Yesterday started out with a VIX-driven pop that quickly fizzled and nailed our downside target before rebounding and hitting our upside target. Since SPX closed right at resistance, it needed a boost overnight. So, why not go back to the same clever trick that worked the day before?
Yes, VIX’s red channel has broken down again. And, the algos are eating it up… to the tune of +5 on ES.
Will it pop and drop, again, or will this one take?
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The market bounced back a little into the close yesterday, and recovered further overnight. ES retraced a Fibonacci .886 of the initial plunge, and is hanging in the small channel established over the past week.
We shorted SPX at 1635 yesterday, but weren’t sure whether or not the upside was completely done. This morning, there’s still some question.
The dollar, which we remarked yesterday morning looked “ready to rumble” did just that — completing its largest move in the last 16 months. It retreated just a bit off the .786 before zooming up to tag our .886 target at the purple channel midline. How it handles this price level will determine whether or not we see any follow-through on equities this morning.
We would normally see a pull back at the .886 — a Bat Pattern. But, Bats can and do go on to become Crab Patterns — which would mean a move up through the channel midline to the 1.618 extension at 84.522.
Daily RSI arrived at a 4-way “stop sign” overnight — three channel midlines and a channel top. Though it might ultimately push through, this supports the idea of at least a pause and more likely a pull back, meaning stocks should rebound from here.
The question, of course, is “how much?” The EURUSD, which we remarked yesterday was “hanging by its fingernails,” wasn’t able to hold the purple channel. It completed the small scale Bat Pattern we were expecting overnight (purple), and has potential to the red .886/purple 1.618 down around 1.28.
The daily RSI supports this move, as it fell right through its nearest support overnight.
All eyes are on Bernanke this morning, as he speaks at the Chicago Fed. Evans and Plosser’s semi-public debate regarding QE has ratcheted up a notch the past couple of days. It’ll be interesting to see whether Bernanke can reassure the markets that economic conditions remain “just right” for continuing to pump $85 billion monthly into the markets: getting better every day, but not able yet to stand on its own two feet.
The other big story, of course, is the yen. We discussed yesterday how it was a moment of truth for the USDJPY. It was threatening an Inverted H&S Pattern, but had run into an important channel line.
The pair sliced through it like it wasn’t there, completing the IH&S, then reaching the IH&S target and a Crab Pattern near 102 in one fell swoop. In the process, it reaffirmed the dominance of the rising purple channel from 75.56 in October 2012.
A quick pullback could reassert the white channel; but, if not, the next stop is 105.57-106.98 as soon as May 21.
But, the daily RSI suggests a very good chance of a quick pullback.
The Nikkei 225 has loved the yen implosion, zipping through the .618 retracement of the 2007 crash and a well-defined channel top on May 3 and threatening to top the Dow.
But, the collapse in JGB (and spike in yields) gives one pause. This is what Abe wanted, but is he prepared for the currency wars he’s unleashed with neighboring Asian countries? Sri Lanka, Vietnam, Thailand and South Korea have all either cut rates or are about to.
I wonder whether Japan, with government debt at 240% of GDP, will survive the cure for its economic malaise.
UPDATE: 9:30 AM
I’m taking an interim long position on the opening, but will be watching to see what happens at 1631. My core short position will remain in place unless we get a push up through the red channel midline. Stops on the long at 1626ish.
I would have been more than content to close out the short at yesterday’s close, but the low for the day was slightly lower than the previous “bottom” of 1623.30, leading me to believe we might see another leg down.
We’ll see what Bernanke has to say, then check back in.
UPDATE: 10:00 AM
A bit of a snoozefest in Chicago. Bernanke’s giving a history lesson, not saying anything yet about the topic on everyone’s mind: QE.
SPX just reached the red channel midline mentioned at 9:30, just shy of the .786, and is deliberating next steps.
The dollar continues to strengthen, making a series of smaller waves higher while remaining above the .886 Fib discussed above. And, the EURUSD continues to leak lower — just reaching the .236 of the 1.37 high In Feb.
UPDATE: 11:5 AM
I’ll be closing the interim long here at 1626 due to the triangle breaking down. Full short for 1613-1617 (favored target about 1614.) Confirms with a drop through 1623; should get a bounces around 1624 and 1622.
60 min RSI shows a little room to run.
Watch out for a possible backtest of the triangle to around 1627.75. Stops on the short at the top of the triangle, currently about 1629.
If there’s something that could derail any further downside, it’s the EURUSD.
It reached the .618 of the 1.2743 to 1.3242 rise this morning (small red pattern), and can be expected to bounce.
It’s also getting dangerously close to the bottom of the light blue channel that rises from July 2012.
Technically, the .618 is enough of a retracement for this wave to be finished. But, it certainly doesn’t look finished. I think it’s more likely we’ll get an intra-day push down to the red .786 (1.2850) or even .886 (1.28) before all is said and done.
A sustained break of the channel bottom, needless to say, would be exceedingly bearish for the euro and for equities.
UPDATE: 1:30 PM
Based on my best stab at placing the falling white channel, I believe SPX just topped out on the day.
Next stop should be around 1622 at the midline, but ultimately the green 2.618 should come into play where the white channel bottom and red channel bottom intersect — probably around 1614 on Monday.
The next major support would be the purple midline — around 1593 on Monday — and then the previous high and purple .25 of 1576.
If I’m wrong, stops at around 1630 ought to do it. I have to run out till 3PM ET, but will post more when I return.
GLTA.
UPDATE: 3:44 PM
SPX just moved up past my comfort zone — not to mention out of the channel — so I’m switching sides here at 1630. Next stop 1641-1642? It’s the 1.618 extension of the fall from 1635 to 1623 and the approximate level of the IH&S.
Best of all, it will happen on the 13th, which is when we originally had the interim top scheduled. All is right in the world again.
Legible chart coming up…
I wouldn’t normally stay long over the weekend, but I imagine we’ll gap up to 1641-1642 Monday morning, so it’s worth a shot.
Looks like we’ll probably close at the .886. We might get a small reversal just ’cause, but Point B in this case was almost the .786, so that technically rules out a Bat Pattern. Instead, it’s a Butterfly/Crab that should extend to the 1.272 or 1.618.
Of course, things don’t always go according to plan; but, I like where the currencies are finishing up.
More in a few…
UPDATE: EOD
The revised view from the treetops:
And, a little closer in…
“D?” doesn’t work as a Bat Pattern because “B” is higher than the .618. We could use the reversal at the .500, but “A” is the lowest low, so that doesn’t work. That leaves a Crab Pattern with roughly a .707 Point B — if it follows the rules.
It certainly looks like we’re almost there.
The eminis seem to be already there…
The EURUSD is clinging by its fingernails…
The dollar looks ready to rumble…
The USDJPY is making a bid for an IH&S, but has run smack dab into that yellow channel midline again…moment of truth for the yen…
This morning’s dip in SPX is appealing, but look how many times over the past several sessions the red channel midline (now around 1627.25) has come to its rescue…
A break below 1626.46 and it’s probably game-on. But, we haven’t quite hit our 1635+ target. I’m inclined to believe this is a fakeout to buy a little more time, shake out a few weak bulls before the final thrust.
UPDATE: 12:25 PM
SPX continues to bump along. It recovered from the first plunge down to the red midline, and is back at it only 2 hours later. This time, however, there’s a small Head & Shoulders Pattern at stake. It would complete at 1627.33 and target around 1621.30.
Remember, we’ve seen more than a normal number of H&S Patterns not play out over the past couple of months. So, odds are that this is another shakeout brought to you by your friendly neighborhood market makers.
As always, use stops — and update them frequently to keep them where you’re comfortable.
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The best laid plans of mice and men
Go often awry,
And leave us nothing but grief and pain,
For promised joy!
Robert Burns, 1785
ORIGINAL POST: 6:45 AM EDT
The wedges we’ve been watching on DX and EURUSD are playing out. EURUSD has broken out…
…and DX has broken down.
But, it’s the USDJPY that I’m watching especially closely this morning. It still hasn’t broken 100 since our Apr 8 observation [USDJPY update] that it was running out of steam:
“…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”
It topped out 3 sessions later at 99.94, and two weeks later is in danger of a larger pullback.
Remember, weakening the yen was a critical element of the BOJ’s stimulus program that was supposed to generate inflation, boost Toyota sales and send Japanese investment funds flooding into foreign markets.
Instead, Japanese investors are repatriating their funds from abroad — a net Y9.5 trillion ($95 billion) since the first of the year. Why? As any US investor could tell you, QE might not inflate economies, but it sure as hell inflates markets.
The Nikkei 225 is up 65% since last October’s lows….
…and, still hasn’t even recovered 2/3 of its losses from the 2007 crash. The Dow and the S&P 500, by contrast, have recovered all of them — and, then some. So, to many, the Nikkei still seems the better value. It’s hard to argue with success.
But, I’ll do it anyway. In reaching 14,020 a few hours ago, NKD tagged the .618 Fibonacci retracement of its 2007-2009 crash from 18,365 to 6990.
To those not familiar with harmonics, this tends to be a big deal. When SPX reached the equivalent point in April 2010, it plunged 17%. The DJIA fell almost 15%. The USD, represented by DX, soared 9.3%.
But, the yen positively soared. USDJPY started a 17-month slide that took the pair down 20% from 94.98 to 75.78. NKD, which had just reached its .382 Fib, shed 23% over the next 4 months, eventually reaching almost 30% in Nov 2011.
Could the USDJPY’s failure to break 100 be telling us something? You better believe it. I called a top a few weeks ago because the pair had reached several important Fib levels as well as the midline of an important channel (in yellow, below)…
…that dates back to 1995.
There’s no guarantee it won’t push through instead of retreating, but the RSI picture supports the danger of a significant retreat.
Daily RSI has backtested the broken yellow channel twice, but the trend is clearly down — with the latest push being rebuffed by the purple midline.
And, a close-up reveals that a breakdown has already started.
Stay tuned.
UPDATE: 9:25 AM EDT
With SPX set to open 5-6 points higher, it stands a very good chance of reaching our 1584.23 target. In other words, a pop and drop is very much in the cards.
If it goes any higher, look for 1590.36 instead.
UPDATE: 9:40 AM
That’s good enough for me. I’m closing my long position and reverting to full short here at 1584.80. Stops around 1586ish.
The .25 of the purple channel is right around 1587, so I’d use some discretion around that stop level and look to see if there’s any real strength behind a move higher.
UPDATE: 10:25
Getting a push through 1587, so I’ll open an interim long position for what should be only a few points higher to the .886. Core short remains in place. Tight trailing stops.
I wouldn’t start getting nervous about the short position until around 1594 — the trend line (red, dashed) that extends from the 2000 and 2007 peaks.
UPDATE: 10:50 AM
I’ll go ahead and close that interim long here at 1590. While I still think there’s potential to the 2000-2007 trend line, it could easily happen after the correction that should begin in the next hour.
That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.
This is a very artfully crafted scenario to justify (from a technical standpoint) a rally above that red TL — which is one of the last remaining technical impediments to a continuation of the rally from 1343 in November.
Can they pull it off?
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ORIGINAL POST: 9:15 AM
Last night, the dollar tagged the .786 Fib retracement of its decline from Apr 4. It subsequently sold off almost to the .618 but, so far, is hanging in a rising wedge.
The EURUSD re-tested the .500 Fib of its rise from Apr 3, and snapped back into its falling wedge and the (purple) channel that’s guided prices since then.
The e-minis tacked on a few points overnight — almost reaching the .786, only to give them all back with this morning’s underwhelming Durable Goods report. The H&S Pattern that was looking pretty good at yesterday’s open is now looking a little ragged, with a right shoulder that’s already 15 points higher than the left.
UPDATE: 9:45 AM
SPX continues trudging toward the .786 retracement (1584.23) of its decline from 1597 to 1536.
After plunging beneath the channel that’s guided it from 1343 to 1597 on Apr 17, SPX rallied and re-joined the channel yesterday. This was a very bullish development, as long as SPX remained in the channel all the way to the closing bell.
Despite a five minute thrill ride from 1578 to 1563 (the channel bottom) and back, SPX managed to regain and hold the 2007 high of 1576.09 into the close.
It now sits perched on the neckline of an Inverted H&S Pattern which has either completed or not, depending on whether a 5-minute plunge qualifies as a shoulder. Short answer — I have no clue.
Here’s what we do know:
What Does It All Mean?
When I forecast markets, I look for lines in the sand. I try to determine price levels that, if crossed, would signal a change in trend. When that trend switches from bullish to bearish, I want to be short. When it switches from bearish to bullish, I want to be long.
A channel is one such method that features boundaries rather than absolute price levels.
As long as prices remain in a rising (or falling) channel, we can expect prices to continue to rise (or fall.) It’s rather simplistic, but it usually works. We can make educated guesses as to future price targets based on where the channels point.
Of course, even well-formed channels (multiple tags on the top and bottom and over a sufficient time period) can’t go on forever. I look for moments when prices have to choose whether to remain in or leave the channel. A tag of a top or bottom bound or midline usually create opportunities, though other lines can as well.
The Real World
Recall that we shorted SPX at the 1597 high on the 11th [see: Big Picture], riding down to the channel bottom where I went long at 1554, expecting at least a bounce. We got one on the 16th with SPX rallying up to 1575 — the channel .25 line.
We closed our long position, going short the following morning for the trip back to the channel bottom at 1555. We tried another long position there, but were quickly stopped out as the channel was broken — signalling a bearish trend change.
So, we shorted again, playing quite a few bounces down to 1540 where we eventually went long in anticipation of establishing a H&S Pattern neckline [see: Dollar Daze.]
At that point, I expected a back-test of the broken channel. We got it, reaching 1565 on the 22nd but closing beneath the channel’s lower bound. Note that this move completed 5/6 of a H&S, but the right shoulder was underdeveloped relative to the left.
Anticipating an intra-day retracement to 1567 (the .500 Fib) or 1574 (the .618) the next day (yesterday), I stayed long — trying without much success to anticipate the top. Since SPX topped the .618, the next up on the chart is today’s target: the .786 at 1584.23.
Going Forward
With all that as preamble, here’s what I expect going forward.
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We’re set to get a nice bounce here at the bottom of the purple channel — as revised in last night’s last post.
Based on where the futures are pointing, I’m not sure whether it will have legs or not. But, I’m inclined to play along on the upside, but with relatively tight stops in case it peters out.
The EURUSD has rebounded nicely as we anticipated, but has reached a point of resistance at the midline of the rising channel at a price level that’s proven difficult to exceed since early March.
The daily chart shows a bounce off the bottom of the purple channel as expected, but plenty of overhead resistance in the 1.33-1.34 range if it’s able to break through 1.316 or so. The .618 is up at 1.3341.
The dollar continues to tread water. I’ve drawn a tentative new wider channel that might represent the expected range now that the rising white channel is officially kaput.
Remember, this decline is a backtest of the broken red .25 channel line. If the decline continues on track, we could reach that channel line (at about the .red .382) in very short order. It’s currently at about 81.74.
But, there’s no reason DX must retrace all the way to that line. It has already back tested the purple .618 — a reasonable pullback after the Bat Pattern that completed at our 83.616 target back on Apr 4.
The daily RSI, in fact, shows strong support from the bottom of the rising purple channel and the .25 of the rising white channel.
The yellow midline on the RSI chart represents that dashed white channel midline cutting across the middle of the price chart above. A thrust up through it should accompany the next big equities dump. And, to my eyes, that’s the next major move.
Though SPX is safely back in the purple channel, it can’t go on forever — right? Even if our most bullish scenario plays out, there would need to be pauses of more consequence than the past two sessions.
In that pullback, SPX reached the .786 of the 1539 – 1597 rally between Apr 5-11 (1552.36 vs 1551.88.) The bullish case will consider that reversal as the full extent of the pause — a proper corrective wave that reversed at the bottom of a very well-defined channel dating back 5 months and 230 points.
If so, SPX should head up and push through the trend line extending from the 2000 and 2007 tops — currently around 1593.50 — on the way to its 1823 target.
The bearish case suggests we slap a Point B on that reversal and call it a Butterfly Pattern that targets 1523 or 1503.
So, which is it going to be?
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The big story this morning is the meltdown taking place in the commodities complex. Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.
Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces. In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.
The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.
If those levels should fail to hold, the next major support levels are 1309 and 1155.
We’ll discuss oil and other commodities later, but first let’s catch up with equities. Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs. As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.
The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.
This morning, we came very close — reaching 1576.87 so far.
I’ll take a long position here at 1576 just to see where it takes us. Tight stops (1573ish) are in order, as the next support is down between 1553-1561.
We discussed last week about core versus interim positions. I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case. A plunge below 1553 does very serious damage.
So, I’m comfortable in closing out my short position from 1597. That doesn’t mean I believe the market will go up from here. The jury is out. But, by placing tight stops below my long position, I can manage the risk of being wrong.
SPX doesn’t have to reverse strongly for a hold here to be effective. The bottom of the big purple channel (from 1343) isn’t far below at 1564. But, it’s rising quickly. It’ll be up to1576 by Apr 22. So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.
UPDATE: 11:40 AM
Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359. It should reverse here. But, again, a failure to hold could easily send prices down to 1309.
It’s interesting to see what the US dollar has done during this sell-off. Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.
UPDATE: 11:55 AM
SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel. But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.
UPDATE: 1:10 PM
SPX just hit our 1564 objective. I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561. I’ll leave stops pretty tight here and be happy to go along if it plays out that way.
The view from 30,000 feet coming up…
UPDATE: 2:03 PM
Just got stopped out at 1564, so it’s back to the short side. Lots of near-term targets, starting with 1561.60, coming up in a few…
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The chart of the day:
We closed our longs (from 1539) yesterday, but are still a few points south of the market’s upside potential. While yesterday’s 1589.07 might end up being the top, I rather suspect we’ll move just a little higher.
Recall that we anticipated being in this situation a week ago [Charts I’m Watching: Apr 4 – 1:20 update.]
I strongly suspect that any move that’s much higher than 1576 will terminate at the purple midline… On April 11, the midline of the purple channel intersects with the TL connecting the 2000 and 2007 highs (red circle below.) Also on Apr 11, the .25 line of the same channel crosses 1576 (yellow circle.) So, take your pick.
So, we can’t very well ignore it now that we’re here, can we?
I’ll take a shot at a long position this morning — with tight stops of course. The bottom of the smallest purple channel (from 1539.50) is currently around 1582 and rising about 2.10 per hour.
The dollar reached the next lower line on the falling red channel and will likely backtest the broken white channel as seen on the 60-min chart below.
But, take a look at a daily chart, and it’s obvious that the push lower would be relegated to tail status and the channel would remain unbroken if DX climbs back to 82.515 or so. Not a terribly difficult feat if equities top out this morning…
UPDATE: 10:15 AM
Just tagged the midline of the purple channel that’s guided SPX since 1343 on November 16. I never dreamed when we went long that morning [CIW: Nov 16 – 10:05 update] that we’d tack on nearly 250 points in the next five months.
SPX also reached the IH&S target (1591.66) from the small pattern completed on Tuesday. It wasn’t a very well-formed pattern, but here we are.
We’ve discussed it many times in many contexts, but completing a tag on even a 13-year old channel top doesn’t guarantee a bear market. But, the odds of at least a correction are pretty good.
If anyone’s wondering about the dashed yellow line that intersects with our smallest channel around 1597.68, it’s the TL shown on the first chart up above. It connects the 1994 low and the 2002-2003 lows. If we exceed the TL connecting the 2000 and 2007 tops, this is also a great target.
UPDATE: 11:30 AM
SPX just topped 1597, which is good enough for me. I’m switching sides here and opening a short position. Stops around 1605 should work.
My only hesitation is that we’re sooo close to 1600. Do we leave a milestone like that for another day or go ahead and add it to the QE trophy case. Hmmm…
If 1600 is in the cards, expect a bounce at the red TL (1593.25) which bulls will, quite legitimately, interpret as a backtest of an important broken TL of resistance. BTW, a bounce there would also be a backtest of the large purple channel midline.
If we fall back through both, however, this excursion to 1597 will appear as a shooting star at the top of a nice little Crab Pattern (the 1.618 extension of the drop from 1573 to 1539.)
Next key level below the red TL is the bottom of the little purple channel from 1539 — currently around 1589. And, of course, the 2007 1576.09 high is awaiting its own backtest.
UPDATE: 1:40 PM
SPX has retraced .886 of its drop from this morning’s 1597.35 high. If it’s going to try for 1600, now’s the time. For the bears, a drop through the channel bottom at 1589.40 would really help get the downside going.
UPDATE: 2:15 PM
Got the reversal almost to the penny at the .886 retracement, completing a nifty little Bat Pattern. The bottom of the small channel is coming up at about 1590.
Since we’re dropped back through the red TL and the purple channel midline, the next backtest will be from below.
I’ll update our forecast if/when SPX drops through the channel bottom.
UPDATE: 3:25 PM
Such a simple thing: breaking through a channel bottom. SPX doesn’t even have to chase it. The channel is rising up to meet the index. But, no breakdown yet. Instead, two well-engineered bounces that came at just the right time and place to prevent more serious damage to the bullish case.
And, now we’re entering into the last-minute ramp zone — the last 30 minutes of the session where markets are only allowed to go up. Good thing it’s an efficient market, randomly walking down a present-value path to future cash flows and not some trillion-dollar casino manipulated by rich and powerful interests with unlimited funding. That would suck, right?
If the little H&S is permitted to complete, it targets all the way down to 1585 — the neckline of the last H&S that completed but didn’t pay off thanks to a ramp job in the futures overnight.
The way this market has been going, it’ll close at the neckline — forcing us to choose whether or not to play ramp job roulette with an overnight position.
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I updated the charts for NDX, NYA, DJIA, RUT and COMP in the past few days. The picture is mixed at best, with RUT, for instance, looking quite overripe, and COMP looking like it’s seriously considering 3343. The DJI is happy as a lark making new highs, while NDX is coming up on all kinds of resistance at 2834.
I suspect they’re all taking their cues from SPX right now. And, SPX is still intent on joining the new all-time high club at 1576.10. I see no reason why it can’t reach it, though we went to cash over the 3-day weekend just in case.
The world didn’t come to an end over the weekend, so I’ll stay cautiously long with tight stops during the trading day and hope SPX doesn’t close at 1576.08.
UPDATE: 10:03 AM
The ISM’s Mfg PMI just came out and it’s a stinker. SPX just backtested the yellow TL and quickly caught itself.
Employment growing faster, while new orders and production are off? No problem there.
The small red Crab Pattern targeting 1576.46 is very much intact, so I see no reason to panic now. Eye on the prize, eye on the prize…
UPDATE: 10:40 AM
Pretty sure this is an effort to shake out the longs, but a drop through 1564 means 1555-1560 is in the cards, so I’m switching sides here. Charts in a few…
UPDATE: 10:50 AM
Here’s the bulls’ short-term problem…though it’s not insurmountable. Note the loss of momentum (white channel) on the 30-min RSI…
…and 60-min RSI…
The daily RSI also lost the purple .75 line and the bottom of the little red channel. But, the .25 of the yellow channel dating back to the Nov bottom is right here around 1560 and could provide a floor. If not, the white midline is just below.
We obviously have negative divergence on the daily chart, but that’s been going on since Jan 25. It’s hard to ignore, however, the potential for the purple channel to take over from the yellow, and that could mean increased odds for downside here to the intersecting white/purple midlines at 55ish.
From a price standpoint, SPX could find support at the white 1.618 of 1559.32, but the stronger support is at the .25 purple channel line at 1555-1556 — also the vicinity of the 1.618 extensions of the much larger Crab Patterns at 1553.39 and 1555.57.
Bottom line, while the chop that began several weeks ago continues, SPX is growing technically stronger with these tiny little pullbacks that reset RSI. It doesn’t mean we will top 1576, but it continues the theme of TPTB being very, very careful to lay all the necessary groundwork.
The alternative, a sloppy, enthusiastic ramp like last September’s 2-day post QE3 rally to 1474, is less sustainable to be sure.
UPDATE: 3:10 PM
SPX got as low as the upper end of our target range from earlier, and has since melted back up to just below the 1564 trigger point.
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With Cyprus saved, the sanctity of the EU intact, and a US budget deal passed, we can all go back to watching the market ratchet up 10 points/day, right?
Here’s the fundamental problem.
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