ORIGINAL POST:  4:10 AM

I posted this chart early Friday morning, knowing full well that in order for EURUSD to follow our forecast… equities might not.

Thanks to the miracle of after-hours trading, the EURUSD has kindly tagged our target “c?” and has rebounded — all without a nasty hit to equities prices which look to open in the green in a few hours.

UPDATE:  9:35 AM

We remain long from Friday at 1426.  But, tight stops are recommended here since the potential remains for an intra-day tag of the 1.618 at 1422.43 before the rebound gets going in earnest.

This is a minor harmonic level compared to the .618 tag of 1426.34 Friday, but it would put a period on the downside since 1470 on the 5th.  For a full discussion, see the 11:35 update to Friday’s Charts I’m Watching.

Watch for a reversal off the small white channel or the yellow channel line just above.  If SPX can break out of and successfully back-test the white channel, we should see some very healthy gains over the next few days.

Some well-defined trigger points on the 15-min RSI — the white channel mid-line that’s currently being back-tested at and the dashed, red TL showing this morning’s trajectory.  If both were to hold, it would be very positive for this rally.

If both break, look for support at the bottom of the white channel — probably our 1422.43 mark.  Such a move would be healthy for SPX, as it would clear out much of the immediate harmonic-based downside.

A somewhat analogous situation exists for AAPL at its .618 of 621.6.  The low of 623.55 on the 9th was close enough, but bagging the actual .618 would establish a more solid foundation for either a retracement to a Point C (if the top is in) or the Butterfly that began in April to play out to 719.

Either way, it clears the way for a 50+ point rebound.  But, holding the 620 level is key.  As regular readers know, I don’t typically play individual stocks.  I don’t like the event risk.  But, we occasionally chart AAPL just as a bellwether.

There’s even a nice little Butterfly Pattern that points the way.

UPDATE:  11:25 AM

SPX has broken out of its price channel, and the 15-min RSI is very close to confirming.  Looking for a break of the yellow, dashed TL.

I’ll post some upside targets shortly.

 

UPDATE:  1:30 PM

We got the breakout we were expecting, and SPX has paused here at the intersection of three different channel lines as well as the .786 of the last harmonic pattern down.  It strikes me that this is a good time to review our various targets and to handicap each in terms of its likelihood.

If we’re lucky, we’ll be able to extend the month’s already nice gains (≈ 9%.)  If not, it’s a great opportunity to go on record and embarrass myself.

continued for members…

First, here’s the kitchen sink view — pretty much everything worth considering in daily and 60-min form.  We’ll pick it apart in a moment, but it’s sometimes helpful to see how things interrelate.

Let’s start by looking only at the harmonic situation.  First, the major patterns driven by the 1576-666 and 1440-666 declines.

The purple pattern (from 1576 in Oct 2007) reversed at the .618 (Point B), so a Gartley and Bat Pattern were both possibilities.  SPX completed a Gartley on May 2, 2011 (D-1, within 11 points of the .786) and a Bat on Sept 14, 2012 (D-2, went over the .886 by 2 points.)

The red pattern (from 1440 in May, 2008) reversed at its .618 too, but the .707 reversal was more significant – signalling at Bat instead of a Gartley Pattern.  It came within 8 points of its .886 (the red D) in Feb 2011.

In addition to these two major patterns, we’ve had a number of minor ones.  The reversal in April 2010 set up a Crab that completed in Feb 2011.  We had a potential Crab from Feb – May 2011 (that was cut short by the big Gartley — from 2007-09 — completion.)

The July – Oct 2011 crash set up a Butterfly Pattern to the 1.272 at 1422 this past April — enabling us to capture virtually all the downside from then until June.  And, most recently, the 1422 – 1266 decline set up a Butterfly (in yellow) that completed at the 1.272 of 1474 on Sep 14 — coincident with the completion of the large Bat Pattern at the .886 of the decline from 1576 to 666.

The last two patterns are marked “SO FAR” for a reason.  Remember, Butterfly Patterns can complete at the 1.272 or the 1.618.  So, the purple pattern has the potential to extend to the 1.618 at 1515.  If it did, it would almost perfectly overlap with the yellow pattern 1.618 at 1518.

BTW, it bears mentioning that the kickoff to the Butterfly pattern last year could just as legitimately have been the May 2 high of 1370 or the July 7 high of 1356.  So, we won’t take them completely off the table just yet.  Their 1.618 extensions are 1553 and 1530 respectively.

SPX is very close to its .886 retracement of the 1443-1425 decline.  Expect at least a pause near 1441.81.  Traders might consider taking profits here, and others should be prepared for a potential pull-back.  I expect the channel to be broken, but I will definitely trim back my longs here and be prepared to bail if things start heading south in the morning.

There’s a channel I haven’t written much about, but it has the potential to be a party-pooper for the bulls.  In previous charts, it can be seen in gray/green.  I’ve highlighted it below in yellow.

Next, we’ll take a closer look at the harmonics since Sep 14’s 1474 high.

The first move down from 1474 to 1430 was retraced by .886to 1469.50 (in white.)  Because the pattern low was exceeded by Friday’s 1425 low, it’s no longer really a valid pattern.  It’s only in there to show the market’s tendency to complete at a Fibonacci level.

So, there are really only three patterns in play:

• The yellow grid from 1474 to 1425, targeting 1504.78 at the 1.618.
• The purple grid from 1470 to 1425.  It’s just now coming up on its .382.
• The small red grid, approaching the .886 of its move from 1443 to 1425.

The most logical points of intersection are the the 1.272 levels on the side-by-side patterns (1483-1487.) If the market should somehow make it past there, look for a reversal up around the 1515-1518 level.  First stop, the .618 at 1455.80 — where the 1.618 of the latest little pattern also resides.

The downside case looks clearer from a harmonic standpoint.  I’ll show the important levels in tomorrow morning’s post.