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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