The USDJPY pulled back from the brink, EURUSD is trying to make the best of the dollar’s momentary vulnerability, and stocks are wondering whether (if bad news is once again good) this morning’s data is “bad enough.”

We’re watching to see whether or not SPX’s drop at the end of yesterday’s session completes the wave higher.  A push back into the rising channel would be reason enough to play along on the upside.  The Inverted Head & Shoulders Pattern completes just above at 1654.54 and targets 1667.

I’d be more optimistic about that scenario if the EURUSD could break out of the falling white channel…

…or the USDJPY could climb back into the rising wedge.

UPDATE:  9:46 AM

SPX just poked up into the rising channel and appears likely to complete the IH&S targeting 1667.  Going long here at 1654.

UPDATE:  9:55 AM

SPX just completed a little Gartley Pattern at 1659 with 5 identifiable waves higher.  I’ll try going short here and see if we can get something going on the downside.

I might be early — the IHS target is still 8 points away. And the gap SPX was trying to fill is technically still open up at 1659.76.  Our primary target yesterday was the .618 Fib at 1661.16 and the smaller scale (gray) .886 is at 1660.22.

I’ll use fairly loose stops — say 1662ish, as we also have a confluence of Fib levels at 1660-1661.

The larger traditional H&S Pattern we were following yesterday would have equal left and right shoulders at the purple channel .75 line — currently about 1662.  But, 1659 is close enough.  The neckline is back down at about 1642.

As we head back down, I’ll be watching for a bounce at the IH&S neckline at 1655 – also the midline of the revised rising white channel.

UPDATE:  11:00 AM

Got the bounce at the neckline/white channel midline as expected, flirting with higher.

The RSI picture suggests that a push to 1661 or 1667 is a good possibility, so I’ll probably take an interim long position with any strength through 1661.

continued for members…

The charts suggest a reversal (from whatever level) at 11:30 EDT.  Obviously, a push through the purple and yellow midlines and the top of the red channel would portend a move to the higher end of the range.

UPDATE:  11:55 AM

SPX continues to hang around the highs for the day, increasing the odds of at least a slightly higher push (the .618 at 1661 or purple .75 at 11663) before the downside resumes.  The 60-min RSI has tagged the intersection of those channel lines discussed above.

Even the 15-min chart looks good and pregnant (focus on the yellow channels only.)  We should know something in the next few minutes.

UPDATE:  12:02 PM

SPX just pushed through the earlier high, closed the gap and topped the gray .886 at 1660.22.  The purple .75 line (idealized H&S right shoulder) is now at 1663ish.

I’ll take an interim long position here at 1660, with tight stops (tracking the white channel midline) in case 1661.16 is all we get out of this push.

UPDATE:  12:04 PM

No sooner got that posted when SPX fell back below the midline, stopping us out for a wash.   Full short here at 1660.  Will wait for the next attempt.

UPDATE:  1:40 PM

Just ratcheted up to 1660 again.  I’ll take an interim long position on any push through it for the likely trip to 1666.69.

Why 1666.69?  This is more than a wee bit speculative, but indulge me if you will.  Recall that 1667 was the target of the IH&S from earlier today.  It’s also the .786 Fib retrace of the drop from Tuesday’s high (1674 to 1640, purple.) But, most interesting of all, at 1666.69 the 261.8 of the Fibonacci extension (in red below) lines up perfectly with 1577.31.

This is just slightly higher than the Oct 2007 high (1576.09), which would keep bullish wavers (is that a contradiction in terms?) happy.  It would also produce a Point A (to go with our 1687.18 Point X) that would then, in turn, produce a 2.24 extension at 1823.42 — the 1.272 of the crash from 1576 to 666 over 2007-2009.

It’s entirely possible this whole steaming pile of snake manure will come crashing down any second.  It wouldn’t surprise me much at all.  But, if it doesn’t — and, it certainly looks as though it won’t just yet — then SPX is probably heading for that 1.272 extension.  We’ve been talking about it forever, but it bears repeating for the new folks here on the site.

We had a nearly perfect .786 reversal at 1370 in May 2011 that strongly suggests a Butterfly Pattern.  And, Butterflies typically complete at the 1.272 or the 1.618 extension.  In this case, the 1.272 is exactly 1823.42.

Some might remember from our forecast a few days ago that I show a big bounce at the bottom of the purple channel first.  So, if this does play out, don’t expect a quick trip to 1577.  We could get a big retracement first.

Also, until someone takes away Ben’s keys to the helicopter, we can’t ignore the possibility of a quick 10% moon shot to 1823 without any serious correction first.  I find it highly unlikely, but it could happen.  He could do it with a three minute press conference, right?

Like I said, plenty speculative.  But, it kinda makes sense….unless you believe all that random walk stuff (which would be weird, since you’re here and not on cnbs.com.)

I’m willing to put some money on it, so will go long here at the channel bottom at 1659 and see if we don’t hit 1667ish in the final hour of trading today (tight stops in case this idea is as hair-brained as it sounds.)

The tricky thing about this call is that we’ll have to cross the .618 at 1661.16 first.  And, there’s a pretty good chance that we’d see a significant pullback that could even mess up the white channel.  We’ll cross that bridge when we come to it, probably with an interim short position.

I show the white channel midline reaching 1667 around 3:30 EDT this afternoon — which means I have about an hour to update some other indices (and prepare an apology.)

UPDATE:  3:27 PM

SPX is abusing the bottom of the white channel, threatening a breakdown.  This is likely the same stupid crap they pull every afternoon in the final hour, shaking out folks who follow the channels religiously.

I’ll take an interim short position here at 1660, but the 15-min RSI suggests it’s not worth chasing.

UPDATE:  3:35 PM

That should be it for the downside.  Closing the interim short here at 1657.

UPDATE:  3:58 PM

Will hold long into the close.

GLTA.