The market continues to play Let’s Make a Deal with the Fed: keep pumping $85 billion into the banking system every month and we’ll keep pumping prices higher.  Ben Bernanke realized long ago that the game is rigged.  He should know.  He rigged it.

The contestants (the banks) can’t help but win, while the studio audience (the rest of us) squirms in their seats, waiting for their shot.  Enough of them remain hopeful that no one noticed the air conditioning had pooped out, the snack bar ran out of food and the punch bowl was getting dangerously low — until now.

Now, the word is getting out.  And, the audience is very, very focused on that punch bowl.  When it runs dry, we know the contestants will pack up their winnings and sneak out the back door — leaving an untenable situation out front.  What will Monty do then?  Can he risk letting that happen?  What would happen if the entire audience rushed the door?

Stay tuned.

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The futures are pointing south, so we’ll play along on the opening.  But, this morning’s subpar economic news reassures us that the punch bowl isn’t yet dry.  Services PMI comes out at 10:00AM.

The picture was much gloomier overnight, when the USDJPY once again flirted with losing its channel.

The RSI tells the same precarious story:

DX came very close to breaking out…but hasn’t.  It very likely will complete a Bat Pattern first, even if it means another dip below the channel support later tonight.

Even the EURUSD is doing its part…hinting at a Bat Pattern completion at 1.3148 very deep into its rising wedge (also likely after hours.)

UPDATE:  9:35 AM

SPX just reached an .886 retracement of its rise from yesterday’s low, so we’ll cover our short and revert to full long here at 1625.  Stops at 1622.75.

UPDATE:  10:02 AM

Services PMI came in at the expected 53.5 versus last month’s 53.1.  Factory orders grew at 1.0% versus an expected 1.5% and last month’s dismal -4.9%.  The punch bowl just got topped up.  The game can go on — at least for now.

Note the all-important employment index — down to a barely positive 50.1, just like its manufacturing counterpart.

UPDATE:  10:15 AM

Just got stopped out at 1622.72, so back to the short side. Trailing stops.

There’s a Crab Pattern to be completed at 1608 — also the H&S target. But, there’s an argument for a leading diagonal/falling wedge that would indicate support at 1615-1617.  So, we’ll see.

Harmonics traders all just got stopped out when their potential Point C dropped below Point A — the last low at 1622.72.  But, wavers should be fine it this is wave B in a flat wave 4, which I understand is allowed to and frequently does dip below wave A.

Great way to shake out the bulls before a run to the upper bound of the wedge — if that’s what this is.  I’ll likely resume a long position on any strength back through 1622.72, but would much prefer a tag of 1616.24 first.

continued for members…

UPDATE:  10:35 AM

Note that the 15-min RSI hasn’t bottomed — or even turned back up — even though SPX is flirting with a return higher.  I’ll hold the short position just a little longer.

The bottom of the falling wedge isn’t all that well defined yet.  In other words, it’s a little ragged depending on which time frames you examine.  But, the white channel bottom .25 line is crossing the 1.272 of the move up from 1622.72 to 1646.53 right about now.

It’s not often we need to look at a 1-min chart, but this one might be helpful…

UPDATE:  10:55 AM

The move that would screw the most traders out of the most money would be a dip to the 1615-1616 area followed by a strong bounce back to the wedge upper bound.  The bears would be piling on in anticipation of the H&S target at 1608.  The harmonics guys, especially, given that a Crab Pattern is so well set up.  That’s the obvious play.

A strong bounce at the white 1.272 instead would really…what’s the technical term? Oh yeah, blow.  Note the little yellow Crab 1.618 is there as well.

A drop all the way to 1608 right now would, IMO, make the falling wedge a tough sell.  Seems like the flat wouldn’t be very flat anymore, and the wedge lower bound would be stretched a bit much.  But, hey, I’d be happy to play along if that’s what happens.

UPDATE:  11:07 AM

There’s the white 1.272 tag at 1616.24, the yellow 1.618 at 1615.49, the white channel .25 and the little falling white channel midline.  I’ll go long here with stops at 1614.  If we push lower, 1608 is the next target.

The 5-min RSI looks like we’ve bottomed, but the 15-min suggests looks more like a bounce/backtest.

UPDATE:  11:58 AM

Just broke the 1615.49 level, so 1608 is our new target.  Shorting at 1615 with stops at 1616ish.

UPDATE:  12:05 PM

The apex of the little red falling wedge intersects at 1608 around 12:25, the .50 time fib for the larger yellow falling wedge.   Note, however, that the white channel bottom is down at 1605, so this might not turn on a dime.  And, we shouldn’t discount the possibility of an overshoot to the psychologically important 1600.

Also, note that we just tagged the red midline.  So, on the possibility that the red channel is the one to watch after all, it’s a good time to review your stops.  Keep an eye on the little white channel midline.

UPDATE:  12:25 PM

I haven’t quite sorted out all the implications, but I have a feeling it’ll be significant:

In the meantime, SPX continues lower.  I don’t know if the leading diagonal pattern is still on the table, but SPX is 7 points below the level at which I had drawn the bottom of the yellow falling wedge.

At 1611, it’s within a point or two of the bottom of the large purple channel.  So, I’m redrawing the wedge and the white/red channels to include a 1600-1608 low.

Despite being down 20 points, this still doesn’t feel like a runaway 3rd of a 3rd.  That would change, of course, if we break the purple channel bottom.   More in a few…

UPDATE:  12:55 PM

To my eyes, we’ve tagged the purple channel bottom at 1609.28.  We’ve also tagged the 1.618 extension of the rise from 1653 to 1674 (May 23-28) and the .500 retrace of the rise from 1536 to 1687 (Apr 18 – May 22.)

Various smaller scale targets are 1-2 points lower.  But, I’m going to go ahead and take a (nervous) long position here at 1610.  Stops at 1599, though I’d likely play along with an interim short on any drop through 1608.

There are 3 waves down from 1687, and 5 waves down from 1674. Waves 1 and 4 clearly overlap, so we could still be looking at a series of 1-2’s.  I’ll leave that to the Wavers to sort out.  All I know is that any serious punch below the purple channel line could be bloody.

UPDATE:  10:35 AM

One thought I’ve been harboring is that the .618 of the rise from 1536 to 1687 is at 1593.  And it lines up exactly with the trend line from the 1552 and 1576 tops in 2000 and 2007.

This feels a bit rash, but I’m considering opening short position to play the downside to 1593.  If I’m wrong, and all we get is a retrace of the rise from 1609, that’s okay.

But, I don’t like the way that last wave down ended.  No blowout whatsoever, so controlled and precise. Quite fishy.

UPDATE:  1:45 PM

What’s the worst that could happen?  I’m going full short here at 1616, with 1593 as the new target.  Charts in a moment.

Here’s one to start with, more in a few… Note that 1593 was our target from last weeks forecast — but for July 9.  Reaching it now would change things quite a bit.

UPDATE:  2:17 PM

Back again with a cleaner chart.  The redrawn purple channel isn’t a bad fit.

And, a return to the .886 to complete a Bat Pattern after a sizable bounce at 1593 makes for a nice looking chart.

Here’s a better look at the scenario, with the Bat Pattern labeled in purple.

The emini chart is screaming at me for being such a dolt…

But, its daily RSI is on my side.

UPDATE:  3:50 PM

Things could get hairy in the last 10 minutes.  I can’t find enough evidence to support one case over the other.  If we close below 1607, I’d say there’s a very good chance of 1593 and I’d want to be short into the close.  Otherwise, we could get a great big fat BTFD bounce in the morning.

I’m going to go long here at 1610 and hold that into the close unless we dip below 1605, in which case I’ll probably go to cash.  If I’m wrong, then we should get a bounce off of 1593.

Either way, the after hours should be pretty interesting.  I’d encourage anyone who’d flip out over being wrong by 10-15 points on tomorrow’s opening to strongly consider hedging or going to cash.

GLTA.

 

 

more later…