Today should be the day.  EURUSD and DX have both broken their wedges, which should help stocks break out of the dungeon they’ve been locked in for the past several days.

Is anyone else struck by the similarity of the past three days to that of Aug 31 – Sep 5?

The key to the upside is breaking above 1388.81 — the Point B in the little Crab Pattern I expect to play out.   The key level on the downside is 1368.31 — the .886 of the 1354-1474 rise.  A break means our 1346.11 target is in play.

 

UPDATE:  10:45 AM

SPX fell slightly through our 1368.31 Fib level, but is showing positive divergence all around.  And, DX and EURUSD have both completed back tests of their wedges.

Olli Rehn, Finnish ECB economics commissioner, was rumored to be announcing something about Spain’s possible bailout request. But, I’m watching the press conference, and it seems to be focused solely on gender equality on corporate boards.

Live here:  http://ec.europa.eu/avservices/video/player.cfm?ref=89737

UPDATE:  11:00

Reuters just reported that the Rehn comment was just an assessment of the current situation in Spain.  There’s no announcement of a bailout request.  In fact, if anything, it appears a bailout request won’t be forthcoming, so the markets are disappointed.

While Spain will miss the nominal deficit targets set by the ministers, it meets the structural adjustment requirement, Rehn told a news conference.

In structural terms, which strip out one-off revenues and expenses, as well as the effects of the business cycle on government income and spending, the ministers asked Spain to cut the deficit by 2.7 of GDP in 2012, another 2.5 percent of GDP in 2013 and 1.9 percent of GDP in 2014.

Rehn said Spain’s structural balance improved 5.25 percent in 2012 and will improve a further 2.25 percent in 2013.

“The estimated annual improvement in the structural balance this year and next year is in line with the effort required,” Rehn said.

“Yet there are risks for next year, they stem partly from an optimistic macroeconomic scenario underlying the 2013 budget. There are also risks of budget slippages in the autonomous communities. It is vital to implement effectively the provisions of the stability law,” Rehn said.

He also cautioned that Spain’s budget measures for 2014 fell short of expectations for now.

Rehn’s press briefing can be seen here.  He doesn’t anticipate revisiting the need for ESM/ECB assistance until February.   No Spanish QE candy, today; should head down.

continued for members…

UPDATE:  12:50 PM

SPX is still showing positive divergence in every time frame except the daily.    The daily RSI presents a picture of decent support at these levels, though.

The 60-min positive divergence is typical of all the other time frames.

If today’s 1365.29 low should fall, the next minor support isn’t until 1360.33 — the .786 of 1329-1474 and the .707 of 1309-1474.  After that, the next major support isn’t until 1346.11 at the .618 of the 1266-1474 rally.

The dollar’s daily RSI shows its precarious position, at the top of a channel within a channel.  Based on the rising wedge, it has exposure to at least 80.46 (channel bottom and the .618 of the Feb 29 to July 24 rally from 78 to 84.)

UPDATE:  3:15 PM

Sorry for the delay in posting.  Got caught up on a call.   Today reminds me very much of early June.  The obvious Fib support levels were broken, and we had a blow out down to 1266, followed by a strong rally.  The difference, of course, is we’re not expecting new highs in this case.

The dollar is still well off its highs of yesterday morning.  And the EURUSD is well off its lows.  SPX, in the meantime, continues to break down despite the positive divergence.  It’s obviously a blow out, but how low can it go?  We just tagged the H&S target from Oct 19 at 1360.

But, the SPX falling wedge is obviously busted (even though the wedges on the dollar and euro look perfectly fine.)  As mentioned above, the next major support is the .618 of the entire 1266-1474 rally at 1346.11.  But, prices aren’t following any particular pattern at this point, so I’m hard pressed to feel confident that it will matter.

Someone asked if the analog is busted.  I don’t think so. In 2011, the May 23 drop was to the .500 of the 1249-1370 rally.  Today, we’ve dipped 15 points below that Fib level, but are still 11 points north of the .618.

Either is a very legitimate Point B for an eventual Bat Pattern targeting the .886 at 1290 (the purple pattern.)  But, I suspect we’ll turn at the .618 (1346.11).

Two things concern me, though.  First, the 60-min RSI broke a channel we’d drawn and has pushed well below the midline of a longer-term channel.  Second, a 40-60 point rally from 1340 is a very different outcome than from 1380.  So, the upside target might need some serious adjustment — something I’ll have to look at after the close.

I was stopped out of almost everything that’s short-term in nature this morning, but will continue to hold longer-term positions — only because the turn could come at any time.  Last May 18, we got a great bounce at the .500 of 1290, adding 27 points before falling to nearly the .618 (1266 v 1259.)  Few who sold at the 1290 break were nimble enough to get back in for the rally.

One thing that gnaws at me is whether the PPT might be in shambles.  In the past, the Fed and the major banks and brokerage firms have worked together to try and prevent any significant plunges that would scare away investors.  Both parties need investors in order to maintain capital markets capable of digesting the equity and debt instruments that finance corporate and government operations.

The Fed (and regulators, including Congress) have kept financial institutions alive for the past 4-5 years, actually encouraging the sort of bookkeeping that used to land CFO’s in jail.  In turn, financial institutions have agreed to play a role in propping up markets when the Fed sent cash their way in times of emergency.

This past election, it was widely reported that the financials were backing Romney (they mostly supported Obama last time.)  The rhetoric out of Washington regarding the evils of Wall Street and the financial system’s weakness seemed to pick up.

We had out first big sell-off the day of the election, and plenty since then.  Today, Obama brought together a bunch of business leaders to tackle the fiscal cliff, and bankers were conspicuous in their absence.  Again, big sell-off — right in the middle of his televised address.

Each political party is back to blaming the other for the country’s problems.   Wall Street, which stands to lose big if taxes on dividends, capital gains and income over $1mm are increased, might see a few scary days like today as beneficial to its position. Pure speculation on my part, I know; but, it kind of makes sense.

UPDATE:  EOD

Many patterns and a few channels were broken today.  Bottom line, there’s not a lot to support today’s price movements.  It was simply a rush for the exits.  Whether you should join the crowd or not depends on your individual temperament, liquidity and risk tolerance.

And, I won’t tell you what’s right for you.  I can only tell you what’s right for me, and for now that means holding onto a core medium/longer-term position even though several option positions were stopped out earlier in the session.  In the meantime, I’ll continue charting to see if there’s some signal that I’ve missed.

As I wrote above, today felt very much like the panic selling of late May.  I sold some short-term stuff, but let my long-term positions ride.  I bought back in at 1287 because the charts supported it, said a few prayers on the way down to 1266, and said even more on the way back up [see: Why I’m Buying.]

This is different in the sense that we’re not looking for new highs.  But, the panic selling that took over today is very similar to back then.  No one knows where it will turn, but my leading candidate is 1344-1348, the confluence of three important Fib levels:

• the 1.618 extension of 1396 to 1474 at 1348.39 (white)
• the .786 retrace of 1309 to 1474 at 1344.63 (red)
• the .618 retrace of 1266 to 1474 at 1346.11 (purple)

The most important of the three is 1346.11.  A reversal there gives the downside case the maximum flexibility, as it can lead to a Gartley at the .786 (1311), a Bat at the .886 (1290) or a Crab at the 1.618 (1138.)

There are a number of different pattern intersections below that level such as 1321-1327, 1259-1274 and 1207-1215. The target of the purple H&S pattern is at around 1329.  I need to study them more and see which are most likely to be targeted.

We should get a bounce first, but I will revisit the targets for it.  I have to get on the road for a meeting, but I’ll try to write more later tonight.