Very few of the rallies inspired by Draghi’s jawboning have lasted.  I suspect this will be no different — especially on a day when euro zone PMI hits a new low (since Sept 09) and US PMI, while marginallly higher, indicates falling new orders and higher prices.

The EURUSD has staged a nice rally off its overnight lows, but is just back-testing the broken red channel we discussed late yesterday.

I expect that the pop we get in equities on the opening will not last into the day.  SPX might reach yesterday’s target of 1421-1422.58 (around 10:15 EDT?), but then we should see more downside.

continued for members…

SPX has only until about 10:15 to accomplish the full back-test of the white channel bottom (1422.58ish) before running out of room in the current channels.  Admittedly, the white channel down could shift a little.  Keep an eye on the RSI.  It usually leads prices.

A break out of the white RSI channel would mean a break-out of the white price channel — not very likely.  So, my top case continues to be for the white channel to hold to at least the 1.618 at 1401.74 (purple grid) or the .886 at 1405.45 (red grid.)

UPDATE:  10:50 AM

SPX reached 1420.04.  Could go higher, as the RSI channel is still intact.  But, the channel is quickly running out of room.  The safe bet is to take the profits on the bounce from 1407 — or at least raise your stops.

While the paint is drying down on Wall Street, I think it’s important to note a couple of things about trading in general and, specifically, my forecasting efforts.

Harmonics and chart patterns have been very successful for us.  But, it’s important not to get too caught up on precise targets.  While I make every effort to identify the optimal turning points in the market, there will be plenty of times when we get “pretty close” but can’t quite seal the deal.

If I mention a target range and you see prices get to or near that range, it’s really incumbent on you to make your own trade decision.  I post what I’m doing, and you’re more than welcome to play along.   But, in the end, each of us has to invest according to their own comfort zone and ability.

If you’re a seasoned day trader and want to squeeze the last nickel out of every move, you probably have the focus (and time) to do so.  You can micro-manage your stops and move in and out multiple times as prices vacillate across a channel.

If you’re a swing trader who’s trying to catch most of the moves most of the time, you have a different time v. money philosophy.  You might observe that we reached the range, and pull the trigger without hesitation.

If you’re a long-term investor, which many members here are, and are simply trying to be on the right side of major moves, a 15-pt bounce probably shouldn’t concern you.

For active traders, I encourage you to chart along with me.  Anyone can register for Think or Swim from TD Ameritrade.  Last I heard, you can open an account with as little as $500.   You’ll have the same platform I use and can see for yourself, for instance, whether a particular channel has been broken or not.  And, next time I’m hit by lightning, your investing needn’t skip a beat.

I put out the best information I can.  But, it doesn’t matter how many 18 hour days I work, I won’t always be able to post the instant something changes or a (pre-announced or not) target is hit.  I might be placing a trade (it’s how I make a living), taking a bathroom break, or trying to figure out where my wife hid the Oreos.

We’ve nailed quite a few targets spot-on in the past six months; but, that’s a byproduct of my process rather than a stated objective.  This site is set up to identify and forecast significant turning points and trends.  To me, that is a more important use of time than squeezing the last few nickels on a trade.

Thanks for listening.

UPDATE:  11:48

Finally!  Watch for a back-test…  It confirms with a move lower than 1407.56.

BTW, interesting chart on Facebook.  I knew something was up when I heard Donald Trump touting the stock on the radio.

He was being interviewed about something else, but still managed to mention the large position he’d been buying about 5-6 times.  More likely he was going for the ol’ pump and dump.

It’s hard to escape the power of channels…

UPDATE:  12:12 PM

The red channel broke, and prices are trying establish a slightly less-aggressive purple channel to support a move higher.  Even if the purple channel brings prices back above the red channel bottom, we’d still have to contend with the falling white channel which currently maxes out around 1418.

Bottom line, anything higher would have to break out of the white channel.  And, the RSI suggests this is just a back-test.

Here’s the only thing that gives me pause…  The dollar has enjoyed a virtually uninterrupted run to just beyond the .886 retrace of its drop from 80.31.  Ordinarily, we’d see more of a pullback along the way — as occurred on the way down.

Since it hasn’t happened yet, I find myself wondering if it’ll be a bigger reaction here at the .886 — which would be bullish for stocks.  Here’s the big picture again:

The dollar is trying to make up its mind whether to follow the rising red channel or the falling purple channel.  This past July, it failed to hold the red channel mid-line after bouncing off the top of the purple channel; but, in May 2011 it failed to hold the purple channel midline after bouncing off the bottom of the red channel.

At this rate, we could be setting up for a triangle that sees the dollar and euro taking turns as the foulest shirt in the hamper, with each move retracing 61.8% of the last — something like this:

Regardless of what the long-term future brings, it just bounced off the bottom of the rising white channel after retracing almost .886 of the last move up (78.97 v 78.18, for .8697.)  So, the presumption is that B and C are as follows and we won’t breach 78.12 to the downside.

If correct, 78.97 marked the end of a corrective wave 2 and the most recent leg up is the first of a wave 3.  It certainly looks impulsive, with such minor pauses along the way.  And, the previous low was clearly a back-test (of the red channel down) — much more typical of a corrective wave.

If the move up from 78.97 was a 1 of 3, then we should get a corrective wave that sets up the 3 of 3 to take out the recent 80.31 high.  Such a corrective wave, though, could be another .886 as the past two have been — taking us as low as 79.15 — and, could last for days.  It could even take us through the election.

This, of course, would vex stock investors — since the ultimate target wouldn’t be known until we see if 78.97 holds.

The other possibility is that DX takes out the 80.31 high, reaching the 1.272 (80.67) or even the 1.618 (81.138) before reversing.  If that happened quickly enough — say with the SPX drop to 1401-1405 I anticipate, then stocks could get on with a rally (dollar correction) in time for millions of registered voters to be happy with their portfolios.

I’ve charted both options below.

As SPX nears the falling white channel bound, we should find out soon enough.

UPDATE:  2:22 PM

SPX just reached the end of the line with the white channel.  Should get going to the downside now.  There are two H&S patterns (not very well formed, but legitimate) that point to 1402-1403 — consistent with our Fib targets of 1401.74 and 1405.45.

Note the 15-min RSI is still contained by the top of the white channel and hasn’t regained the broken red channel.

Will the continuation of QE3 be enough for SPX to break up and out of the white channel?  If I were running the PPT, I’d let them take it down to one of our Fib levels and then reverse it.  Silly to keep pushing on the string…

We’ll look for positive divergence upon reaching our lows.  The purple or white channel bottom might line up with a quick 8-12 point drop and recovery.