I read another one of those tweets the other day stating that no one knows where the market is going.

Fundamentals haven’t been a great guide lately.  So, it doesn’t bother me in the least when investing “experts” admit they don’t know where the market’s going.  Those guys, many of whom are clients, keep me in business.  But, it greatly annoys me when they insist that it can’t be known.

Technical analysis and chart patterns have been on fire for the past 9 months.  Today, they are sending a clear message.

Is it time to panic? In a word, no.  Not yet, at least.  S&P futures, USDJPY, CL and RB are all at or near the targets we set for them 3-4 weeks ago.  Let’s compare current charts with those from VIX Takes the Plunge on Oct 3:

USDJPY…

CL…

RB…

…ZN from Analog Details on Feb 7…

…and, SPX from back on Sep 27, in FOMC: Two out of Three Ain’t Bad:

Pebblereaders know that 2703 was chosen because it represented a pretty significant drop that would backtest a critical Fib that SPX has been dancing around for 9 months — the 2.24 Extension of the drop from 1576 in 2007 to 666 in 2009 — and, allow USDJPY, CL and RB to get where they needed to go.  They also know that a drop through 2703 (or 2688) would be an important warning of bigger drops to come.

On Oct 9 [see: Investing for Dummies] I put out such a warning that was supposed to be clear enough for anyone to read — even investing experts.  I understand that not everybody would sell out in order to avoid a 6% (so far) drop.  But, even buy and hold types could benefit from a little hedging.  If nothing else, they could have locked in the 7.3% YTD gain.

Let’s take an example of Dow components which is freaking people out this morning: 3M. MMM is currently off about 15% from its recent highs……but has solid Fib and channel support at 185 and intraday at 177ish.If it drops through 177, then there might be reason to panic.  But, for now, it is merely solidifying and protecting its gains by backtesting a former line of resistance.

Other major Dow components are at similarly important support.  So, when we examine whether it’s time to panic yet, it’s important to note that this support — whether for SPX, CL, RB, USDJPY, MMM, etc — is vitally important.  If it breaks down, by all means panic.

Now, on to today’s forecast.

continued for members…

SPX has reached the 2.24 and come pretty darned close to the purple .618.  RB could stand to drop a little further, but CL just tagged its SMA200.  So, we’re at the fine-tuning stage right now. As expected, VIX accommodated SPX’s 2.24 tag without any further fireworks.  This is probably a good place to revert to short (with tight stops.)And, USDJPY has managed to hold the purple channel bottom – good for the bulls.

What happens if all this support doesn’t hold?  It can get ugly pretty fast.  SPX has .886 Fib and purple channel midline support at 2579.23 around the time of the US election.

After that, we’re looking at the 1.272 and yellow channel bottom at 2421.65, followed by the 1.618 and purple channel .236 line at 2280.41.  If all those fail, then the 1.618 extension at 2138 and channel bottom wins the prize.The most vulnerable factor is probably RB, which hasn’t quite reached important support (doesn’t mean it won’t bounce.)  If it continues falling, and CL’s rising red channel and SMA200 break down, we could see plenty of carnage. On the currency front, USDJPY could do a lot of damage by giving up the latest channel.  If the channel holds, it has plenty of upside potential — with another test of 114.55 and the .618 at 115.59 easily reachable. EURUSD is similarly positioned — clear sailing in either direction, with a drop more bullish than a bounce.

DXY has resisted any serious drops, and could just as easily bounce up to the .618 at 97.873.VIX is positioned to backtest the white channel down around 12.79.  But, it could also break out even further, with 28, 34.97 and 45.73 within reach if the factors above shove it in the right direction.Bottom line, this is a critical day.  A failure to rebound could result in as much as 20% more downside.  I don’t expect this necessarily.  But, given the turmoil in the financial and political landscape, traders should be ready to act swiftly just in case.

I have to jump on some calls, will post more later.

UPDATE: 12:20 PM

Here are the tags we were waiting for on RB and CL.  Should be safe to go long now, but keep stops where you’re comfortable in case TSHTF (aka: SPX drops through 2703.) UPDATE:  3:34 PM

Important resistance here as SPX is testing the yellow midline and coming up on its SMA200.  8 points away from green on the day.Note that VIX need only break the yellow TL to make it happen.  If VIX doesn’t break down, this should be the end of the line for this bounce.