My apologies for the late post this morning.  My wife is having some health issues that made for a late night.  Probably nothing…but, it left me a little groggy.  Given the markets’ current state of flux, it makes picking an initial stance a little more challenging than usual.

So, we’ll pick up this morning where we left off yesterday — completing a very deep retrace of yesterday’s .618 opening pop, or angling for a .786 or .886 retrace of the move down from 1709?  I’ll play along on the downside at the opening, but will watch for a reversal at the white .500 (1694.28) or .382 (1692.89.)

The USDJPY broke out of the very narrow channel it’s been in since establishing the latest right shoulder last Friday — a pretty decent bounce at the midline of the falling white channel.

We should see a backtest of the neckline and broken rising white channel, which we’d normally associate with a rising equity market.  However, a deepening equity sell-off as I’ve been discussing could also provoke a more meaningful reversal in the USD’s fortunes.

It certainly looks primed to rebound — at the bottom of a channel and falling wedge and .886 retrace.

UPDATE:  9:33 AM

I’ll try going long here at 1695.14, stops at 1694.  As yesterday, the key remains breaking 1700.18.

There’s also the matter of a potential falling channel with a (current) top around 1699 — increasing the importance of this price level.

UPDATE:  10:15 AM

The channel is holding so far, and the 15-min RSI looks like it’s running into resistance.

I’m going to get stopped out at 1694, so will play the short side. Stops at 1697ish.

There’s a high probability of being whipsawed here, though, as there’s plenty of support at 1688-1690, and the neckline of the potential H&S (yellow) at 1686.  Charts in a few…

UPDATE:  10:25 AM

I still favor the downside case we discussed yesterday, though it’ll take a break below 1684.90 to confirm. Yesterday’s rally to within 4 cents of the 1700.18 high sure didn’t clarify things.

So, in the meantime, 1704-1706 remains on the table. This is definitely one of those times when it might be better to step aside and let the markets decide.

UPDATE:  11:00 AM

Getting some momentum going on the downside, but we’ll likely run into that support mentioned above — probably at the intersection of the falling white channel midline and .886 at 1689.72.

UPDATE: 11:08 AM

I’ll try a long position here at the channel midline — 1689.54.  Stops at 1688ish, though that just sets up more whipsawing with the intersection of the .886 (of the rise from 1684.91) and neckline at 1686.65.

continued for members… (more…)

I’m back from vacation, refreshed and rejuvenated after 5 days in heavenly Lake Tahoe.  It’s exactly what I needed after a tremulous last few months in the markets.

IMHO, Tahoe is every bit the equal of Como, Louise or Lugano and belongs on your list — especially if you can avoid tourist season.

*  *  *  *  *

Yesterday’s finish…  SPX reached our proposed Point B and, based on the eminis, should tag our proposed Point C in the opening minutes.

DX has reached our target of 81.111.  Also bodes well for a pop and drop…

UPDATE:  9:36 AM

I’m shorting here at 1700 — likely the full extent of a 2nd/B wave.  But, if not, the pullback should still be playable.

The USDJPY still shows more potential downside, but should get a bounce here at a channel midline and smaller scale Crab Pattern completion.

If the support doesn’t hold, however, the pair should reach our 95.44 target ahead of schedule, and could easily race down to the .886 at 94.66.  As we’ve discussed many times, the yellow midline should get a test — particularly now that the white channel has committed hara-kiri.

Over the past year, the pair’s moves have been highly correlated with the SPX (the light purple line.)

But, note the divergence since Jul 8.  Can SPX continue to ignore the pair’s demise?

UPDATE:  10:15 AM

So far, so good…

continued for members… (more…)

The red channel obviously broke down yesterday, so SPX will have to reestablish a new basis for any further upside.

The next potential support is the purple channel line at about 1684 — marked with a red B.  This is nearly a .786 retrace, so could be all the downside this correction has in store. But, it looks to me more like an A wave than the whole shebang.

If it fails, potentially more substantial support waits at the red .886 (1679.86) — also the intersection of two channel lines — probably late in the session or early Thursday morning.

The red .886 may not hold.  The 1687 former high has already fallen, which is a sign of much greater weakness than we’ve seen of late.  If so, we’re very likely to see an extension of the red pattern to the 1.618 (1655) at the bottom of the grey channel.

As we discussed on Jul 30, 1654 is key:

If the 1654 level doesn’t hold, the bottom of the purple channel (and 2007 high) is still waiting down there at 1576.  Even the bulls could cheer such a development, as it would constitute a marvelously bullish back test and a nice AB = CD flat on the way to SPX 1823.

the chart from Jul 30

I’ve been a fan of this scenario for several weeks, as it fits nicely with the larger channels as well as the currencies.  The dollar, for instance, is closing in on the target (the red circle) we set on Jul 26 [see: Hard to Get.]  I believe a break of 1654 would likely resuscitate DX and restore it to its more traditional role of safe haven.

The USDJPY is also closing in on our Jul 26 target.  The white channel is officially broken, and the yellow midline — which also serves as the neckline for a large H&S pattern targeting the white 1.618 at 85.66 — is the next line of defense.

I’ll be back from vacation tomorrow and will write more then.

GLTA.

Just a reminder, I’m on vacation the next three days and will be back Thursday morning.  Since no one’s looking, though, I’ll just slip in a few quick thoughts about where we are and where we’re going — big picture stuff.

I’ve operated under the assumption that SPX will complete the big Butterfly Pattern at 1823 — or die trying — for quite some time.  Recall, this was set up by the reversal at the .786 of the 1576 to 666 drop.

continued for members… (more…)

The dollar: backtesting a broken falling wedge, or setting up a fall from a rising wedge?  Tough call…

Likewise for the USDJPY, which has tagged a .786, but hasn’t reached channel resistance just yet.  The .886 at 100.12 would perfectly backtest the neckline of the two H&S Patterns in play (red.)

Which would put it within .30 of breaking out of the falling white channel and a shot at avoiding completing the much bigger H&S patterns.

The EURUSD already tagged its .886 at the top of the red channel, so should start selling off as soon as it’s done backtesting its rising wedge.

Looks like equities have a little downside in them this morning before resuming the climb.  I’ll go short on the opening, but will look for a reversal around 1703.75.  If that doesn’t hold, 1698-1702 is the next support.

UPDATE:  9:50 AM

SPX just reached the purple midline, so I’ll try going long here at 1700.78.  I’ll give it a little leeway on the stops — 1698ish.

continued for members… (more…)

Everything’s back to normal, with the eminis providing the ramp job rational appreciation the cash market was unable to accomplish.  Last night’s emini action is likely to land SPX right in the middle of resistance, but this should get it to 1700.

Best to be long on the opening, but much will depend on the ability to punch through 1698.  If it can, our next target is 1704.97.

UPDATE:  9:35 AM

So far, so good.  Back in the channel..for now.

But, here’s the Baby Ruth in the kiddie pool…

UPDATE:  10:00 AM

SPX just busted all the H&S Patterns, so the ramp job’s work is done.  They can now return control of the market to all the saps who will turn on the boob tube and get excited about the NEW ALL-TIME HIGHS!

continued for members… (more…)

Currencies are looking for some action, and so far it looks like dollar strengthening — not necessarily good for stocks.  I’ll start off short SPX today, preferably at 1690.89 or 1691.96.

The EURUSD’s RW looks like it might be breaking down, though I’d rather the .886 had been tagged first.

The dollar is hinting at a breakout, but that .886 would have been nice.

And, the USDJPY is still looking very susceptible here, though it hasn’t yet broken through the purple midline.

Given all this, we’ll pay close attention to our stops, as SPX might not yet be done.

UPDATE:  9:31 AM

SPX just tagged the latest .886 as we discussed yesterday.   Full short here at 1692.17, stops at 1693.20.

ES tagged the top of its rising triangle on the 60 min chart, but the red channel remains busted for now.

It could climb back in, so we’ll stay on our toes — particularly when the Fed comments are released.  If not, the purple channel charted below might be the red channel’s replacement.

We got yet another rosy employment report (albeit from ADP), which adds fuel to the taper argument.  The GDP beat also gives cover to any stimulus reduction.

Chicago PMI, though at 52.3 was a slight increase from last month’s 51.6, came up short of the 54.0 the Street expected.  New orders, employment and employment all fell, while prices paid increased.

For those who missed it, ECRI put out a great piece on the longer-term trends in the US and other developed economies.  Check it out, along with the Lakshman Achuthan interview on Bloomberg.

From ECRI:

Notably, the U.S. and other major developed economies have experienced slower growth in the last five years (blue bars, front row) than Japan experienced in its lost decades (red bar).

UPDATE:  10:26 AM

SPX just pushed through the prior high and should go up to tag the larger pattern .786 at 1693.91 or the .886 at 1696.19.  I’ll take an interim long position here, but don’t expect too much from it.  Core short still in place, stops at 1693ish.

UPDATE:  10:37 AM

That should about do it for this move.  Closing the interim long here at 1696.25, back to full short. Stops at 1699ish, as we probably can’t get this close to 1700 without bagging it (probably a job for another interim long if/when…)  So, a double top within a double top?

Next stop should be at least a backtest of the grey neckline around 1691.28.

UPDATE:  12:45 PM

SPX has followed through nicely, just reaching the .500 of the latest move up and the .618 of the drop from 1693 to 1682.  It’s also the midline of a small channel (red) that I think might provide the bulls with the opportunity to take a stand.

I’ll take a long position here, but am more than happy to rejoin the short side if prices slip below 1689.

*  *  *  *  *

It’s not often I get the chance to plug a future competitor.  As some of you know, my son Kyle is helping me out this summer.  He will graduate in December with an Economics major and Personal Financial Planning minor from Texas Tech University in lovely Lubbock, TX.

In addition to performing many rather thankless duties for me, he has spent a fair amount of time learning the ropes of charting and technical analysis.  I asked him his opinion on AAPL the other day, and am pleased to present his analysis.  FWIW, I think he did a very nice job.

I hope to lure him back after he graduates for more of the same.  Though, he seems pretty excited about the financial planning field.  Those of you in the biz who would like to chat with this bright young lad about his career plans, feel free to drop me a line.

Click HERE to read the report.

*  *  *  *  *

UPDATE:  2:04 PM

No change to Fed policy.

SPX just back tested the broken channel, a bearish development if it holds.   I’ll try a tentative short position here at 1693.64, stops at 1695.

UPDATE:  2:18 PM

SPX just back tested the top of the falling red channel — a bullish development if it holds.  Covering my short and trying a long position here at 1687.

My bias is that the broken red channel will ultimately prove more important and the bears will win out.  But, TPTB have a very strong interest in propping portraying this as a positive announcement.  I imagine they’ll throw a bunch of freshly printed sawbucks at it as usual.

But, I’ll have a hard time getting excited about further upside unless SPX can break back into the rising red channel — call it 1695.  Apparently, investors are having the same reaction, as SPX has again stalled back at its lower bound.

Back to the short side unless it can break through. Of course, if it does, there’s the 1698.78 high, the 1696.19 .886, and the psychologically important 1700 to contend with.  Stay tuned.

continued for members… (more…)

Futures are indicating several points higher, but it will probably be enough to take SPX right back into resistance.  I’ll play along on the upside, but be prepared to ditch the long position at any sign of trouble.

The first challenge will likely come at the IH&S neckline around 1692.60.

UPDATE:  9:33 AM

SPX just notched higher than the neckline, but is just shy of either of the .786’s.  I’ll switch sides here at 1692.60 and see if we get much of a reaction.  Stops at 1693.25 — though the .786 and .886 are just above at 1694.08 and 1696.19 so would come into play rather quickly.

So far, SPX is following the upside forecast we laid out last week [see: July 24 update] …just slightly out of phase from a time standpoint.  Of course, there are other less bullish scenarios we also charted.

continued for members… (more…)