The rising wedge we were watching Friday broke overnight and has carried into this morning’s session, with an initial drop to 1452.06.

This completed a Bat Pattern at the .886 retracement of the 1474 to 1449 drop (also a small Crab Pattern.)  We should thus get a sizable bounce from 1452 — probably at least to the white channel midline of 1456.51 — also the .618 of the small red pattern.

UPDATE:  10:10 AM

This morning’s drop to the .886 suggests some interesting moves.  Remember that the .886 not only represents the completion of a Bat Pattern, it is also the Point B of a potential Crab Pattern.

continued…

Crab Patterns complete at the 1.618 extension — targeting 1439.42 IF SPX is able to break 1450.  This is a little lower than our target of 1444, and couldn’t happen within the current white channel until Monday Oct 1.  The 1444 target could occur within the channel by as early as Wednesday.

Needless to say, a break of the channel’s lower bound changes the timing on everything.  This is a nice little channel, but like all channels — SPX will eventually leave it for greener (or redder) pastures.

UPDATE:  11:15 AM

We got more of a bounce higher than I anticipated — reaching 1458.31 instead of 1456.51.  We just completed a little rising wedge at a possible channel line (in red), but I’m watching to see if the 5-min RSI can break its TL before declaring the bounce over.

If it can’t, it’s more likely we’ll just back test the white channel midline and head higher still — or at least test/push the little red channel.

Both the upside and downside harmonic patterns are still in play until we take out a previous pivot point.  For the small red pattern (the potential Crab) to play out to the downside, we need to break this morning’s low and push below the Sep 20 low of 1449.98.  This would open up the 1.272 at 1445 (as early as tomorrow) and the 1.618 at 1439.42.

UPDATE:  11:15 AM

The little RW broke, but not the RSI trend line.  Keep an eye on this RSI TL, as it should provide the perfect warning before the downside gets going again.  As we surmised earlier, this does appear to be a back test of the channel midline.

There are a lot of ways to draw the red channel, so I’m not wedded to this one.   It’s conjecture until we get another reversal.  It would not be unusual for it to maintain its downward slope, while broadening to a less aggressive path.

Unless we break that TL and channel midline, my best guess at this juncture is another fake-out downward move that bounces off the white channel midline again, then goes up to tag the next higher white channel line (and RW apex level) at around 1459-1460 later this afternoon — followed by a 3PM selloff like we’ve been getting lately.

12:48 PM

We obviously did break the TL and channel midline, and the original red channel has held together pretty well so far, allowing the little rising wedge to also play out.  We’re testing the channel yet again, and the next few minutes are important to the short-term trend.

Watch the little yellow TL on the 5-min RSI.  It should coincide with the red channel upper bound.  If one breaks, the other does.

I still believe the trend to be down, but a bounce north of 1453.18 out of the channel would argue for a move higher.  If we get started to the downside again, watch for any difficulty getting through 1453.65.  It marks a TL (yellow, dashed) that’s parallel to the upper bound of the large yellow rising wedge.  Bulls will want to see this as the lower bound of a channel up.

UPDATE:  1:40 PM

We’ve moved lower again.  As mentioned above, we need to break through 1453.18 in order to break the trend of successively higher lows.  The yellow TL mentioned above is easier to see in a 60-min chart w/o Fib levels.

The big prize for bears would be taking out 1449.98.  Doing so removes it from contention as Point A in a harmonic pattern higher.   Here’s the bullish harmonic scenario:

And, the bearish:

I’ve labelled some of the channels discussed lately, as well as those which could come into play.  Whether they pan out or not, they’re the channels you should keep an eye on.

UPDATE:  2:55 PM

We just got the move to 1460 I wrote about at 11:15 (1460 around 3pm).  We’ll see if we get the sell-off I’ve expected.  We also tagged the top of the purple channel (bearish channel from above.)

The RSI picture also looks promising — there’s a channel there, too.

I’m selling my intra-day longs and resuming the watch for lower prices — though we could get a bounce higher on negative divergence to the top of the white channel (probably not a bad place for stops.)  It’s around 1464 by the end of the day.

UPDATE:  3:55 PM

Decent sell-off going into the close — but nothing exciting.  Should close down on the day, with more to come if the RSI TL break means anything.

UPDATE:  EOD

Here are the three channel systems we’re looking at since the 1474 top.  Each of them continues to be viable, though I’m partial to the white channel — the middle ground.

The purple channel will have to assert itself or give up tomorrow.  It has simply run out of room.  The yellow and the white channels share plenty of real estate until Friday, by which point one of them will have to dominate.

We can look at them as the bounds of a triangle that terminates Friday.

From a distance, it’s a pennant.

I have more to post later — including an update to DJIA and RUT.  But, I have a very full afternoon/evening.  So, it might not be until much later tonight.

GLTA.