The S&P 500 has one foot in the 1600’s and the other reaching for the 1700’s.  I’ll play along on the long side on the opening, but am still looking for a reversal — probably at or just above 1700.

ES is finally trading above its own double top, but is running into a channel midline that should provide resistance around 1695.

The dollar has found support at the .618 we pointed out yesterday but hasn’t yet broken out of the falling wedge.

And, the EURUSD continues to waffle.

The USDJPY fails to break out again (43 sessions since its May 22 high)…

…and continues to run into trouble on the daily RSI chart: now stuck beneath another channel line (red .75.)  If it loses the white midline, there’s a very good chance of the H&S playing out (price chart) without the purple .886 tag (D, above) first.

Summing it up, all the stars are aligned for a pullback here — if SPX will cooperate.

UPDATE:  9:36 AM

SPX gapped up to the small scale (red) 1.618, which forms a nice little rising wedge tag just shy of 1700.  I’ll drop the long position and go full short here at 1698.

BTW, I have recently updated the RUT, COMP and NYA charts for anyone who’s interested.

UPDATE:  1:15 PM

SPX just broke through the midline of the small falling channel at 1694.  If the downside momentum from this morning’s reversal is to be maintained, this rise should be limited to the top of the channel: 1696-1698ish.

While we’re waiting to find out whether the decline sticks or not, let’s take a look at the current forecast and the interesting next few weeks ahead of us.

continued for members…

As always, we have to examine the markets through the prism of QE: if/when the Fed will taper.  The Fed has tied the decision to employment; but, once in a while they slip and admit it’s all about the markets.

I don’t know what, short of a shift in the balance of power on the FOMC, might ultimately bring an end to the current expectation of QE, as needed, forever.  So, it’s interesting that the voting membership is expected to become more hawkish.

Rosengren, Bullard, Evans and George (the only hawk among the 4) will rotate off as voting members as Plosser, Fisher (both big hawks) Kocherlakota and Pianalto rotate on.  And, of course, Bernanke himself already has one foot out the door.

Inflation could bring pressure, but TPTB have proven quite deft at redefining inflation as necessary to deflect criticism.  Oil prices have been on a tear lately; and, the Fed has little influence other than increasing the value of the dollar.  But, that brings other complications such as higher interest rates.

As we’ve discussed many times, the channels hold the key.  The narrow purple acceleration channel could easily reach 1823 by Aug 12. Even the less steeply sloped red channel could claim the prize by Aug 19.

I don’t see any impediment to either, though I would certainly expect a pullback or two along the way to flesh out the channel.  This morning’s high is as likely as any, but more significant Fib levels are located at 1712 (1.618 of 1654-1560), 1721 (1.272 of 1687-1560) and 1765 (1.618 of 1687-1560.)

SPX just tagged the top of the falling channel I drew earlier at 1696.26.  If this marked the high for this rebound and we placed the .886 of a larger harmonic pattern here, a potential harmonic pattern would bottom out around 1677 and rebound to the 1.618 at 1712.

This sort of exercise is speculative, but does give a sense of the scale of the moves necessary to accomplish certain upside goals.  Similar calculations can be done for other upside targets such as 1823.   I’ll take it seriously if the purple channel breaks down and SPX drops below 1691.

The daily RSI chart has been a mess lately.  A reversal at this level would help clarify things a bit, as the purple channel looks like it could offer good short-term influence — perhaps back down to the yellow or white midline

But, it’s the dollar RSI chart I find the most intriguing.  I see support at both the red midline and the purple .25 line.

Contrast it with the EURUSD, which shows resistance at the intersection of three different channel lines.

Last, consider VIX — which earlier today made a nice reversal just past the .886 of a recent rise that, itself, was a reversal off the last .886.

I see that SPX is nearing 1691 and the purple channel has broken down.  A break of this morning’s 1691.13 low would help the bears out.

The only hitch is the support waiting at 1690.  I intend to stay short overnight, though I wouldn’t recommend it for those without the ability to hedge after-hours.