ORIGINAL POST:  10:00

The logjam finally broke.  We slightly exceeded yesterday’s 1464.50 target — topping out at 1465.15.  This morning’s action reached the downside target “A” we established on Monday [see: The Hangover.]

We got a bounce at the bottom of the red channel — which should reach the 1454-1455 area — the recently broken red channel line and the midline of the white channel. But, I don’t think this move is finished (keeping in mind tomorrow is OPEX.)  More in a few minutes.

continued…UPDATE:  10:25

Recall that our favorite downside target was B at 1444-1446.  This represents the bottom of the white channel as well as support from the broken gray channel line that connects with the recent 1422 peak as well as some major turns in the past.  It’s the dashed gray line rising through the middle of the chart.

It’s currently around 1442, near a purple channel line and the big red channel midline at 1444 and the .382/.618 Fib retracements of the recent run-up.We’re still up 20-pts since shorting at 1474, so I’m inclined to hang in there for more downside.  If we break up through 1458, I’ll reassess.

UPDATE:  11:10

We reached the midline of the small red channel, the 1458 level I was concerned about.  The rebound should run out of steam here.  Note that this morning’s initial fall was to a 1.618 extension of the last little rise from 1456.64 to 1465.15 over the past two days.

If so, look for a retest of the red channel bottom — currently at 1450, and if broken, swift downside to 1442-1446, with 1442.46 as my preferred target.

I’ve charted an expansion of the channel I think might be reasonably accurate.  We’ll see shortly.

UPDATE:  11:50

Testing 1458 again — the little red channel midline.  I’m going to try a different purple channel down.  Watch the 1458.27 previous high.  Breaking it damages the downside harmonic case.

 

UPDATE:  2:00 PM

Quick review of the big picture…  So far, we’ve had a small reaction to the .886 (1472) of the 1576 to 666 crash from 2007-2009.  This Bat Pattern completion corresponded with the 1.272 (1451) of the 1370 -1074 crash last summer and the 1.272 (1464) of the 1422 – 1266 correction in April of this year.

The recent high of 1474 also tagged the upper bound of a proposed rising wedge (in red above) as well as the upper bound of the red channel and the mid-line of the large purple channel in the chart above.

We got a reversal at 1474 (I was expecting 1472), but so far it’s only been 24 points.  In my experience, there should be more.  Psychologically, QE3 is probably helping to stabilize the market. There has also been some support from short-term channels and the Crab Pattern mentioned earlier this morning.

Absent the election and QE3, I might expect a sizable correction — perhaps on the order of 1370 or so.  But, we can expect a highly manipulated market between now and November 6th.  So, I’m looking for logical stopping places that would allow some of the overbought conditions to abate, while leaving the upside intact.  Hence, the 4 levels I posted earlier.

The gray channel line is one that captured my eye.  Review the Sep 12 post What a Wonderful World for more context.  The gray channel lines (green in my Prophet charts) marked many tops, including those in 1987 and 1973.

More in a few.

UPDATE:  3:20 PM

SPX keeps inching its way up, with a likely target of the .786 of the latest move down at 1461.79 — also a tag of the upper bound of the little white channel.  Keep an eye on the rising wedge.

This has been a nice 11-point bounce, but it should be just about done.  I bought a few calls for a day trade this morning, and will close them out either at the close or if the lower bound is broken.  The medium-term trend remains down, unless we break out through the white channel, in which case there’s additional upside to come.

Remember, tomorrow is OPEX.  It’s entirely possible we’ll get more upside, or just a do-nothing day.  If we don’t reach 1461.79 today, I image we’ll take a crack at it tomorrow if it’s typical a typical OPEX Friday.  We can do that and remain within the RW.

I expect further downside once we get past that, but do keep an eye on the channel upper bound.  A trend line with the exact same slope kept prices in check from Aug 31 to Sep 5.  When it was broken on the 6th, we had a 29-point gain.