If it seemed like yesterday’s post was interrupted midstream, it was.  I ran into server/modem issues and had to switch to a backup system.  Fortunately, it worked as it was supposed to, and the market essentially went nowhere for the second half of the day.  We’ll recap the dramatic action of the past 24 hours and try to make some sense of the big picture — if possible.

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The eminis are indicating a big slide this morning, so we’ll play along on the short side.  This comes a little earlier than expected, and the dollar has — as yet — not broken out.  So, I’m inclined to look for a bounce above the previous lows.

But, the market sometimes has a mind of its own.  And, as we began to discuss yesterday, there are substantial risk factors to the upside case.  I just think this is a little premature.

The interesting aspect of a limited downturn here is the potential for an IH&S Pattern that targets new highs.  Taking yesterday’s 1648 high and the 1646 high on Jun 4 as the neckline, I can see a pattern that targets around 1700.

A stop at the .283 of 1622 would leave fairly well-balanced shoulders.  Even a bounce at the bottom of the purple channel (around the .236 at 1613) would work.

UPDATE:  9:40 AM

I’m going to take a stab at a long position here at 1623, stops at 1620.  If the .382 doesn’t hold, the white midline should.

UPDATE:  11:40 AM

It’s a very confusing channel picture this morning. I would have expected a backtest of the broken white .25 line and purple .25 line intersection at the white .382 of 1632.  But, the yen action overnight did a number on the equity markets, and SPX dipped much lower than expected on the opening.

Fortunately, we were able to play it correctly, and we’re none the worse for wear with the SPX likely to head back up and erase most, if not all, of this morning’s losses.  At the very least, we should look for this morning’s gap to be closed.

The IH&S is a wrinkle we’ll have to deal with in terms of the forecast.  But, the currency and bond markets seem to be running the show, so we’ll focus on how their recent action should affect equities.  We’ll also look at one other risk factor at play: the time Fib patterns.

UPDATE:  12:40 PM

BTW, SPX just backtested the purple channel .25 line.  We should see a good bounce here at 1636 (also the SMA 10) if the upside case is still intact.

UPDATE:  1:15 PM

The purple channel line isn’t holding, so I’ll revert to the short side here at 1635.75.  Tight trailing stops, as this is possibly just a backtest of the white channel .75 line at the white .382 of 1632.21 or a redrawn white channel at 1629.49.

UPDATE:  1:37 PM

That’s a .618 retrace of the bump from this morning’s low, and a tag of the red .382/purple .500.  I’ll revert to the long side here at 1629.49.  Stops at 1627ish.

UPDATE:  2:50 PM

I’m having a hard time reconciling the short-term and long-term pictures.  But, it’s looking weak here.  Back to the short side for a likely trip to 1617ish.

UPDATE:  3:20 PM

I had plans to wrap things up in a nice neat bow today.  But, if there’s a clear path, I don’t see it.  My best guess at this point for SPX is either up to the white .618 at 1653.20 now and a nice reversal, or another dip to the purple channel bottom (1616-1617) first.  The light blue .618 at 1617.51 is a logical target and intersects with the purple channel bottom tomorrow morning.

I’m going to do something I rarely do and step to the sidelines here at 1633 and wait for the pattern to clear up.  A break up through 1637 and I’d feel good about the upside prospects.  A break down through 1627 and I’d be fine going short for 1616.  But, we’re in no man’s land, and darned if I can see the forest for the trees.

I have had June 13 earmarked as an important turning point for some time based on time Fibs.  I assume it’s the .618 at 1653, but it could be the .786 at 1668 or .886 at 1677 (our original target.)  If we lose key channel support, it could be an important low.

The USDJPY retraced a nearly perfect .786, falling from a well-defined channel which it backtested, but has since retraced .886 of that decline and then stalled.  I think it’ll put in a C wave higher to 100.38 and ultimately probably 102.73+, but can’t be certain that it won’t test the white .886 at 93.83 first.

I can easily see DX dipping to 79.56 in the next day or two, but it needs to clear the .618 at 81.085 first.

GLTA.