ORIGINAL POST:  10:00 AM

I’m reminded of the guy who fell off the roof of a 20-story building.  With each window he passed, people inside heard him call out “so far, so good.”

We’re still in this crazy channel/rising wedge to who-knows-where, and, well…so far, so good.  Just hope it doesn’t end with a dull thud followed by someone screaming “call 9-1-1!”

We’re getting the reversal we called for Friday after dipping to 1346.65 (vs Friday’s 1347 forecast.)   Our white channel lines continue to earn their keep — and then some.

Note that the channel (solid purple on the chart above) vs rising wedge (dashed) argument continues.  The implications are significant, since wedges are a topping formation — whereas channels can (theoretically) go on forever.  Hopefully this will resolve without the need to involve Jerry Springer.

I find it fascinating that the apex of the wedge roughly intersects with one of our white channel lines and a trend line off the April 2 (1422) and May 1 (1415) highs.  And, that’s not just any white channel line; it’s the neckline of the H&S pattern that got this whole party started.  It’s the white dashed line below.

We’ve studied this same TL before (who could forget the classic Random Walk My A$$?)  If you squint a little, it makes a pretty good midline for the past three years of overall activity.  That’s because it is.  It’s easier to see in arithmetic vs logarithmic scale.

This is a one-standard deviation regression channel, drawn courtesy of ThinkorSwim, and our TL perfects overlaps the midline.

UPDATE:  11:45 AM

In the time it took to put up the last post, the early morning gap evolved into a classic gap and crap.  The first issue is Super Mario (elections?  we don’t need no stinkin’ elections!) Monti’s rumored resignation.  He last threatened to quit a couple of weeks ago if Eurobonds weren’t approved.  This morning, he announced that he will resign after his next term. It’s not exactly a resignation; more a reattachment to the vampire squid from whence he came.

The second issue is antics of the German Constitutional Court.  These whacky knuckleheads have ignored the pleas of Merkel et al and announced they might actually take some time to think about whether the ESM is konstitutionellen, much less eine gute Idee.

In an announcement that is certain to delight EZ politicians and bankers alike, the red-hatted ones have announced they might take up to three months to render a decision.  This last bit of news was enough to do a little damage to the rising wedge theory.  It doesn’t kill it, merely gives it an upset stomach (for the time being.)

If the market decides it can’t live with this uncertainty, look for the party to end pretty quickly.  There’s even a TL (red, dashed) that could come into play – valid if one ignores the shadow formed on May 1.

Otherwise, our original TL (yellow) has plenty of validity.  It touches the 1422 and 1415 daily highs and is echoed many times over the past couple of years.  And, we still haven’t dipped lower than yesterday’s 1346.65 (nor exceeded 83.67 on DX.)

 

UPDATE:  2:00 PM

SPX down 6 1/2, getting dangerously close to the channel lower bound.  As we discussed last week, this is the best scenario for the next leg up — as long as we get a reversal.

The rising wedge is looking skankier by the minute — at least the lower bound (the upper bound could remain inact.)  The key looks to be about 1342.76-1344.56, the .618 and the .500 of the current harmonic grids.  A close below could spell big trouble for the upside, while a convincing reversal would pay huge dividends.

The closing price is key, as June 28’s huge rebound reminded us.  For those not already long and who don’t mind a little risk, 1338-1340 would be a cool place to jump in (with tight stops, etc.)

Interesting that the dollar — typically the grown-up in the room — still hasn’t broken through to a new high.  83.65 is the daily high, just .02 below the June 1 high.

I have to run out for a meeting, but might have a chance to post again before the close.  If not, it’ll be later this evening.

GLTA.