ORIGINAL POST:  9:30 AM

It concerns me that SPX has broken out of  its RSI channel, but nearly every other index has not.  It’s entirely possible SPX is merely showing leadership and the rest will tag along, but I rather suspect that SPX is getting ahead of itself.

There’s a channel line just overhead at 1337.30 or so that should limit the current rally.  Given the way the futures behaved over night, in equities, the dollar and the euro, I’m going to fade this ramped up opening and see if it settles back down.

More shortly.

UPDATE:  10:00 AM

Here’s where we left off last week.  I’ve eliminated all the fan lines except those which recently came into play.

This chart paints a reasonably clear picture of a medium-term bullish scenario.  The latest dip looks to have much more in common with the .236 time ratio action than the 0.00, .146 or .386.  That is to say, we should be out of the woods for the time being (though there’s technically a window of another week or two before we can be completely sure.)

Turning to the shorter-term picture… If I overlay one of the systems of channels that have done well in guiding the past several years, the channel line I mentioned in the 9:30 post is visible just overhead.

I should mention there’s potential fractal of sorts at play.  I’ve been burned by these as often as helped, but a mirror image of the past six months is one potential scenario.  It would look something like this:

But, I think it’s more likely that some of our fan lines will continue to play an important role in preventing new lows prices in the immediate future.  I think we’re probably going to go back and back test the RSI channel — meaning a drop in SPX, possibly as low as1303-1308.

UPDATE:  1:30 PM

The dollar has remained in a very well-defined channel since it peaked on June 1.

I expect it to remain in this channel until it fulfills the H&S target of 81ish.  The channel ranges from 80.75 to 81.04 on June 15, which history tells us should represent an interim high for stocks.   I’m looking for a bounce there, pretty much along the lines of our June 1 forecast (the yellow line.)

Such a channel doesn’t leave much room for stocks to appreciate, though.  It’s an additional argument for a volatile and choppy rest of the week.

Here’s the forecast I initially drew back on June 1.

I was obviously early by a couple of days leading up to June 1.  But, the market beat me to the tag of the intersection of the two red channels with the white channel line at 1338 that I expected to not occur until June 13th. I’m going to fine tune the timing and prices a bit and go with this forecast for the moment.

Don’t take the next leg down as gospel.  I think it’ll be choppier than that, testing as low as 1303.47-1308.88 over the next few days leading into OPEX — where I imagine we’ll finish around 1340.   I’ll be looking for more opportunities to short anytime we near that white line, and get long every time we get near the lower white line.   Buy and hold folks would probably do well just to ignore the volatility, but traders can do well in markets like this.

If prices break above that upper white line, it’s a whole new ball game.  It will likely correlate with the RSI back test and establishment of a new channel heading up.  But, I don’t expect that to happen until another test of the white channel line, and preferably the midline of the new, red upward sloping channel as well.

I’m short now, and will continue to play the swings until we show signs of a broad-based break out — including the other indices — upon approaching 1335.  If we get a nice decline between now and then, we’ll set up a potential Inverse H&S pattern targeting 1400  — which just so happens to be my July 25 target.

Stay tuned.