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Sometimes a late session decline is a device by which market makers separate weak bulls from their money by running stops and/or just plain making them nervous. And, sometimes it’s a sign of a market losing its grip.
Yesterday marked the 5th instance in this latest rising channel where the market suffered a late day plunge — though yesterday’s managed to return to almost even on the day. It didn’t really matter so much where the final number was plus or minus. What mattered was the loss of the purple channel.
The eminis, which already backtested their big purple channel from 1343/Nov 2012, are currently backtesting the midline of a new channel (in white, above) which would be confirmed by a tag of the .25 line or bottom — which is currently around 1580.
SPX was working on its own backtest, with several strong upside targets available in the 1629-1634 range. But, yesterday’s setback will make those targets more difficult, if not impossible.
We’ll treat this backtest as the real deal unless the markets prove us wrong. I’ll play the short side on the opening and see if we can’t flesh out the new white channel. Looks like 1608ish.
UPDATE: 9:35 AM
SPX just tagged the .886 retrace (1604.57 v 1603.97) of the rise from the 28th at the .25 line of the new channel.
I’ll switch to a long position here at 1605 with stops at 1601 just in case.
For swing traders and trend followers, the momentum — and the most obvious path — is clearly on the downside. But, the bounce north of 1601.06 — which came at a logical support point — keeps the upside case alive.
The bulls now need to push back up through the red .75 line, the white midline, and the red channel top — though the optimistic ones would point out that the rising white channel offers a new means by which to reach new highs.
The dashed red line rising through the chart is our old friend, the trend line from 1994/2003 — the lowest of the three generated by different combinations of tails and real bodies from way back when. Remember, SPX reversed within 20 points of the highest of the three.
UPDATE: 10:05 AM
SPX is (so far, successfully) testing this morning’s lows. Note that, even with this morning’s plunge, the IH&S is technically still alive.
But, it should be clear to everyone by now that there are several traditional H&S Patterns from which to choose. The completed one with the yellow neckline (below) points to 1586.
The larger one with a red neckline that hasn’t yet completed would target closer to 1580. Both targets are below the lower bound of the rising white channel, so would require that it break down first.
The neckline of the yellow IH&S we’ve been watching has now become resistance — meaning it is likely part of a falling channel I haven’t charted yet.
The upside case is looking weaker by the moment. And, my gut tells me to go ahead and pull the plug on the bounce. But, this is a holiday week. The market closes early today (1:00 PM ET) and, in 24 hours, most of America will be OD’d on saccharified and genetically modified starch and Bos primigenius laced with steroids, hormones and antibiotics (beer and burgers.) What better time to launch a sneak attack on bears?
That’s why I won’t be surprised if, while no one’s watching on Friday, we reach 1638 — the .618 of the 1687 to 1560 correction.
A close today at 1618 — .618 of the decline since 1626 on Monday and the intersection of the falling red channel top and rising white channel midline — would set up a nice looking right shoulder targeting the downside.
But, it would also set up a Crab Pattern with a 1.618 extension at 1640.23, less than two points from the grey .618. Something to think about…
UPDATE: 12:10 PM
Here we are, nudging 1618. I’ll take the 13 points on this morning’s long position and go short for any pull back there might be. Stops at 1620ish.
Coming up, a look ahead.
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