Trend changes are always tough.  No matter your level of conviction, there’s always that “what if I’m missing something?” moment that makes time stand still.  You stare at the screen, watching the market unfold, and do your best to stifle the self-doubt — looking for any sign of encouragement or disparagement.

You draw a line in the sand and dare the market to step over.  When it does, you say a little prayer and then you celebrate.  You take your significant other out to dinner (they had to put up with you for the past 24 hours while you anguished over it — not pleasant, I assure you.)  You tip your waiter a little extra.  And, you slip the homeless guy on the corner a five-spot instead of a quarter (“there, but for the grace of God go I.”)

When the market doesn’t cooperate…well, I guess that’s what keeps cardiologists, psychologists and the good people at Oreo cookies in business.  You figure out what went wrong, enter it into your trading diary, and vow to avoid that particular mistake in the future.  The silver lining is that after making enough mistakes, you can get pretty good at this stuff.

The only real mistake is the one from which we learn nothing. – John Powell

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While I’m waiting to learn whether I’ll be dining out or munching Oreoes tonight, these are the charts I’m watching.  We came into the day short, so I’m encouraged by SPX’s daily RSI chart.  The latest channel looks bearish to me, though there’s an obvious test coming – regardless of whether we use the yellow or the white rising channel.

The 60-min chart is also encouraging.  It’s broken the dashed yellow TL, but must push down through the purple one (from the Sep 14 high) in order to get the ball rolling on the downside. It’s already bounced off it once this morning.

Two weeks ago, the break of the initial yellow line was followed by a bounce off the purple line and a back test that added 30 points to SPX.  But, that occurred at the bottom of the white channel — not the top, where we are now.

While, the 15-min RSI looks like it’s back-testing a broken channel — helpful in confirming the broken rising wedge we’ve been watching.

I would be much more confident about equities taking a dump here if the dollar had reached its .886 off the last low of 78.96.  It would mean a tag of the (broken) falling wedge apex as seen below.  I thought it might happen after-hours last night.

The fact that it didn’t tells me there’s still a chance we’ll get one last push for equities, perhaps up to one of the .886’s we discussed yesterday: 1465.78 or 1468.93.

continued for members…

The RSI shows it’s at an important point — whether to continue following the purple and white channels and break out of the yellow falling channel.  There’s room for it to base at the bottom of the white channel before breaking out.  If it looses the purple channel, that’s the most likely scenario.

Here’s the same issue on the price chart.  The white channel looks to be in real jeopardy.  If/when it fails, the purple channel will need to catch the falling dollar — probably as SPX hits 1466.

UPDATE:  12:00 PM

The 5-min DX white channel just failed, and SPX is nearing 1464 as DX is nearing the bottom of the purple channel.  It looks like 1464-1465 would just about complete a simple back-test of the SPX rising wedge.

Here’s a close-up of what now appears very likely.

UPDATE:  1:10 PM

Getting a decent sell-off, but I won’t be convinced we’re not going back to tag those .886’s until: (1) we break below this morning’s low of 1455.60, and (2) we clear the parallel wedge line that might be construed as a rising channel.  It’s one of market makers’ favorite tricks — especially around OPEX.

While everyone’s loading up on puts to play the obvious break of the rising wedge (back near the highs of the day) they quietly transform the broken wedge into a rising channel.  It’s easy to catch — just draw a line parallel to the wedge’s bound.  Voila!

And, suddenly, a golden opportunity for bears turns into a series of higher highs and higher lows in a channel pointing towards the moon.

This could be the break downwards we’ve been waiting for, but until the “channel” is broken I’m thinking it might be a fake-out just to shake out a few bulls and suck in some bears before the run up to 1465-66.  If you’re short, and worried about such a thing, you could always lower your stops just in case.

Those still short from the .618 at 1456 might especially consider this strategy, riding a bounce up to the 1466 level and shorting again.  You’re about even, now.  If you re-shorted again yesterday in the  1460-1462 range, it’s your call.  We might tag the “channel” bottom at 1453-1455, but SPX is having trouble getting below the support at 1455.60 (this morning’s low and Tuesday’s high.)

If we tag the channel bottom, I’ll likely take profits on some short-term trades and just lower stops on the longer-term stuff.  Likewise if the 5-min RSI regains the white channel it’s broken down beneath.  But, at this point, it’s just as likely it hits the purple RSI channel bottom (yellow price channel bottom) first.

If I’m wrong, there will be plenty of opportunity to short on the other side of the channel line.

UPDATE:  2:20 PM

As expected, we broke down below the previous low, got down to 1454.26 (within a point of the yellow price channel) and bounced up a couple of points.  The 5-min RSI never reached the purple channel bottom, so it’s not necessarily done yet.  We’ll watch to see if prices break up and out of the little red channel I’ve drawn.

BTW, the .786 retracement of the 1451.39 to 1464.09 bump is 1454.11.  The .886 is at 1452.84.  At this point, it’s looking more like a return to the yellow (not purple) RSI channel bottom would correlate with a price tag on the yellow channel.

A tag of the purple would likely mean a break of the price channel, to be followed by a back-test.

UPDATE:  2:45 PM

This is where the bounce should happen if it’s going to.  We just reached the .886/1452.84 mentioned above.  For shorts, I suggest either lowering stops or taking profits.  For those who haven’t completely lost their nerve, not a bad place to take a stab at a bounce to 1465-66.

 

Here’s the RSI close up showing a red channel that would need to be broken if the bounce is to occur.

The EURUSD just reached the bottom of two little channels of its own, but could probably stay within the red channel if SPX bounces up to 1466-68.

And, DX just completed a Crab Pattern that should see it heading south again very soon.

UPDATE:  3:40 PM

A lot of people are probably following the GOOG news.  I charted it just the other day, as it’s one of those bellwether stocks that can swing the market.

I noticed that it had broken down from a 3-month channel and was back-testing it.  I also noticed this was happening in the vicinity of the completion of a couple of important Crab Patterns.

Suddenly, the plunge doesn’t look all that random, ya’ know?  And, notice that it stopped right at the Jan 4 high, as well as the 1.272 Fib level and the mid-line of big honking channel that dates back to April 2011.  I don’t buy internet stocks, but I’d have to say it’s probably found support.