ORIGINAL POST 9:25 AM

SPX seems intent on reaching the next Fib level — the .618 of the 1433-1343 plunge at 1398.99 — before embarking on a significant B wave lower.

But, the top of the new purple channel that’s been guiding us lower since mid-September is up above at 1401-1403, so there’s every chance in the world that SPX will stretch to reach it.  Plus, 1400 is just too tempting a target.   Reversals are attracted to round numbers like moths to a flame.

The neckline of the H&S that completed back on the 7th is up at 1406ish and would mean a break out of the channel, so I’ll make that a secondary target and would look for a quick retreat back into the channel.  Since the market’s aim here is to give the “appearance” of setting up a Bat Pattern that targets the .886 at 1459.56, a reversal anywhere between the .larger pattern’s .382 at 1393 and .500 at 1408 would suffice.

SPX just smacked into a bunch of channel lines in this area, and we should see a strong reaction before moving much higher.  But, as we discussed Monday, the general trend remains higher to our forecast target.  Any shorting here would be a short-term trade in conjunction with a long core position.

DX is closing in on the highest of our proposed Point C’s posted on Monday — the .382 of the 78.725 to 81.515 run since the Sep 14 low.  This is also a .618 of the more recent 79.72-81.515 spurt and a channel line, so a reversal should be imminent.  Remember, the overall trend is higher into the end of the year.

We’re looking for either a B subwave higher in the C leg (or the main B leg higher itself) of an A-B-C move lower to find a Point C for the Bat Pattern completion up at 83.06 to 83.62.  It could be significant, but it’s a counter-wave in a counter-wave, so don’t get too hung up on nailing it precisely.

The EURUSD is closing in on the .618 retracement of its recent drop from 1.3138 to 1.2660 — as well as an important channel line.  Look for a reversal around 1.2956 to coincide with SPX’s channel tag discussed above.

UPDATE:  10:30 AM

SPX just reached the upper bound of the channel discussed above.  I’m trying a short position here at 1404, with stops around 1407.  Again, general trend remains higher. Targets and charts in a moment.

continued for members…

UPDATE:  10:55 AM

UPDATE:  1:15 PM

Looks like we managed to tag the H&S neckline after all. We’ve significant negative divergence across the board, so I’m inclined to give my 1407 stop a little wiggle room.

I’ve been working on fleshing out the details for the next week or two.

Point 7 in the analog lines up with May 31, 2011 — which came within 3 points of retracing .618 of the May 2 – May 25 decline from 1370 to 1311, and exceeded the .886 of the May 19 – May 25 decline by 3 points.