As we expected, there was no political breakthrough over the weekend.  There is plenty of talk about negotiations going better, but still no deal.  The markets are taking it in stride, with SPX down only 9 points at present.

The charts are a bit of a mess today, as Friday’s close threw a wrench into both the channels and harmonics.  ES clearly broke out of the two most likely falling channels, and closed just shy of the .707 retrace of the 1726-1640 drop.  It was the sort of move that either signals a new direction, or will be written off as a rule-breaker.

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We got a rally yesterday that was either a great harbinger of a political breakthrough — or an amazing head fake.  In either case, it shows the strength of the pent-up bullish fervor.  If D.C. gets it together, we should see some nice follow through.  If not, all that fervor will be instantly transformed to disappointment — and, you don’t want to stand in front of that train wreck.

ES and SPX have obviously bulled their way back into the broken purple channel.  SPX closed there; ES is currently about 4 points above the channel bottom.

My expectations for this rally remain the same as yesterday:

I would short here at ES 1672.50, with the understanding that it could just as easily be a small pullback on the way to 1683.30 (.500 retrace) or even 1693.50 (.618.)

1693.50 is only a few points away and would make for a nifty IH&S, so we’ll go with that assumption for now.

UPDATE:  10:30 AM

Almost to our .618 ES 1693.50 target.  Anyone still long might want to think about stops in the 1683 range.

UPDATE:  12:00 PM

There’s the tags on the .618 for both ES and SPX (which also just tagged the important 1700 level.)  Good place to try a short position — though with tight stops in case the pols actually do make a deal.

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Apologies for the late post this morning.  I’ve been working on the mid-range forecast and the market was moving higher as expected.  I wanted to get the next few weeks mapped out, as we should see some huge volatility and — with some help from our friends in D.C. — some juicy returns.

We’re getting the bounce we’ve been expecting after SPX finally caught up with the E-minis after a tag on the yellow .786 Fib line.

We had been aiming for a reversal at ES 1646/SPX 1649, so the markets overshot that just a little — but not so much that it derails any of the patterns we’ve been watching.

Both have reached our initial target area — a back test of the purple channel and tag of the top of their respective falling white channels.  I would short here at ES 1672.50, with the understanding that it could just as easily be a small pullback on the way to 1683 (.500 retrace) or even 1693 (.618.)

I show the actual purple channel bottom at 1675.50 or so, and the yellow .500 is at 1675.75.  So, don’t get nervous if it leaks a little higher.

Recall that when we adjusted our initial downside target to 1646.58 on Oct 3 [CIW: Oct 3] we didn’t specify a price level for the subsequent bounce.

Just dropped through ES 1666.75.  Next stop is the .618 at 1663.71 — though there’s no real good channel support there.  There are lots of other potential turning points, including my favorite from the 30th at 1657 and my new favorite of the yellow .786 at 1646.58.

Having the purple channel break down was obviously key to the the downside of the past several days.  We almost always get a backtest of broken channels, so we’ve satisfied that requirement.  And, the falling white channel was due for another tag on its upper bound.  So, the intersection of the two was the logical spot for this rebound.

But, it isn’t a great spot from a harmonic standpoint.

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ES reached our 1646 target from Oct 3 (the yellow .786 retracement) yesterday — but an hour after the cash market closed.

SPX missed out, so it’ll need to run down to 1649 or so to play catch up before the bounce can get started in earnest.

Obviously, the House and the President remain locked in a high-stakes poker game that could turn the market on its head quite quickly.  So, always use stops.

The last FOMC meeting minutes come out at 2PM EST, so look for some action around that time.

UPDATE:  11:11 AM

SPX just tagged the .786 at 1649.38.  ES at 1643 — off 3 from yesterday’s lows and theoretically not a Butterfly Pattern killer.  We should see a turn here, or else there’s 10 more points of downside until the SPX .886 (9 for ES.)

UPDATE:  EOD

So far, so good.

The market saw quite a reversal yesterday afternoon.  After heading toward the usual last minute buy-the-dip stick save and an apparent Gartley Pattern, ES plunged below the Oct 3 low, likely confirming the red Crab Pattern.

It remains to be seen whether ES will flesh out the expanded channel I proposed yesterday, but the odds are increased with yesterday’s solid reversal.

SPX closed on the purple channel bottom.  And, while a drop to the .786 at 1675.04 or .886 at 1672.89 is clearly in today’s game plan, that’s not all the downside the market has in store.

First, a drop below SPX 1670 kills off the IH&S Pattern that looked so promising.  We’ll watch to see if the bulls defend that level.

And, of course, SPX already put in a reversal at the red .786.  So, while a stop at the .886 isn’t out of the question (the Plunge Protection Team has definitely not been furloughed) the greater likelihood is an extension to the 1.272 at 1664.59 for a Butterfly Pattern.

Remember, 1666.58 is the .618 retracement of the rise from 1627 to 1729. So, as we discussed yesterday, a completion of the red Butterfly establishes a likely Point B in either a Gartley, Bat or Crab Pattern on that larger (white) grid.

In other words, a reversal at 1666.58 opens the door to the white channel tag I’m expecting.  Does it mean the market will reverse at 1666?  Of course not. Breaking below 1670 would embolden the bears, and we could see some real momentum build.  A plunge to 1649 (the .786, a close 2nd in probability) or 1639 (the .886) wouldn’t surprise anyone.

There’s also the ever-present possibility that the market will suddenly spike higher on real or rumoured improvements in budget negotiations (always use stops.)

But, a reversal at 1666 is the most likely path if we’re ultimately going to see lower prices.  Why the italicized “if”?  From a harmonic standpoint, it’s anything but certain.

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SPX almost broke out Friday…a pretty convincing move.

But, the futures  — currently down 15.25 — have done a number on anyone taking the bait.  Look for at least a .786 retrace of the move up from the purple channel: SPX 1675.

ES followed our script pretty precisely on Friday:

The key is what ES does if/when it reaches the top of the falling white channel (currently around 1679.50.)  If it breaks out, it should have legs — at least to 1687-1700.  If it reverses or stalls there, then the downside case is still a good possibility.

After reaching 1681 early Friday, ES backpedaled 8 points before topping out at 1686.  It’s safe to say that ES is now reversing and has the .886 at 1665.84 in its sights.

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For those of you waiting for fund documentation, it should go out this evening or tomorrow.  I underestimated the amount of time necessary to get all the accounts open (bank, administration, brokerage, etc.)  Thanks for your patience!

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ES tagged yesterday’s target pretty precisely, bottoming out at 1663.25 and bouncing as high as 1677.50 before soccer moms began attacking the Capitol.

A dip below 1666.75 might normally be expected to open up a small Crab Pattern to 1650.99.  But, the larger pattern .618 is at 1663.71 (below in yellow), only a slight breech of the purple channel bottom.  It could prove to be strong support — depending on what sound bytes are being delivered by CNBC at the moment.

The positive sound byte at the time was Boehner saying something conciliatory.  Even after the “new face of terrorism” was revealed, ES managed to close above the purple channel bottom and remains there this morning.

The dollar is also rebounding a bit, backtesting the channel midline — and probably at least the purple .786/red 1.272 at 80.217.

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After an overnight dip, S&P 500 futures are back to slightly positive at an expanded channel top.

USDJPY continues toward our Fib targets…

And, DX is consolidating just below 80 on its way to our initial target.

UPDATE:10:25 AM

Awfully close to a bounce at ES 1670/SPX 1677.45.  But, the following move might fool a lot of traders.

Note the .886 tag coming up on the red grid — also the midline of the falling channel and the bottom of the purple channel.A dip below 1666.75 might normally be expected to open up a small Crab Pattern to 1650.99.  But, the larger pattern .618 is at 1663.71 (below in yellow) — only a slight breech of the purple channel bottom.  It could prove to be strong support — depending on what sound bytes are being delivered by CNBC at the moment.

The equivalent .618 for SPX is 1666.58.

UPDATE:  11:30 AM

There’s the ES 1669.66 tag.  Should be a nice bounce here.  But, watch out for the drop through 1666.75 to 1663.71 we talked about above.

UPDATE:  11:50 AM

Just dropped through ES 1666.75.  Next stop is the .618 at 1663.71 — though there’s no real good channel support there.  There are lots of other potential turning points, including my favorite from the 30th at 1657 and my new favorite of the yellow .786 at 1646.58.

Needless to say, if the purple channel line doesn’t hold, all those other targets open up — starting with 1590-1600.

UPDATE:  11:59 AM

There’s the .618 tag at 1663.75.  I’d look for a recovery here to at least the purple channel line — probably around 1670.  A failure to close back up there means the purple channel is kaput.

UPDATE:  3:58 PM

Looks like a close right on the neckline of the latest (yellow) H&S.  For overnight traders, the purple line is the one that matters.  SPX is well above its purple channel line, so there’s room for a little downside overnight — say, 1671.

I’ll be spending the rest of the afternoon filling out forms for the Fund — an unbelievable number of forms, actually — as we try to get all the accounts open asap.

For those who have been waiting patiently, my best guess is that we’ll have documents as early as this afternoon or tomorrow, and wiring instructions as early as tomorrow or Monday.  With any luck, we’ll be up and trading by next Wednesday.

 

 

The market is taking the shutdown a little more seriously this morning, with the E-minis currently off 11.5 points and the current falling channel seemingly intact.

The market’s rise since Monday would make for a nice B-C leg of a Bat or Crab Pattern, but it’s too early to say.  I still like the red 1.272/purple .786 combo at 1590-1597, with a secondary target of the red 1.618/purple .886 at 1561-1573.

Either would spell the end of the rising purple channel, but a tag on the white channel bottom is much more important and, in the long run, would do more for the bulls.

DX is drawing very close to our 79.6 interim target — currently trading below the important support of 80 at 79.92.

And, the USDJPY is selling off as expected — drawing nearer to the yellow midline at 96.34 and/or the neckline of the largest H&S Pattern (dashed, red) at at 95.80ish.

UPDATE:  10:30 AM

Lots of little — and, not so little — H&S Patterns setting up.  The latest targets 1657ish.

UPDATE:  12:20 PM

ES got a bounce up through the neckline and is backtesting the broken purple channel — probably to the purple .618 at 1685, with a secondary target of the .786 at 1688.

That’s how much the S&P 500 futures initially sold off after Congress missed the official deadline last night.  Kinda sums up how much confidence we have anymore in their ability to accomplish anything.

There should be some follow-through — same downside targets as yesterday. Though, look for the falling channel top to also be tested in the cash markets when they open.

The dollar has almost reached our 79.60 target from Sep 20 [see: Quick Update] — briefly dipping below 80 this morning.

This is a somewhat optimistic target, as the potential for a much larger drop is very real.  When the rising red channel from April 2011 broke down on the 18th, it opened up many lower harmonic targets.

The most appealing one on the chart is 75.18-75.45.  This represents a .786 retrace (white grid above) of the red channel’s rise from 72.86 to 84.97, and dovetails nicely with the 1.618 extension of the smaller Crab Pattern in purple.

It’s too early to estimate the timing, as neither the falling white nor the falling purple channels are very well developed yet.  For now, I’m assuming around the end of the year — though it could easily push into April 2014.

Keep in mind that 80 is an extremely important level of support for the dollar index.  The Apr 1995 low of 80.14 marked the beginning of a 6-year rally that peaked at 121 in Jul 2001 as stocks were almost midway through their 2000-2002 crash.

UPDATE:  10:23 AM

SPX just reached the top of the falling white channel at 1691 (ES 1685) — great place to be short (with tight stops, of course: SPX 1696ish.)

UPDATE:  3:55 PM

With SPX about to close 10 points higher, I’d have to congratulate the PPT.  But, even the last-minute ramp job couldn’t produce a breakout.  I’d have no problem holding short in the E-minis overnight, as SPX only briefly peeked above 1696 and slipped right back down.

The E-minis themselves backtested yesterday’s H&S neckline at the top of a channel, but couldn’t hold the level and appears to be done (for now.)  The pattern looks like a breakout, smells like a breakout, even quacks suspiciously like a breakout.  I just don’t think it is.

I think it’s more of a fakeout, but would suggest stops in the 1696 range just in case.  Wouldn’t be the first time I out-thunk myself.

The USDJPY should have at least another 1.30 to go, and I wouldn’t be surprised to find that today’s rally was more about relief at not having crashed and burned than optimism about political prospects.

Don’t get me wrong.  If/when the Grupps get their act together, the rally should proceed with all due haste.  I just don’t see it happening just yet, and the charts offer just enough of a hint that I’ll give the bearish position a little more rope.

Keep an eye on DX, which really should tag 79.52 before stocks turn around.

GLTA.