Going long again at 1327 is paying off nicely [see: Shakeout or Fakeout], with SPX currently trading at 1353.  We had a nice reaction off the Fib .382 at 1326.19 and have obviously broken out of the little red channel that was guiding the downside.

The big purple channel has a new reference point on its lower bound, and is looking more like a rising wedge again.  The upper bound is probably pretty accurate.  But, there is plenty of wiggle room left on the lower — depending on which tails we include and which we don’t.  But, there is no parallel TL available to us except one which would imply much more downside (say, 1319) so we’ll go with the above chart for now.

If we can keep this momentum going, there are a number of important tests coming up.  It greatly helps the upside case if we can close above the white channel line at 1350.  A close at or below it would leave relatively more downside potential in play.

Next up is the TL (yellow, dashed) connecting the April 2 1422 high with 1374.81 on July 3.  Note that it cuts through the May 1 candle just above the real body, legitimately lopping off the shadow.  Its value today is about 1369.18 — the .886 of the light pink harmonic grid.   So, if the market will tack on another 16 points today, we’re there.

Yeah, I know.  Probably won’t happen.  But, there are also less ambitious targets available such as the .786 at 1364.25 around July 20 (options expiration day.)  It kinda depends on how much attention the market wants to pay to this potential party pooper (try saying that real fast 136 times.)

I guess I’m a little hung up on this TL because of the shape of the big channel/wedge. Today’s ramp could be a big B wave in a continuing decline, and we’d like to eliminate that possibility before betting the farm.  Closing above the line isn’t proof, but it would help.

Assuming we do close above it, we’re left with a target rich environment.  At that point, I’m focused on the other TL coming off the 1422 high and tagging the July 3 high.  This TL (also yellow, dashed) provides more upside than the prior one, cutting right across our upside target area.  It’s currently around 1396.

Of all the Fib lines, the most interesting to me now are the big purple pattern’s .886 at 1404.64 and its .786 at 1389.07.  The fact that we put in a Point B at 1363 on June 19 — within 1 pt of the big pattern’s .618, means we could be working on a Bat or a Gartley.  Bats complete at the .886, while Gartleys complete at the .786.

The daily RSI is heading toward the target we painted yesterday and is currently stalled at TL #4.  If it should move beyond, we’re probably looking at a complete back test of the former channel, about 5-6 points higher than the present value.  Ideally, we’d not exceed the previous RSI high, but would make a new SPX high — a condition known as negative divergence.

Negative divergence is one of those signs we like to see at a top.  It’s not necessary, but it’s a solid indicator. So, where would that leave us?

I continue to like the intersection of the purple channel line with the TL off the 1422 high and the former H&S neckline.  At 1394 around July 19th, it’s solidly within our target area.  We’ll examine it more closely over the weekend, but I feel okay with it as a leading candidate.

I’ll sign off for the day.  Unless something funky happens in the next 10 minutes, I won’t post again until tomorrow morning.  Have a great weekend, everyone.