The market continues to follow our forecast nicely.  Recall we sold our longs and went short at 1330 on Monday’s opening, only to cover and go long later in the day at 1315 [see: Channel Watch].  Now, we’re back to 1332 and still long — as long as the channel holds.

It’s been a wild couple of days, but we’re net 32 points ahead (yay!) versus just riding it out.  Looking at the bigger picture, I think we’re still well positioned.

continued…

Going forward, I’m going to be watching the new channel like a hawk.  If it breaks down, I’m flipping.  If we start pushing up against the upper bound — especially in the vicinity of an important Fib level, I’ll consider lightening up and/or some short-term trades.  The RSI channel is equally important.

There are a couple of potential bumps in the road.  For one, we have to push back through the .500 Fib level at 1344.56.  It intersects with one of our rising white channel lines as well as the current channel midline tomorrow the 28th.  Such a pull back should stay in the channel, though.

After that, we have to deal with the .618 at 1363 again.  Shouldn’t be an issue, since we did it once already.  If/when we get up to 1389, things will get real interesting.

As discussed yesterday, a Gartley completion awaits us at the .786 since we previously reversed at the .618.  We also have a trend line off the two previous highs (1422 and 1415) cutting through here, not to mention the Bat pattern .886 and Inverse H&S target at 1404.

Suffice it to say I’ll be very cautious around these levels.  I hope the next steps will be clearer by then, but if not I’d seriously consider taking money off the table and watching from the sidelines until the dust settles

Good luck to all.