Charts I’m Watching: Oct 8, 2013

The market saw quite a reversal yesterday afternoon.  After heading toward the usual last minute buy-the-dip stick save and an apparent Gartley Pattern, ES plunged below the Oct 3 low, likely confirming the red Crab Pattern.

It remains to be seen whether ES will flesh out the expanded channel I proposed yesterday, but the odds are increased with yesterday’s solid reversal.

SPX closed on the purple channel bottom.  And, while a drop to the .786 at 1675.04 or .886 at 1672.89 is clearly in today’s game plan, that’s not all the downside the market has in store.

First, a drop below SPX 1670 kills off the IH&S Pattern that looked so promising.  We’ll watch to see if the bulls defend that level.

And, of course, SPX already put in a reversal at the red .786.  So, while a stop at the .886 isn’t out of the question (the Plunge Protection Team has definitely not been furloughed) the greater likelihood is an extension to the 1.272 at 1664.59 for a Butterfly Pattern.

Remember, 1666.58 is the .618 retracement of the rise from 1627 to 1729. So, as we discussed yesterday, a completion of the red Butterfly establishes a likely Point B in either a Gartley, Bat or Crab Pattern on that larger (white) grid.

In other words, a reversal at 1666.58 opens the door to the white channel tag I’m expecting.  Does it mean the market will reverse at 1666?  Of course not. Breaking below 1670 would embolden the bears, and we could see some real momentum build.  A plunge to 1649 (the .786, a close 2nd in probability) or 1639 (the .886) wouldn’t surprise anyone.

There’s also the ever-present possibility that the market will suddenly spike higher on real or rumoured improvements in budget negotiations (always use stops.)

But, a reversal at 1666 is the most likely path if we’re ultimately going to see lower prices.  Why the italicized “if”?  From a harmonic standpoint, it’s anything but certain.

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