Just about every other index has reached an important harmonic and/or chart pattern target. Given the NFP print, this could be the day SPX finally reaches 1553-1555.  Best to be long on the opening, and ready to re-short fairly quickly.

The dollar isn’t waiting, surging nearly 1% on the day and resolving the question as to which channel to watch.

DX is very near a tag of the red .786 (83.064) and the purple 1.618 (83.179).  But, more importantly, it is coming up to the intersection of the midlines of two important channels.

Look for heavy resistance at these levels — until the equity sell-off begins in earnest.

Likewise, the EURUSD is off over 1% and approaching the white .786/yellow .500 — also the scene of an important channel line.

Will the currencies react first to the equity strength, or are they positioning ahead of what they know will be an equity pop and drop?  As the grown-ups in the room, I believe currencies are doing the latter.

Our premise called for a back test of the channel line or TL off the July 2011 & Sep 2012 highs, but the market is eager to go ahead and get there.  Who am I to stand in the way?

UPDATE:  9:35 AM

Got to 1551.65, only 1.74 away from the white 1.618 – which is close enough for me.   I have nothing against staying in until the actual tag; just watch your stops in the event it turns quickly.

I’ll pick it back up if we get a second push through 1551, as it would not be unusual to see a bit of an overshoot — somewhere between 1553 and 1560.  Likewise, a drop through the yellow TL down around 1535.50 probably signals “game over.”

Remember, this completes a Crab Pattern from the 2011 crash from 1370 to 1074.  Are we guaranteed a big sell-off here?  Of course not.  But, odds are it will be substantial.

UPDATE:  10:08 AM

If SPX is going to bounce higher, it should do so by 1543 — the 1.272 Fib on the small white harmonic grid and the bottom of the tiny channel SPX hung out in for the past several days.  For anyone who missed the last six points because of the gap open, this is your second chance.

UPDATE:  10:27 AM

SPX getting the bounce here at 1543… will take another crack at 1553-1560.

In the meantime, let’s take a look at how we got here.  If you had asked me at the end of 2011 which upside scenario looked most likely, I would have suggested the Crab Pattern that started at 1370 in May 2011 and put in a bottom at 1074 in October (in white, below.)

There were three potential Point X’s in a row: 1370.58 on May 2 (in white above), 1347 on July 21 (in red) and 1356.48 on Jul 7 (not shown.)  And, 1370.58, the high following the 1576 to 666 sell off from 2007 to 2009, was the most prominent.

My reservation was that it reversed at the .707 Fib level rather than the more common .618, .786 or .886.  The .707 is the red-headed stepchild of the Fibonacci ratios.  It’s the square root of .500, which itself doesn’t get much respect as a Fib ratio.  Geeks and wannabe’s CLICK HERE for details…

When SPX finally pushed above 1370 in March 2012 and started approaching the 1.272 Fib levels between 1422 and 1451, we had to choose from among the three possibilities for a Butterfly Pattern completion [see: All the Pretty Butterflies.]

I went with the red pattern because of its more precise tag on the .786 and was rewarded with 20%+ gains from a perfectly-timed short.  And, I assumed the red pattern would continue to drive future harmonic swings.

As we approached the red 1.618 at 1515.24, I noted that it intersected with the purple 1.618 (1518.57) and the yellow 1.272 (1510.19) — not to mention the yellow trend line running very precisely through the July 2011, April 2012 and Sept 2012 highs.  To me, this was a very solid conclusion based on very reliable patterns.

We got the sell-off.  In fact, we got three sell-offs, one from each of those Fib levels.  On the final tag at 1518.57, we got a little overshoot to 1530 (a smaller harmonic pattern completion) before beginning a correction all the way to…1485.  Yep, not even a lousy 3%.

In harmonics, it’s not usually the tops that bother me, it’s the 2nd waves.  The rebound from 1485 went to 1525 (a healthy .886 retracement) and even sold off nicely — before zipping back up to complete an IH&S, take out the 1530 high and…well, here we are.

Harmonics are great.  They offer concrete turning points at which the market usually reverses.  If it doesn’t, you’ve either picked the wrong Point X (1347 instead of 1370) or the wrong pattern.  In other words, there’s a solid decision matrix; you know when it’s time to go to Plan B.

Fundamental analysis isn’t anywhere near as precise — especially in the short to medium term.  And, as we’ve seen this past year, there’s plenty of money to be made by going long at bottoms and short at tops.  You just have to be prepared to switch gears when your assumption — no matter how well thought out — turns out to be wrong.

If SPX exceeds the Fibs at 1553/1555 and/or the IH&S target at 1465, there’s not much more in the way of targets other than the previous high of 1576 (October 2007.)  Many other indices have made new highs, so maybe TPTB will feel it necessary for SPX to do so as well.

more later…

UPDATE:  1:55 PM

The bounce off 1543 still going strong.  15-min RSI just broke out of a falling channel from this morning’s rally.  A move back to the white RSI channel midline might permit 1553/1555 or slightly higher.

continued for members…

UPDATE:  2:35 PM

More of the same… tracing out a little rising wedge, which is getting fairly long in the tooth.  Often, the ones which go nearly all the way to the apex break up rather than down.  So watch for any move up through the 1550 mark.

I’ll continue to play the bounce with very tight stops based on the wedge, not a particular price level.  As you can see, prices are hugging the lower bound, which should make the decision to re-short easy (unless we got a close right at 1553, which would not surprise me.)

You have to wonder, especially when prices are being walked up, a few pennies every minute or two.  Definitely has that “managed” feel to it.

Another common fakeout in these situations with an obvious RW is a drop through the bottom of the wedge to a point that establishes a channel, then a return to tag the actual apex — which in this case looks like 1557.50 late Monday.

The bottom of such a channel would probably be around 1533 right now, something like this:

Taking a quick look around the markets, VIX has completed a bullish Bat Pattern and falling wedge…

The FTSE (UKX) has tagged the top of two channels and another internal channel line at the completion of several harmonic patterns.

The USDJPY has spurted up past the .886 Fibs I thought would provide more resistance than it did.  While we could get a reaction here at a double top to the May 2010 high, I think the more important chart feature is the intersection of the white channel top and yellow channel midline at around the large scale .382 at 98.31.

UPDATE:  3:45 PM

Here we go again… going to hold long until the close or when reach 1553.39, whichever comes first (hopefully not at the same time, but I wouldn’t be surprised.)  Stops can be raised to this morning’s high of 1551.65. UPDATE:  3:50 PM

Just tagged the purple TL again with SPX at 1552.44.  The 15-min RSI has reached the midline we discussed earlier and looks like it wants to reverse.

I can still see the potential up to 1555.57, 1557.03 or even 1559.32, but no way I’m holding long into the weekend.  The expression “picking up pennies in front of a bulldozer” comes to mind…

Closing the longs here and back to full short.

UPDATE:  4:00 PM

Continuing the look around…  AUDUSD is holding on to double channel support, but it doesn’t look very positive.

Like EURUSD, it’s been in a well-defined channel for two months, and will need to break out if it’s going to reverse the trend.