ORIGINAL POST:  4:30 AM

The analog I posted on April 9 [see: New Analog I’m Watching] accurately forecast the move from 1422 to 1357, back up to 1415, then down to 1292.  As detailed in the last post [see: Why Bother], merely selling short SPX at the tops and buying in at the bottoms we forecast would have earned investors over 17% versus negative 9.4% for a buy and hold strategy.    That’s a differential of 26% that gets the new pebblewriter.com off to a great start.  Now, will it continue?

NOTE TO MEMBERS:  UNTIL FURTHER NOTICE, UPDATES WILL FLOW DOWN THE PAGE IN CHRONOLOGICAL ORDER INSTEAD OF UP. 

Keep in mind that the analog itself didn’t establish a single specific price target.  It provided the general direction, timing and magnitude of moves.  The specific targets were added by yours truly based primarily on charts and harmonic patterns.

Note that we came within a few points from completing a Butterfly pattern, a Crab pattern and a Head & Shoulder target on Friday.  The actual target was 1289, but as I’ve expected for weeks, it was going to be a struggle to push below 1292 (Friday’s low was 1291.98.)  So, if we reverse as expected, those targets will be left slightly unfulfilled.  Not a big deal.

All things being equal, we look for the reversal of a Crab or Butterfly pattern to target .618 of the DA leg (for starters.)  For the Butterfly, this works out to 1372, and for the Crab is 1368.  The 1368-1372 price level corresponds to the neckline of the H&S pattern we broke on May 7 and was also the May 2011 high — so, it has a certain appeal.

The daily RSI tagged the 2nd lowest trend line (#8) we discussed last week — the one connecting the November 2010 and August 2011 lows — but never quite reached the bottom of the channel it’s been in since January.

If SPX has any further downside left,  TL 9 would almost certainly provide a terminus.  As far as price targets, we still have the 1275 target of the smaller, secondary H&S pattern.  It might line up with a tag of #9.  But, most signs point to a bounce at 1292, not 1275.

In addition, there is an internal trend line that might help provide a bounce.  It runs parallel to lots of other significant TLs (downward sloping, red), and intersects with a trend line (yellow, dashed) that connects with the August 8 low — which, in turn, has some significant parallel cousins.

I’m a little surprised something more bullish didn’t come out of the G-8 meetings at Camp David this weekend.  I suspected some announcement regarding Greece or the other financially challenged corners of the world.  Tomorrow morning, Lockhart speaks in Tokyo, and the Chicago Fed releases its National Activity Index at 8:30 AM EST.

These seem like the most obvious bullish catalysts for TPTB, but we’ll have to wait and find out which one they pull out of their arse(nal.)

More later.

 

UPDATE:  10:00 AM

We got a bounce at the RSI trend line as discussed, but was it the bounce?  If we can break this TL on the 60-min RSI, it would be a good start.

And, the bounce on the daily chart:

UPDATE:  10:55 AM

Got the RSI trend line break we were looking for (red, dashed.)  I suspect the next pausing point will be the yellow, dashed trend line — though the thin red line that corresponds with the Fib .707 ( of the 1576-666 crash) at 1309.67 is the next hurdle we need to overcome in order to get this rally up to full speed.

The daily chart shows the current bounce.  The first major test will be whether we’re simply back testing the next higher RSI TL or can break through it.  I believe this probably corresponds with the 60-min channel on SPX itself.  As of right now, we haven’t yet broken out of it.

And, here’s the original RSI channel that helped guide us since mid-January.  The fact that the daily RSI made it up through the next higher TL (#7) is a great sign for the upside.