You can always count on the Fed, or so it seems.  As SPX was teetering on the brink of a 100-pt plunge the past couple of days, the Jackson Hole Gang came together to keep the dream alive.

To them, our modern-day rock stars, I dedicate this classic…

Interesting side note to this performance…  It was January 1969.  The Beatles were just about over.  They hadn’t performed together publicly for two years and were at each other’s throats as they struggled to finish “Let it Be.”

On a whim, they hauled all their equipment on the roof of their building in the dead of winter and performed for half an hour for startled passersby.  Finally, the police arrived and shut them down.  It was their last “concert” together.

I thought it apropos, as the Fed moves forward into the post-Bernanke era.

*  *  *  *  *

The eminis are up 6 points at present and have broken out of the latest falling channel.  This preserves the bullish purple channel we’ve been following, the path to new highs.  Whether the market will stay on that path is anyone’s guess.  But, for now, the market likes what it hears.

BTW, the labels above aren’t harmonic.  Just showing an A-B = C-D potential that illustrates our downside case — which is still on the table until ES breaks 1705.

UPDATE:  9:35 AM

SPX just tagged the top of the red channel at 1661.83.  We’re getting a pullback here that could still back test the IH&S neckline at 1655.  But, it’s just as likely the pullback is only to the broken yellow .786 line at 1660.  Staying long unless that level is taken out.

UPDATE:  9:54 AM

We’re seeing some weakness through 1660 and the 1658.92 high, so it appears a back test is coming.  Traders might want to play the pullback (I will) but it should pass.  The neckline is around 1655, and the white channel bottom is around 1653, so set your stops accordingly.

UPDATE:  10:08 AM

That should do it for the downside.  Back to a full long position at 1655, stops around 1652 (or the bottom of the white channel.)

I’ll take a moment and review the scenarios we’re watching — either of which could still play out.

continued for members…I’ll work with the eminis, as that’s the cleaner chart and better patterns.  The lastest falling channel will probably morph into something equivalent to the last one from 1875 to 1553.  As the chart below shows, if we were to combine them into one, the “middle” of the combined channel would come at the bottom of the white channel around 1560 — the red circle and “D.”

If the purple channel holds, however, we get a very different picture.  Note how it intersects with a white channel line — the .146 line of the larger rising (white) channel as seen below.

This white channel has been pretty effective at guiding prices since the 2009 bottom.

Looking a little closer at the current pattern, we can see a potential Crab Pattern (in white) featuring a 1.618 at 1767.63.  The narrow red channel, if it were able to maintain its ambitious trajectory, would reach that price level around Sep 11 — roughly at the purple channel’s .886 line.

BTW, if the red channel were to rocket higher with, say, a Zweig Breadth Thrust, it reaches the yellow 1.272 ( (the 1.272 extension of the 2007-2009 crash and the next major upside target) in late September at about the same time as the top of the purple channel and white .382 line.

Note that there are really no other Fib targets in the vicinity of 1767.  To me, this implies a likely interim target and not the end of a major move.  The 2.24 of the pattern, for instance, is reasonably close to the yellow 1.272 at 1837.

Together, the yellow 1.272 and white 2.24 cross the purple channel midline in late November/early December — a much more pedestrian slope than the red channel would imply.

Another thing that catches my eye is the lack of synch between that white Crab Pattern targets and those of the smaller white pattern set up by the recent drop from 1705 to 1631.  One implication is that the correction isn’t over; i.e., 1631 wasn’t the bottom.

To match up their 1.618 extensions at 1767, ES would have to dip to roughly 1603 — the previous .382.  That would take it clearly below the purple channel bottom and, frankly, into harmonic no-man’s land.

I can’t imagine that ES would dip below that far below the purple channel bottom without going ahead and tagging the white channel bottom — currently around 1553, which is our downside case and would retrace roughly .886 of the rise from 1553 (Point B) for a nice Bat Pattern (or more.)  Just to be clear, I have no qualms about this scenario.

The white channel bottom could really benefit from another tag in order to preserve its validity — that it, unless prices can reach another higher channel line.

No, I think it’s more likely that we treat the current dip as a relatively deep pullback (the .618) after reaching a double top on the larger white Crab Pattern.  Double tops typically retrace to the .886 or even .786 before going on to make Butterflies or Crabs.

While the purple channel seems quite important now, it will eventually fade away.  The white, at 4 1/2 years old and counting, will almost certainly dominate for some time to come.

If you believe (as I do) that the Fed will go down swinging, it’s not hard to imagine a 1.272/1837 tag at the white channel .382 line in early October and a 1.618/2155 tag in Feb 2014 (white channel .618)  or May 2014 (white channel midline) after a frightening, 14% correction convinces them that they tapered too early.

Since we’re spitballing here, and I imagine at least a few of you are wondering “what scary 14% correction!?”  It could go something like this:

UPDATE:  2:40 PM

What a day!  Getting a lot of fund stuff done as the market is barely alive today.  We’re getting to the point where things have to start moving one way or the other.

SPX could get to the white channel midline at 1670.96 by the EOD if it turns pretty soon.  On the shorter term charts, we’ve clearly broken out above the red channel.  But, it’s the daily that will end up mattering.

The 60-min RSI indicates potential resistance that aligns with the red channel top here.

Though, on the daily chart, SPX is clearly breaking out above the midline — although not much yet.  As long as it doesn’t reverse in the next hour or so, it’s a bullish move.

UPDATE:  3:45 PM

SPX looks like it’s done coiling and is breaking out.  Next stop should be 1683, with a small reversal at 1672-1674.

If we’re still going strong into the close, I’ll hold long over the weekend as long as we haven’t approached 1672 just yet.

Here’s that update Zweig Breadth Thrust chart from Wednesday. It’s not looking quite as ridiculous any more…

When I Googled it on Wednesday, there were 2 hits for the past 24 hours.  Now there are 12.  Still not exactly a landslide…

*  *  *  *  *

Have a great weekend everyone.  Look for info tomorrow on:

•  The Fund.  Sep 1 ain’t gonna happen, but Oct 1 looks really solid.  Probably Sep 23…
•  I hit the road — coming soon to a luncheon near you!
•  July performance — looks like 14.5% for the month, 89% ytd, but still need to verify.
•  Update some of the secondary charts  — bonds are long overdue.
•  The very last time memberships will be for sale (think discounts)