ORIGINAL POST:  9:50 AM

SPX is off another 10 points so far, for a total of almost 30 since we went full short at 1530.50 on Feb 19.  Look for a bounce at 1499/1500 – a psychologically important line in the sand, and also the .886 of the rise from 1495 to 1530.

It also satisfies pebblewriter’s corollary, which is that the market seeks levels at which the greatest ambiguity can be maintained.  At 1499, the market could be setting up a bearish Crab Pattern down to  the 1.618 at 1472.82 (shown below in purple) which would find support around the Sep 2012 high of 1474.

OTOH, SPX could be setting up a bullish Crab Pattern (in yellow) to the 1.618 up at 1555, which also happens to be the 1.618 extension of 2012’s 1474 to 1343 decline (1555) and the 1.618 of 2011’s 1370 to 1074 decline.

So, which can we expect?

continued for members…

The latter pattern would first require a drop to the bottom of the purple channel, which would also be a 50% retracement of the 1451 – 1530 rally just after the New Year’s weekend bear massacre.  Of course, not everyone follows channels, so lots of bears would be sucked into taking positions as the market approached the previous lows and, perhaps, completed a H&S Pattern.

UPDATE:  10:20 AM

SPX just tagged 1499.  I’ll take a shot at a bounce here, with trailing stops starting at 1495ish.  Charts in a few.

The latest rising RSI channel is officially broken, and RSI has reached the purple and white midlines we discussed yesterday.  If we get a replay of the post 1474 rally, we would see a back test of the rising white channel from here.  Note how the pattern played out last September (purple circle.)

While the latest declining channel size/slope is purely speculative, it demonstrates the distance by which SPX could bounce and still remain in the channel.  Whether this would result in higher prices (negative divergence) or not is unclear.

In Sep 2012, the RSI high was also the SPX high – i.e. no divergence.  But, that’s not usually the case at important tops.  So, 1555 remains a possibility in the short run – at least until the purple channel is broken (currently at 1480ish.)

At 1275-1280, we’d have reached only the .382 retracement of the rise from Dec 31. So, there’s a long way to go to the downside from a harmonic standpoint.  Consider the yellow rising wedge bottom, currently at 1417 — about the .618 retracement of the 1343 to 1530 run.  I’ll lay out some scenarios relating to the big picture this weekend.

Keep an eye on the DX, which has topped the Nov 16 high of 81.515.  This officially puts our upside targets on the table, with 83.06-83.12 at the intersection of the white midline, red .786 and purple 1.618 in mid-March looking like a reasonable target.

I need to get on the road back home.  So, I’ll sign off for now and check back in later this evening.

GLTA.