SPX almost broke out Friday…a pretty convincing move.
But, the futures — currently down 15.25 — have done a number on anyone taking the bait. Look for at least a .786 retrace of the move up from the purple channel: SPX 1675.
ES followed our script pretty precisely on Friday:
The key is what ES does if/when it reaches the top of the falling white channel (currently around 1679.50.) If it breaks out, it should have legs — at least to 1687-1700. If it reverses or stalls there, then the downside case is still a good possibility.
After reaching 1681 early Friday, ES backpedaled 8 points before topping out at 1686. It’s safe to say that ES is now reversing and has the .886 at 1665.84 in its sights.
continued for members…
UPDATE: 9:43 AM
SPX just tagged the .786 at the bottom of its rising purple channel. We should see a reversal here or at the .886 at 1672.89. ES didn’t quite reach the .886, but is clearly back below its purple channel bottom and — like SPX — is working on another H&S Pattern.
The dollar is trying to make a move, but the effort looks pretty feeble so far. The purple .886 at 79.605 is still on the table.
And, the USDJPY is still in the dumps — having gone nowhere since giving back .786 of the move up from Aug 27.
UPDATE: 10:30 AM
If the price action looks a little whipsaw-y, it’s because it is. There are a few falling channel variations that fit the decline from 1692. But, they all tell the same story: indecision, with a negative bias, but strong support when it matters.
In the absence of POMO/PPT, the market would be selling off. This is nothing new. The steady rise must be maintained. The fact that the purple channel is still intact in the face of the government shutdown, the debt ceiling crisis and the dollar’s flop is ample proof.
It’s getting tougher and tougher to question this fairy tale market. In the absence of a whole squadron of soccer moms attacking Capitol Hill, is there anything that can produce a real correction? Or, worse?
The debt ceiling crisis is the most likely candidate. And, the charts support the possibility. Note our Point D target, hanging out down there at 1590-1600 for the past several weeks.
It would complete a nice A:B = C:D pattern (at 1594.)
It would also represent a tag on the bottom of the rising grey channel, the falling red channel midline, the purple .786 and the red .618.
But, most importantly, it would tag the bottom of the big white channel that has guided ES higher since the markets bottomed out in Mar 2009.
The steps to a 1594 target are fairly straightforward. First, it’s a 1.272 extension of the rise from 1624 to 1726 (the yellow pattern.) So, we’d presumably want a significant reversal at the yellow .786 of 1646.58 (a completion of the small red Crab Pattern.)
Ideally, it would be 30+ points to establish a legitimate Point B — perhaps a backtest of the (by then) broken purple channel bottom around 1680 on Oct 9-10. From there, a sell-off over the next few sessions would do it.
Note that a drop from 1726 (the Sep 19 high) to 1597 would be precisely 1.618 times the size of the 1705 to 1624 drop in August. I believe Elliott Wavers would consider such a move the perfect C wave in an extended flat correction following the May 22 highs (Wave A = our white A:B; Wave B = our B:C; Wave C = our C:D).
We’ll keep this scenario handy in the event the market can’t break out of its current imbroglio. If it can, note that there’s a nifty little IH&S setting up that would target 1713 or so — right about where the TL from 1994-2002 intersects with the top of the red channel on Oct 17.
UPDATE: 3:00 PM
ES has retraced .618 of its drop from 1686, and is fairly likely to complete a Gartley Pattern up to the .786 in the final hour of the cash market.
Note the IH&S neckline will cross the white .886 tomorrow at 1683.78, so we can’t rule it out. But, the fairly precise reversal at the .618 typically signals a Gartley which, in this case, would match up with a tag of the falling white channel top around 4pm EST.
It’s potentially worth playing along with tight stops, but odds are this is a fakeout that will leave cash buyers with the usual conundrum at the close.
More later…