Earnings haven’t impressed.  Economic data has been mixed.   The Fed even talks openly about withdrawing the mainstay of the rally since 2009: QE_n.  So, why does the market march ahead as though everything is just great?

We’ve looked at “how.”  A handful of ramp jobs* over the past four months has transformed what would otherwise have been a 15% loss into a 2% gain.

 

There are two fundamental explanations as to “why,” depending on your level of cynicism: (1) the beneficial wealth effect of higher stock prices; or, (2) TPTB wants/needs the money.  Either way, there is no longer much attempt being made to disguise the blatant manipulation.

Fortunately for us, these same conditions have existed throughout the past couple of decades.  Therefore, we have tools that have been fairly effective at pointing out the obvious and not so obvious paths ahead.  We’ll start with the charts for RUT and COMP.

continued for members…

They do an excellent job of depicting what appears to me to a be an imminent dip followed by another leg higher.

RUT is in the process of tagging the top of a wide channel motivated by the 98 and 09 lows (in purple below.)

If this channel holds, we’ve seen all the upside we’re going to see for a while.  There are six harmonic patterns that agree — bunching up around 1030.

Here’s a close-up:

Completing even 6 Crab Patterns at the same time isn’t  a guarantee of a decline in the offing.  But, it certainly amps the odds — as long as the decline starts right away.  I’ve been targeting July 15 for a long time.  Now that it’s finally here, we’ll see if RUT will play ball.

The downside?  I really like 914 by Sep 3 or so — all the way back to the yellow channel bottom.  Failing that, 984 in roughly the same time period.  Minimal move = 1017 by the end of the month.

Regardless, the harmonic picture fits really well in every time frame except for the biggest:  the white pattern from 856.  Since, RUT has exceeded the 1.272, the 1.618 at 1174 has to be considered.  I show it coming into play around the end of the year — provided the red channel can take charge after the next dip of any size.

COMP presents a very similar picture.  The purple channel looks like a good fit.

And, like RUT, there are many harmonic patterns completing at current prices.  And, as a bonus, COMP just arrived at the .618 of the biggest pattern that originated at 5132 back in the year 2000 (in yellow.)

There’s a little more range to this target than with RUT.  But, a reversal between 3595 and 3678 looks quite likely.

The biggest difference between COMP and RUT charts is the presence of the rising grey channel.  It offers more support at a closer price.  But, that support hasn’t been tested much in the past — so, we’ll see…

More later…after the opening…

UPDATE:  9:20 AM

Based on the futures edging higher, I suspect SPX is going for a double top or at least closer to it.  I’ll hang on to my core short position unless we break through 1687 with some force.

The dollar continues to show strength after reversing at a key .618 last week — this, after a well-orchestrated take-down in the eminis moments after DX closed for a few hours.

UPDATE:  11:20 AM

SPX spurted up a few points on the opening, tagged the TL from 1994/2003 and immediately retreated — sort of.  It’s still down a bit from the 1681.99 high — but certainly not enough to matter just yet.

UPDATE:  2:05 PM

I just took a quick look at VIX, and it supports the idea of a double top.

It’s half a point from the .886 of the rise from 12.26 to 21.91, and there’s a decent looking channel bottom waiting for it to tag there as well.

But, based on the daily RSI chart, there’s a very good chance that we’ll see negative divergence on VIX before it turns up.  On the chart below, each of the tags on the grey channel bottom have corresponded to “double top” situations.

As SPX approaches 1687, I’m looking for signs as to whether or not it will show some real weakness.  As we discussed last week, It would be highly unusual to see no reaction at the previous high after a minimal reaction at the .886.

The 60 min RSI, besides being very high on an absolute basis, is positioned rather precariously — having broken the red TL and with the white channel bottom the only thing between it and a tumble.

The 15-min RSI:

UPDATE:  3:39 PM

I’ve been staring at charts all day and am thoroughly cross-eyed.  But, there’s no point dancing around it any longer.  For my money, I’d be on the sideline until this sorts itself out.  But, you all expect a forecast, so here’s my best guess as of this moment (ask me again in 5-minutes, and it might be completely different.)

I expect that SPX will react off the 1687 high (and, yes, 1684.51 is close enough.)  But, it might only be down to 1638 or so.  Under a more bullish scenario, it might be to only 1670.  But, if the red channel I’ve drawn holds, it’s looking increasingly as though the next stop will be 1823 — perhaps as soon as early August — though that could mark the 1765 reversal instead.

Here’s where I am so far…

I have a lunch to run to, but will examine it more when I return.  It’s quite possible I’ll hate it and go back to the drawing board, so please don’t take it too seriously on it until I have a chance to properly poke some holes.

Until later…