This morning, AAPL reached the first target set for it in our Jul 31 forecast.

This move tags the red 1.618, the purple 1.272 and the yellow .382.  The white .618 at 514.56 is just .82 above today’s high.

Thanks to Carl Icahn’s buying (and discovery of Twitter)  AAPL got here without the use of the IH&S we were tracking.  The right shoulder never really materialized; so, the IH&S is iffy at best.

As we noted back in July, this move could very well constitute the entirety of APPL’s rally.  It has reached the top of the purple channel.  And, topping out at the .618 of the white pattern would repeat AAPL’s habit of running out of steam at .618 Fib levels all the way down from 705.

Last, take note of the rising grey channel line that runs through the purple and yellow circles.  This is the bottom of the channel that has guided prices ever since 1995.  It broke down in Feb, was backtested once already, and might be setting up for another backtest.

Its breakdown definitely opens the door to those lower H&S and Fib targets we’ve been discussed over the past 6-7 months.  But, we’re likely to at least digest some of these gains and, potentially, the neckline down around 455ish.

If AAPL can’t break out of the falling purple channel, the white .786 at 307 (and largest H&S target) looks like a very real possibility for December/January.

If, as I suspect, it’s able to push through, then look for it to tag our 560ish target in September and our 570 target before the end of the year — ideally October.

I like AAPL products.  I use AAPL products.   At last count, I own 3 notebooks, a desktop, an iMac, three iPhones and an iPod Touch.  But, there’s no question the product pipeline is as stale as could be.  Check out the MacRumors.com buying guide — chock full of admonishments of Don’t Buy!

And, the glitches with existing products has reached the ridiculous stage.  The latest, greatest product — the new MacBook Air — apparently can’t hold a WiFi signal and the screen occasionally goes black. I’d love to buy a new one, but wouldn’t think about it until these vital issues are worked out (the company hasn’t even acknowledged them.)

And, customer service ain’t what it used to be.  I’m still miffed at Apple’s insistence that I first spend $30 to buy a copy of Snow Leopard (the interim step) in order to upgrade an old MacBook from Leopard to Lion.

In short, this is a once great company that’s stumbling quite a bit.  I don’t know whether or not it will recover.  But, they need new, innovative, bug-free product and they need it fast!

The USDJPY tested the top of the small falling white channel and the .786 of the larger falling white channel.

DX is still lurking below the purple midline. It got close, but never did tag the white .886 …yet.

And, the eminis have done surprisingly little overnight other than completing the 1.618 tag as expected — very close to channel support.

UPDATE:  9:35 AM

We’re getting a little follow through from Friday’s selling, tagging the purple .382 and white channel .618 line at the bottom of the falling red channel.  We should see enough support here for a meaningful bounce (i.e. a bottom, not the bottom) and remain long from late Friday.

UPDATE:  11:35 AM

SPX retraced .886 of its drop from 1659.88, then reversed to retrace about .707 of that move.  Odds are we’ll see a full .786 or .886 retrace on the red grid as well, down to 1653.25 or 1652.49.

Obviously, a drop through 1651.63 would seriously damage the odds of a bounce as big as I’ve anticipated.

BTW, I’ve just updated the AAPL charts for those interested.  The stock has reached the target we set for it back on Jul 31. See HERE.

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Holding short this morning.  The currencies are poised for a reversal, and the overnight ramp job isn’t sticking.

The USDJPY, in particular, appears to be in real trouble.

UPDATE:  9:32 AM

We’re closing in on our original target of 1653-1655.   It’s two days later than we originally expected (the red circle) but it represents the purple 1.618, white .886 and the latest H&S target — significant enough that we should get a meaningful bounce.

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Finally!  After many fits and starts, we’re finally getting some follow through on the downturn we’ve been expecting.  There shouldn’t be any question about the H&S Patterns, now.  Our forecast from Aug 12 [see: Major Channels]:

Look for the smallest Crab Pattern to complete at 1673 for starters.  The initial bounce could come at the white .618 at 1671.23 — roughly the location of the grey midline.  But, there’s likely more in store.  The purple 1.618/pink .886 at 1655 is our first real target.

Keep an eye on DX, which backtested the .382 and channel midline as expected and has shot back up in anticipation of a decent sell off.  Initial target: the red .886 at 82.414.

The USDJPY looks positively cooked after one last attempt at breaking out of the falling white channel.

Even though things are unfolding according to plan, there are a couple of tripwires we should watch out for.  And, I’m not just talking about Cramer’s cheerleading or the inevitable Fed leak to Hilsenblabber.

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The dollar is digesting its gains of the past three sessions and could backtest the midline of the potential channel at 81.55ish.  Note the small scale .618 tag, clearing the way for the next interim target at 82.243 (red .786 and white .618) or 82.414  (red .886 and the purple .382.)

The USDJPY has completed the backtest of the white channel and the purple channel midline as expected and should head back down now.  Next target 95.44 or 94.66 — and, soon.  The last such drop — from Aug 2 — accompanied a 27-pt drop for SPX.

The eminis are trying to turn positive by the opening on very little positive news, but are running into resistance from two different channel lines.  We could see a breakout, but for now the trend remains down.  I’ll remain short.

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The dollar’s falling wedge is breaking out as expected.

The USDJPY is backtesting the broken white channel.

The EURUSD continues to fade after completing a very deep retracement.

The eminis shot up 7 points overnight, but have given most of it back.

The retail sales number was disappointing, but not so much that the Fed should abandon plans to taper.  In sum, I see no reason not to continue to hold short.

SPX will likely take a run at the .886 at 1693.92 on the opening, but should fall back just as quickly.  I don’t believe it’s worth chasing unless it breaks above 1700.

UPDATE:  9:45 AM

So far, so good.

UPDATE: 10:25 AM

Interesting development on XLF…  A few days ago, we discussed the test of a key channel and another larger channel’s midline as well as the approach of some key Fib levels.

XLF reached two key harmonic levels in the past month, and nearly completed the 1.618 Fib (21.06) of a large Crab Pattern set up by its 2011 decline.

XLF didn’t quite reach 21.06 (yet), but it did fall beneath the channel midline (purple) and, this morning, it lost channel support (red) and horizontal support (the 20.35 high from May 22.)

If it doesn’t find some help in the 199.97-20.15 range, it could easily drop to the bottom of the purple channel — a correction of nearly 8%.

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It’s sometimes difficult to keep track of the various channel lines appearing on charts — especially in close-up views.  To help with the big picture, here are a few of the key channel systems I’m tracking.

Given their size and scope, there’s plenty of room for error when it comes to whether or not prices have crossed a particular line on any given day.  But, smaller channels that can be more precisely drawn almost always tend toward the same slope over time — often nesting, for example, between the 0-.236 or .236-.500 lines.

I’ll update this page from time to time, but the whole point is that these channels don’t change a lot.  The market moves in accordance with them rather than the other way around.  I’ve layered them to better illustrate which has come into play at various key moments.  And, each chart is presented in log scale.

Last, there are usually many ways to draw a channel.  The only way to know for sure whether or not a a particular placement is precisely correct is to look at it in hindsight.  But, like other chart patterns, they give us important clues as to what to expect.

Channels indicate the prevailing direction and the magnitude of “normal” deviations.  And, they point towards something; i.e., they provide a sense of future prices in specific time frames.

Importantly, they tell us when something has changed.  If prices shoot above or dip below a well-established channel line, it usually signals a change in direction.  Combined with other chart patterns and harmonics, they are an excellent tool with which prices can be forecast.

Enjoy.

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The purple channel system depicts potential resistance at the .382 line which, given its influence, could just as easily be drawn as a midline.  Either way, it’s obviously important.

The yellow channel, on the other hand, depicts ongoing support.  The entire recovery since 2009 has been contained within a channel (the yellow 0.00 -.146 lines) featuring the same slope as the 1993-2000 bull market (.886 – 1.000.)   Note that any time a yellow support line has been crossed, the market suffered — sometimes dramatically.

The white channel is easier to see in isolation.  The move since mid-2009 has been largely contained within the .146-.236 lines.  Like the yellow channel, this system depicts support and drops through key lines have often led to large losses.

Putting all the systems together, the chart starts to look a little crowded.  But, it’s pretty clear that they’ve defined most of the major rallies and corrections.

Major channels’ intersections frequently signal key turning points.  Prices have to “choose” one course or the other, which means a continuation of the current price trend or a change in direction.  SPX faces such a situation at the present time.

So, what does it all tell us regarding the rest of the year?

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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.

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