650.  I’ll play the bounce here, with tight trailing stops.

This could be a bounce to further establish the falling red channel’s upper bound at 1658-1659, but you never know.  It could just as easily be a simple backtest of the falling purple channel midline — hence the tight stop.

There’s a tiny potential IH&S setting up that targets 1660 — the confluence of the .500/.382 retracements and a quick gap fill.  But, there’s also a small rising wedge here…

UPDATE:  10:23 AM

Stopped out on that little move, so back to full short.

Next stop should be the big purple channel midline.  It looks like 1641.85 on the 60-min chart, which is so close to the pink .886 at 1641.14 that I’ll use that as my target.

The big question, of course, is “then what?”  I did a lot of charting last night, and found some interesting patterns in the currencies [see: Update on USDJPY] that might shed some light.

continued for members…

The USDJPY, for instance, has been highly correlated to US equities.  As I posted early this morning/late last night, it has been forming a rising wedge that has gradually funneled the pair into a tighter range.  The bottom of that wedge is being tested this morning.

If it breaks, there is a very good chance of a drop to the channel bottom at 98.79.  But, it has been clinging to that lower bound like a life raft.

UPDATE:  11:01 AM

SPX just tagged the purple midline and our 1641.14 target.  I’ll switch to the long side here at 1641 for what should be a decent bounce.

The initial target is the top of the red channel currently at 1655ish.  Stops at the former low of 1636.50 would be advisable, though technically the May 23 low of 1635.53 is the “line in the sand.”

So, I’ll likely put on an interim short position for any dip below 1640, with 1640 as a stop.  A fall through 1635 would be cause to give up the long position all-together.

Note that the USDJPY just tagged its .886 at the same time as SPX.  We’ll see if it gets a bounce as well.

UPDATE:  12:48 AM

SPX just broke own from the little rising channel to the upside.  I’ll dump the long position here at 1645, but be prepared to pick it back up at the .786 or .886 or a move back up through the fan line off the top — probably about 1644.

Of course, a drop through the midline would be fine…While we’re talking about that, let’s spitball a little bit, shall we?  Thanks to Airyk for the question about the form of the recent price action.  I’m not a waver, but I do like to dabble.

Remember our forecast from May 21?

We slipped higher momentarily on the 22nd, so I’ve had to make a few Fib adjustments.  But, the general theme is still intact: a drop through the midline to tag the bottom of the purple channel at 1594-1605 this Friday or Monday, then a rally to retrace .886 (of the total drop from 1687) up to 1676 by June 20 or so.

And, longer term…

Here’s a close-up:

All we need is a run up to 1661 for a perfectly balanced right shoulder at the purple channel .75 line, then a drop through the purple midline to complete the H&S Pattern.

 

UPDATE:  1:20 PM

SPX just tagged the top of the falling red channel at 1645.  I’ll resume an interim long position on any move through it.  Otherwise, short for the move to the .886 at 1641 or to take out the previous low.

UPDATE:  1:25 PM

Didn’t take long.  Resuming the interim long position here at 1645 with an initial target of 1651, secondary target at 1661.

UPDATE:  2:00 PM

So far so good on the bounce out of the red channel.  I’ve sketched in the rising channel below, which I believe is a decent candidate for this wave higher.  The .618 of the drop from 1662 is up ahead at 1541.10.  The .618 of the drop from 1674 is at 1661.

Note that 1661 would also represent a tag on the .75 line of the big purple channel.  Just as significant, it would also match the May 23 high in terms of a potential H&S Pattern targeting 1605ish.

UPDATE:  2:15 PM

I’ll switch back to full short here at 1654.10 for an expected pullback to 1648 or so.  At that point, we will likely get a final wave higher to 1661.  If we don’t get a pullback, I’ll likely resume the interim long on any push up through 1655.

UPDATE:  2:44 PM

Just got a good bounce off the .25 line in the rising white channel.  Still looking for 1649.52 or so.

UPDATE:  3:01 PM

Just tagged the bottom of the white channel at 1648.98.  I’ll resume the long position here, with stops at 1648.  Target is 1661.16 at the EOD.

But, it occurs to me that that target is probably wrong.  A close above 1554.40 or so would complete an IH&S Pattern targeting 1667.70 — which is about where the purple .786 (1666.90) and the yellow .786 (1667.27) are.

So, either this retracement will be higher than 1661 (namely, 1667), or it was over at 1654.  We’ll keep stops close — say 1650ish.

There’s a third possibility — always my least favorite: the IH&S completes, spikes up to 1661 (or wherever) to complete 5 waves higher, then closes back below the neckline so the pattern is invalidated.  Or, more likely, closes at the neckline to inject the maximum uncertainty into the equation.

UPDATE:  3:30 PM

I only count 4 waves since the 1640.05 lows.  This move off 1648 could always be truncated — closing below the neckline and invalidating the IH&S.  It makes a fair amount of sense, given that USD/JPY is still lurking below its rising wedge and has a very weak looking RSI chart.

I’ll close the long position on any weakness here, with the expectation that the pattern is not going to play out.  I’m watching the bottom of the rising white channel.

 

UPDATE:  3:44 PM

That’s enough for me.  Going full short here at 1651, will likely hold short into the close.

 

 

 

 

 

 

 

 

 

 

continuing…