UPDATE:  EOD

SPX went straight to our 1338 target and hung around pretty much all day — closing right on the H&S neckline.

The analog I first posted on Mar 9 is still very much on track.  It called for the low 1300s by May 16 — which looks doable if we have another day or two like today.  Keep in mind, though, that while I had to pick a particular price target in order to chart the analog, I consider the downside to consist of a range from 1295-1323.

UPDATE:  10:00

We got the H&S completion we discussed earlier, seen below on the daily chart.  As expected we also got a bounce at the neckline.

ORIGINAL POST:  9:20 AM

With this morning’s continuing fallout from the latest JPM debacle, we should see the completion of the smaller H&S pattern we’ve been watching.  The neckline is around 1338, so look for a bounce there on the opening.

As we discussed last Thursday [see: Still on Track], the latest H&S pattern targets 1275, but I believe it’ll be a challenge getting below 1292.  Remember, the overall targets I originally laid out on May 6 [see: So Far, So Good]:

• 1349.42 — .886 of the purple Butterfly  [tagged May 8]
• 1343.41 — 1.272 of the yellow Crab pattern [tagged May 9]
  
• 1340.03 — horizontal support, prev. Point X [should tag this morning]
• 1323.85 — 1.618 of yellow Crab
• 1317.63 — 1.272 of purple Butterfly
• 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)

Completion of the neckline mentioned above around 1338-1340 should also find horizontal support from the previous Point X (Mar 6) in the Butterfly pattern we’ve been watching since March [see: All the Pretty Butterflies.]

But, my base case remains 1295-1317 for now.  It’s hard to calculate the damage that could be done by JPM’s screw-up.  As discussed last week [see: There is Nothing Wrong] JPM can easily withstand a $2-5 billion trading loss.  The danger is that much more damage lies beneath the surface — not difficult to imagine given the enormity of their $78 trillion derivatives portfolio.

As I said back on April Fool’s Day [see: The Wipeout Ratio]:

I fear this is the story of the year, folks.  And, it’s just now starting to get some press.  As we learned with AIG, if one segment of the financial markets suffers huge unanticipated losses, the entire house of cards can come crashing down.

Such is the nature of today’s leveraged, re-hypothecated securities markets.  And, 99% of this stuff isn’t even quoted or openly traded, so who knows what skeletons are out there?  My gut tells me there’s plenty more where this came from.

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And, for you Jackson Brown fans…