Lots of big earnings announcements today:  JNJ, VZ, DD, TRV, DAL all missed, while GOOG, IBM, TXN, CA and AMD will report after the close.   It’s getting tougher to ignore slowing revenue growth, though the misses were almost universally blamed on Hurricane Sandy.

But it’s the currencies that are getting most of the attention lately, with the yen making headlines all weekend. The BOJ followed through on expectations, confirming they will continue unlimited QE in 2014 once the current program ends in December.  They also embraced a 2% inflation target though, as many observers have pointed out, they’ve failed to even come close to the current 1% inflation target.

USDJPY is the pair I watch the closest.   A weakening yen obviously strengthens the dollar index (the yen is 13.6% of DX) but it is easily offset by euro strength (57.6% of DX.)  Nevertheless, the pair’s importance shouldn’t be discounted, as it heavily influences trade.

The two dominant chart features are the falling channel (purple) since 1998 and the falling wedge (yellow, dashed) since 2001.

The pair broke out of the falling wedge in January 2012, but recently began reacting with the channel midline at a price level just beyond our target range of 87-89.  If you believe the BOJ, the pair will blow through this resistance and continue up to 95 without a hiccup.

In fact, the daily RSI over the past six months suggests today’s little 1.2% correction might be all we get.

But, if we back out just a bit, we can see this isn’t necessarily the case.

continued for members…

Over the past several years, the pair has established a larger channel (purple) that’s pretty well formed.  While there’s clearly room for another return to the top of the channel, the pair pushed down below the midline today.

A break close below the midline and, especially, the white channel bottom would mean a significant sell-off is underway.

The recent highs were obviously made on significant negative divergence, so it isn’t much of a stretch to think this scenario might play out.

UPDATE:  12:40 PM

I’ll come back to currencies in a moment, but in the meantime SPX has reversed off this morning’s sell off and is nearing a wedge line.  While I remain bearish over the medium and longer term, I can see this rally above 1474 continuing as high as 1510-1519, albeit on negative divergence and weakening internals.

As a result, I’m establishing a short-term long position here at 1486 and will play along on the upside. The immediate objective is 1490, with secondary goals of 1496 and as high as 1519.  Tight stops are important here.

I have been looking at the climb since 1343 as a back-test of the small purple channel below (inception Oct 2011.)  This fit well with the scenario of a replay of the previous tops — the analog I’ve been following.

When SPX tagged the underside of the purple channel in early January, it did so at the .886 of the 1474 to 1343 drop (highlighted above.)

A reversal there seemed likely, but instead we’ve seen a continuation of the rally on obvious negative divergence.  SPX hasn’t broken through the bottom of the channel, but the channel rises at such a steep slope (8 points/week) that it has been able to chug along, hugging the channel bottom for 13 sessions and 23 points.

Now, the trend lines from the 2011 highs are coming into play.  There are a few different combinations of shadows/no shadows that could influence the exact placement, but they’re currently around 1492 -1502.

There’s a 1.618 Crab Pattern extension at 1490.46 (the 1434 – 1343 drop from Oct 18 to Nov 16) which would fit with the lower of the two TL’s as well as a couple of smaller patterns these past few sessions.

A retreat there would also allow a return below the midline — perhaps to the lower bound (1476-1480) — of the small red channel on the 60-min chart and potentially set up another little rally on up to the 1500+ level.

Note: the yellow channel is also a possibility; it offers slightly more downside (1470ish) if we do get a reversal at 1490.  From the standpoint of those managing the market higher,  defending 1474.51 would very much help the bullish case.

To be clear: I find very little in the big picture to be bullish about.  I’m merely trying to pick up a few points of return while waiting for the downdraft.  The daily RSI offers some upside, depending on which channel ultimately takes control.

The yellow channel 75% line could easily put a damper on things — particularly in light on the falling purple channel’s current status.  But, SPX could also go back up to the top of the yellow.  Even if not, the red channel shows upside potential with a tag of the channel top.

UPDATE:  2:45 PM

Coming up on the tag of the 1.618 discussed earlier, so I’ll grab the 5 points and try a little downside here.  Immediate objective is 1488.90, with 1485 and 1474 beyond that.  Stops around 1492 should be adequate, but there’s a good chance I’ll go to cash at the end of the day due to the uncertainty surrounding the earnings announcements.

 

For those who are curious, here’s a GOOG chart that’s as clear as mud.  The bullish case is that the purple channel midline holds (as the white channel did on Nov 16) and the purple harmonic plays out to the 1.272 at 812 or 1.618 at 860.

The bearish case is a breech of the purple midline to the purple bottom or white bottom at 598 or 525 respectively.  Neither chart is more compelling than the other.

IBM is in a little more precarious position from a technical standpoint.

The upside is to 208, while the downside (pennant/measured move, harm and channels) is to around 170.

RSI isn’t terribly helpful in telling us which way is more likely.

UPDATE:  3:55 PM

Looks like higher prices are in the cards, so I’m cutting out here at 1492 and will sit in cash overnight.

With respect to the question below regarding a potential wave count… I’m certainly no EW expert, but favor the idea of an ending diagonal.  Something like this, with (5)/C in the vicinity of 1495-1509.

 

continuing…