No surprises in Bernanke’s prepared remarks…  The housing recovery…isn’t.  A very predictable earnings report from BofA…  Naturally, the eminis are up 6.75.

Might as well play the upside, but be prepared to duck out at 1682-1683.

UPDATE:  9:35 AM

Just tagged 1683 – the .886 of yesterday’s mini-decline from 1684.51.  I’ll take a short position here, with stops at 1685.76.

We’ve analyzed the channel from 1538 to 1687 in April-May many times.  There are two basic ways to draw it: (1) connecting the tops – shown below in red; and, (2) connecting the bottoms – in purple.

As we’ve discussed, the latest channel rising from 1560 on Jun 24 features roughly the same slope as the channel from Apr-May.

It matches the purple channel slope best, but does so by virtue of its tops rather than its bottoms.

To me, this implies that the current purple channel is likely an acceleration channel within the primary channel: the red one.  In other words, look for the current purple channel to break down at some point and the red one to take over.

At present, the bottom of the red channel is around the white .618 at 1638.72 (very close to the SMA 50 at 1637.) I suppose Bernanke could say something shocking enough to produce a 44-pt plunge — but, I think he’s a little more savvy than that.

Other potential targets includes the white .786 at 1660, which intersects with the red channel bottom next Wednesday, and Jun 18 high of 1654 (next Tuesday.)  This second target looks to me like the best bet, as it’s also the intersection of the rising white channel .382 line.

While we’re waiting for Bernanke’s testimony, I’ll post some charts explaining how this fits with my potential scenarios for the remainder of the year.

continued for members…

My most bullish scenario calls for SPX 1823 — the 1.272 of the 1576-666 decline — this year.  If the purple channel were to remain unbroken, this target could be reached in early August (range: Aug 8-20.)

If the purple channel broke down and the red took over, this time frame would shift forward a couple of weeks with a range of Aug 20 – Sep 5.

Either of these time frames might seem extraordinarily short.  A move to 1823 in early August would constitute a 16.6% rise (from 1560) in 7 weeks and a 8.5% from current prices in 3-4 weeks.  While aggressive, it’s certainly not unprecedented.

Recent cases include the rallies from 1044 in Feb 2010, 1040 in Aug 2010, 1158 in Nov 2011, 1266 in June 2012, etc.  Each of those, BTW, featured slopes very similar to the current red channel.

Buy and hold types could probably manage their risk quite well by watching for any breakdown of the purple and/or red channel and setting stops accordingly.

Note the rising white channel lines running through the chart.  This is a pretty well-formed channel drawn off the Oct 2011 1074 lows.

It fits nicely within the 0-14.6% Fibs of a much bigger version drawn off the 666 lows…

…which belongs to this system which includes the entire 1993-2013 period.  This doesn’t mean the system is done expanding in a sideways fashion — just that there is a channel that justifies a rise from here.

It also justifies a drop.

Over the months since 1343 in Nov 2012, SPX has risen from the channel bottom to the midline (1597 in Apr 2013), dropped back to the .236, then spurted higher to the .618 (1687 in May.)

Following 1687, it dropped back through the midline and tagged the .146 line (1560) where it bounced back to the midline.  It tested it Monday Jul 15 at 1684, and has continued to hang around since then.

All else being equal, I would normally expect a test of the channel bottom somewhere in here.  Another drop from 1687 to 1560 (AB=CD) would do the trick.  Note that 1560 is just above the important 1.618 extensions of the drops from 1370-1074 and 1474-1343.

And, it intersects with the white channel bottom around (drum roll please…) early August.  I believe wavers would characterize it as a flat of some sort.

Obviously, SPX can’t be at both 1560 and 1823 on, say, August 8.   So, at least one of these scenarios is seriously flawed.  There is another big channel running through here — seen as purple in the charts above.  SPX slightly exceeded its .886 in May, then fell back to the .786 at 1560.

SPX has recovered back to the .886 in the past couple of days where it has obviously stalled.  It pursued a similar path between Dec 2011 and Feb 2013 — highlighted below in purple.  It would tie in nicely with the idea of a flat driven by the white channel.  In fact, the intersection of the white channel bottom and purple .786 occurs in early September.

The daily RSI suggests that 1823 is a real possibility (the yellow channel.)  But, there are a couple of smaller channels (red and white) that suggest SPX could run into stiff resistance right here before advancing any further.

I don’t think Bernanke hurt the markets with his testimony today.  But, he clearly didn’t help them, as SPX is below 1682 at present.  A scenario where the economy continued to show weakness but unemployment remained stable might tie his hands in terms of tapering the tapering.

Initial claims are due out tomorrow, along with Philadelphia Fed survey and LEI from the Conference Board.  Briefing.com does some nice charts on this data which shows downside potential.

They’re looking for a miss on both (big miss on Phil Fed) which, combined with today’s dismal housing numbers (much worse than the seasonally adjusted B.S.) and a stable initial claims could argue for such a scenario.

As usual, I have no magic crystal ball.  But, my gut tells me we need to consolidate a bit more before moving higher.  A drop to 1560 over the next few weeks would work quite well.

It’s easy enough to play, as the double top at 1687 provides a great stop for short positions, while the red channel does the same for longs (breaking 1671.84 is an earlier warning signal.)

The lack of bullish response to BB’s testimony has me thinking we’ll get the pullback first.  So, I’ll maintain my short bias until the market proves me wrong.  A good thrust up through 1687 and I’ll happily change sides.

I have to run out early today, so I’ll leave it at that for now.  I’ll leave the short position on, with stops up to 1688ish, immediate objective is 1670.  But, I would caution anyone without the means to hedge or close their position overnight to avoid doing the same — ramp jobs were made for situations like this.

GLTA.