Moment of Truth

With markets approaching potential reversal targets in numbers, next week should be the moment of truth for the Fed’s experiment in wealth creation.

Targets from two days ago [see: Around the World] versus yesterday’s close:

Index Nov 20 Target Recent High
Nikkei 225 15,597 15,620
FTSE 100 677 671
NYSE 10,239 10,226
SPX 1823 1802
DJIA 16,300 16,030


The dollar is holding on to a well-developed channel after reaching and backing off our upside target.  The falling purple channel is pure conjecture at this point, having not even left the station.

One possibility for the E-mini’s:

UPDATE:  11:30 AM

If it seems like ES has been stuck in the mud all morning, blame SPX.

It’s just now finally reaching the .886 Fib level that the E-minis reached at 10am.  In the meantime, ES completed a nice little Crab Pattern that should help kickstart a proper right shoulder for the IH&S we talked about yesterday.

I can’t say exactly how far, but a 10-pt drop would fit the channels quite nicely: ES1788 and SPX 1789.

UPDATE:  12:00 PM

Or…not.  The tiny H&S is kaput, hard to say about the IH&S.  The existing RS is only 1/3 the size of the left.  It’s not a deal killer, but it’s not ideal.  If the breakout is to hold, we should get no more than a backtest of the neckline.

On the other hand, the trajectory is pretty darned steep.  Maybe it’s decided it doesn’t need the IH&S.  Maybe it’s going for a neckline at the double top.

Maybe TPTB decided it was too risky from a harmonic standpoint to leave the 1799.75 high out there (it would leave open the possibility of a bearish pattern.)  It’s what I would do if I were in charge of ensuring ES 1837 by 3:30AM Monday morning.

The same thing just happened to DJIA, with a break above the previous high in an obvious IH&S situation.

But, the rising wedge is still very much intact; so, it’s not necessarily over — despite breaking the neckline.

We’ll see if it can break out past 16,036.22.

UPDATE:  3:40 PM

Breakouts all over the place.  ES has topped 1803 again and is heading for 1806.44, with the next resistance at 1815.35 and then the big kahuna at 1837.26.  For SPX, it’s 1807.16, 1817.84 and 1823.42.  As discussed Wednesday, the futures could top out as early as Sunday night.

Downside target should be in the 1700 range; but, I have a lot more work to do on it.  And, don’t take this to the bank, folks.  Just because it’s worked on the .618, .786 and .886, there’s no guarantee it’ll work at the 1.272.  There are a lot of vested interests out there who will work to prevent any downturn at all.

And, that’s the key to Harmonic-based trading.  The Fib levels clearly point out where reversals might occur. It’s up to the nimble trader to figure out whether or not a reversal will occur.

If the überbulls are right and we’re about to experience a 90’s style market, 1823/1837 could slip past with nary a whimper.  As always, use stops and trade safe.

Have a great weekend, everyone.

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