I ended yesterday’s post without the usual admonishment to not hold overnight unless you are capable of hedging and effecting stops overnight.  Last night’s futures action is ample proof of why.

War jitters have sent the futures tumbling overnight — but right to the .886 retrace of the latest move up.

I’m assuming that SPX will do the same when it opens, dropping 15 points to the red .886 at 1642.91 and testing the bottom of the purple channel again.  I’d close any longs asap and play the downside to as low as 1640ish, and look for a bounce there.

The dollar is taking it all in stride…

And, the USDJPY is near support at intersecting channels as well as its own .886.

UPDATE: 9:34 AM

SPX just dipped below 1641 and should get a bounce within the next point or so.  I’ll switch to a long position here with stops at 1638.

We’re well into the red channel again, so this should resolve one of two ways: a reversal by the end of the day that climbs back out, or a tag of a prominent red channel feature such as the midline at 1635 or bottom at 1620.94 (also the red 1.618 extension.)

I’ll hold long unless prices push below last Wednesday’s low, in which case I’d go along with the fear trade.

UPDATE:  9:45 AM

So far, so good.  But, keep an eye on the 1639.49 low.  A dip below probably means a trip to that 1620 mark on accelerating volume (so far anemic.)

I have to run out for several hours (in LA today) but will post later in the day.

UPDATE:  EOD

SPX held the 1638 stop/support for several hours, but in the end couldn’t recover.  The Syria rumors are coming fast and furious, and it’s certainly beginning to look like a shooting war.

As mentioned above, a plunge through our 1638 was cause to go short with an initial objective of 1635 (didn’t hold) or 1620.94 — where the 1.618 and .618 reside.

The next support isn’t until our original target from our downside scenario of a few weeks ago — 1577, though the .786 isn’t a bad fit depending on the timing.

The eminis present a different view, however.  A stop right here solidifies the lower bound of the rising purple bound (it’s broken on SPX.)

I’ll be in and out of appointments tomorrow but should have the opportunity to post before the market opens and periodically throughout the day.

Not that long ago, AUDUSD served as a great indicator for US equities.  It still is at times, but the slide since April has been pretty steady.  The charts I posted last Jan 11 haven’t needed much updating:

At the time, a Bat Pattern had completed at the top of a corrective channel (in white, above) after the breakdown of a rising wedge.  It looked fairly bleak for the pair.

And, in fact, the Sep 2012 high of 1.0623 never was broken.  Seven months later, AUDUSD has reached the bottom of that white channel.  Seems like a good time to revisit the charts.

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The dollar continues to hang in there, with strong support at the bottom of the rising red channel and a potential bottoming pattern (IH&S.)

For now, it’s a bullish sign.  But, DX has been somewhat bipolar lately.  Moving in union with stocks until there’s a bump in the road, then shooting up more rapidly to reflect any rise in fear.

The SPX is in the midst of breaking out after completing its own IH&S.  I remain short-term bullish and will play the long side on the opening bell with an immediate objective of 1666 and then 1670-1672.

Friday, SPX broke out of the corrective falling red channel.  As long as it remains in the rising white channel, it has the potential to surprise on the upside.

This is day 3 of a potential Zweig Breadth Thrust.  As we reported last Thursday [see: The World’s End] the indicator broke through and backtested .40 (the ratio of advancers to advancers and declines) and needs to reach the .615 mark (shaded area) by next Thursday (10-sessions) in order to signal a break out.  It’s more than halfway there.

UPDATE:  9:53 AM

SPX reached our initial target — the red 1.618 and purple .382 combo at 1666.22.

We should get a pause here, perhaps to backtest the broken yellow neckline of the latest IH&S.  It’s playable, but likely won’t drop more than 1662-1663 as anything further would jeopardize the rising white channel.

Just saw a news flash that Dick Bove of Rafferty Capital downgraded JPM to “hold” since it is apparently the target of a “government vendetta.”

I don’t know about a vendetta…  JPM has received a pass at every turn, no matter the offense.  Any penalties it has received have been mere slaps on the wrist.  It would take boatloads of penalties to ever negate the largesse the Fed has bestowed on JPM.

JPM is one of the prime beneficiaries of QE.  I’d go so far as to say it’s practically a pure play on the likelihood of continued QE.  Thus, its chart is instructive.

A narrow rising channel broke down after a recent Crab Pattern completion (the purple 1.618 at 55.86 — which might have been the better place to downgrade the stock.)

But, the subsequent drop to the 1.272 (at 50.51) is a typical basing move before a potential next leg up.  And, note that there’s a bigger rising channel that would fit quite nicely — with a midline running right through 50.51.

There are plenty of other patterns at work here — not the least of which is the recent tag of the .786 (56.06) of the drop from its all-time high of 67.17 in 2000 to 15.26 in 2002.

If the Fed feeding tube were to actually be withdrawn, I can see JPM having plenty of downside.  But, the charts indicate the Fed is more likely to continue to prop up the financial sector for as long as it takes — and, that’s a very long time.

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USDJPY completed a second white channel backtest and a second purple channel midline backtest and is clinging to support: the midline of a parallel channel (in grey below.)

The odds are probably 50:50 whether it drops to backtest the falling white channel it broke out of last Thursday in the 93.38 range or heads up to test the 99.94 high.

The rising white channel from last summer is finished; and, the harmonic picture is bearish.

But, the big yellow channel midline hasn’t been seriously threatened yet.  A surprise move to the upside would catch a lot of bears unprepared.  And, the 200 DMA, now at 94.24, is fast approaching. With SPX having recently punched through 1576, it’s important to the bulls that USDJPY hold its SMA200.

 

Gold reached the target we discussed last week — the white .886 and purple 1.618 Fib levels at the middle of a long-term channel.

As I wrote on Wednesday, if it can punch through 1395, the next move is a shot up to 1551-1561 in the next week or two.  Getting past there may take some doing. The safe bet is to take profits and revert to short with tight stops just in case.

 

You can always count on the Fed, or so it seems.  As SPX was teetering on the brink of a 100-pt plunge the past couple of days, the Jackson Hole Gang came together to keep the dream alive.

To them, our modern-day rock stars, I dedicate this classic…

Interesting side note to this performance…  It was January 1969.  The Beatles were just about over.  They hadn’t performed together publicly for two years and were at each other’s throats as they struggled to finish “Let it Be.”

On a whim, they hauled all their equipment on the roof of their building in the dead of winter and performed for half an hour for startled passersby.  Finally, the police arrived and shut them down.  It was their last “concert” together.

I thought it apropos, as the Fed moves forward into the post-Bernanke era.

*  *  *  *  *

The eminis are up 6 points at present and have broken out of the latest falling channel.  This preserves the bullish purple channel we’ve been following, the path to new highs.  Whether the market will stay on that path is anyone’s guess.  But, for now, the market likes what it hears.

BTW, the labels above aren’t harmonic.  Just showing an A-B = C-D potential that illustrates our downside case — which is still on the table until ES breaks 1705.

UPDATE:  9:35 AM

SPX just tagged the top of the red channel at 1661.83.  We’re getting a pullback here that could still back test the IH&S neckline at 1655.  But, it’s just as likely the pullback is only to the broken yellow .786 line at 1660.  Staying long unless that level is taken out.

UPDATE:  9:54 AM

We’re seeing some weakness through 1660 and the 1658.92 high, so it appears a back test is coming.  Traders might want to play the pullback (I will) but it should pass.  The neckline is around 1655, and the white channel bottom is around 1653, so set your stops accordingly.

UPDATE:  10:08 AM

That should do it for the downside.  Back to a full long position at 1655, stops around 1652 (or the bottom of the white channel.)

I’ll take a moment and review the scenarios we’re watching — either of which could still play out.

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Does anyone else find it odd that the Nasdaq suddenly went dark just 10 minutes after AAPL completed a H&S Pattern targeting a 30-pt drop…

…the day after reaching our target from July 31?

If I didn’t know any better, I’d think TPTB found a new way to ensure the markets remain “bullish.”

Maybe these “circuit breakers” we hear so much about are actually circuit breakers?

As humankind’s only hope for survival gather in Jackson Hole this week, we’re left to wonder whether faltering currencies, teetering emerging markets and soaring interest rates mark the beginning of the end.

We’ve examined the downside case in detail.  Yesterday, we took a good hard look at the upside case — hoping that the FOMC’s Jully minutes would settle the bet.  It didn’t.

We continue to wait for a sign.  SPX has expanded the channel that took prices from 1343 in Nov 2012 to 1687 in May 2013.  It’s perched now on the precipice of that channel.  If the Jackson Hole Gang can shoot straight and the channel holds, SPX 1823 is right around the corner (Zweig Breadth Thrust, anyone?)  If not, it’s a long way down to 1553.

I remain full long from 1642.36 at yesterday’s close.

UPDATE:  9:20 AM

Ten minutes from the opening bell… the dollar spiked earlier but has settled back without having made a higher high.

The USDJPY has made a new high, and just tested the purple channel midline after breaking out.  Possible Crab Pattern?  At the very least, it should hold value over the coming days as it seeks out the .786 or .886 at 99.05 or 99.46 to back test the white channel and the purple channel midline.

The big question, of course, is whether it can retake the purple midline or even the white channel.  Keep your eye on the falling white channel, as a break out would bode well for the large purple Butterfly or Crab Pattern completion at 106.43 or 109.47 (a favorite bullish target for quite some time.)

The eminis are up about 8 pts.  SPX should open strongly.  The first test will come at the grey channel midline around 1648.  After that, the red channel midline is at 1651.47 and the  IH&S neckline is at about 1656.

The right shoulder was a little deeper than I expected; but, the pattern continues to look like a good possibility.

Just realized today is composer Claude Debussy’s birthday.  He’s one of my favorite composers, and his popular Claire de lune is one of my all-time favorite pieces.  It’s played here by Victor Borge, celebrating his 80th birthday.  Judging from his unusually reserved presentation, I’m guessing Claire de lune was one of Borge’s favorites, too.  Enjoy!

UPDATE:  9:45 AM

Just tagged the red midline.  We’ll watch for signs of a pause here.

UPDATE: 9:50 AM

I’ll try an interim short position here at 1651.69.  Should be good for 5-6 points.  Stops at 1652.

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Investors are on edge, waiting for insight from the Fed’s July meeting regarding the upcoming taper.

The dollar has seemingly bottomed…

A close-up:

And, the USDJPY has broken out of its falling purple channel and should retest the white channel this morning.

I’m looking for yesterday’s target to be hit prior to a reversal.  Shorting on the opening and looking for 1648-1650ish.

UPDATE:  9:33 AM

That should do it for the downside — a little past the .886 and tagging the grey midline.  Going long here at 1647, stops at 1646.

As we discussed yesterday afternoon, a strong reversal here could set up a nice IH&S Pattern (red) targeting 1670-1672.

But, it will all come down to the July Fed minutes, due out at 1:00 PM.

Treasuries are doing their part, backing off the 3.00% mark — albeit due to OMO.

Is it engineered?  Of course.

Will it work?  Probably.

Will it blow up some day?  Undoubtedly.

But, for now, the markets are willing to ignore who’s doing the buying as long as someone is buying.  We’ve seen this over and over again with the countless interventions.

Call it PPT, call it TPTB, it doesn’t much matter.  The banks have hundreds of trillions in interest rate swaps that could sink them in a heartbeat if: (1) interest rates were to soar, and (2) they were ever required to mark their contracts to market.

The Fed, with the budget to monetize virtually all Tsy issues (and enough of the open market sales), knows this and is buying time — hoping the worst offenders can get their houses in order before things get out of hand.

As long as they have the ability to keep things from getting out of hand, they will.  And, as long as the MSM plays along, they probably can.  Markets are like elections.  The hard core bulls and bears are unlikely to ever change.  It’s the undecided folks in the middle who decide the winners and losers.

When an avalanche of sell orders floods the market, we get crashes — uncontrolled events like May 2008 and August 2011.  We’ll know one’s happening when volume spikes, channels fail, patterns bust and prior lows don’t hold.

Most of the time, however, we get mild corrections that satisfy the bears and don’t freak out the bulls.  To a chartist, they appear as channels being fleshed out. That’s what we’re facing now, though careless wording in the Fed minutes could easily change things.

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Overnight…

The USDJPY continues to slide…

While the EURUSD shoots up past 1.34 again.

The harmonic picture for EURUSD just got very complicated.  Another test of the yellow channel bottom to match the last downside move?

The dollar, of course, is taking it on the chin — dipping below the low of Aug 8, but reaching its own supportive channel bottom.

The eminis tagged the purple 1.618 and got a bounce, and are currently up only .25.

There’s much focus on the 10-yr note, which is threatening to breach the 3% mark.

The harmonic picture indicates it will, with the pink .618 and white 1.618 together, just above at 30.13 and 30.17.

But, as the chart shows, there is resistance from the top of the purple channel, the top of the yellow channel, and the yellow .382 Fib line — not to mention plenty of intervention from TPTB working to keep it below 3%.

UPDATE:  10:30 AM

SPX moving through the white channel line; going long here at 1651 for protective purposes. Stops at 1650.

This is likely a fleshing out of the red channel, which has become quite lopsided with the price movement since last Thursday.  If SPX can break 1654.79, the next resistance is the white .786 at 1660.86.

Note that TNX has dropped down to backtest its broken .236 channel line.

UPDATE:  10:55 AM

One wildcard is USDJPY, which — though it made a new low this morning — is approaching the red .618 Fib level.

We might normally expect a significant bounce at the .618, but I believe the pattern is probably correctly labeled below.  Point B is already in at < .618, signalling at least a Bat Pattern down to 96.12.

Note the pair is still trading well below the latest H&S neckline.

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