Was That It?

If you just received a text telling you about this new post…it’s not.  It’s from May 17 but was “lost” in the move from GoDaddy to Hostgator.  I managed to retrieve it and am reposting it for posterity sake.

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With the futures pointing north this morning, we’re left to wonder whether that massive sell-off yesterday (-0.5%) was all we can expect.

As usual, we’ll play along on the opening.  We’ll go long, but watch for any sudden reversals.

Why? For starters, the EURUSD continues to crumble.  Here’s the big picture:

But, the 60-min chart shows an 88.6% retracement of the latest move up — a natural place for a for a reversal. If it doesn’t however, and breaches 1.2744, that pretty much kills off the purple pattern, which is the best hope for an end to EURUSD’s slide.

And, a tag of the yellow .618 — the most natural place for a reversal and potentially a stronger attraction for the pair than the smaller scale .886 — would kill off the yellow pattern (Point C cannot be lower than Point A.)

DX is likewise coming up to an important target at the 1.618 extension (Crab Pattern) we’ve been forecasting.

But, while the yellow pattern signals a reversal, the larger light blue pattern is still not done. Its 1.618 Fib is up at 85.075.

And, the even larger purple pattern still argues for at least the 1.272 at 85.746 — along with that big channel line up there. Bottom line, DX has thrust up through two channel midlines in the past few days. This is the kind of momentum that’s every bit as powerful as the equities markets. And, it’s hard to say whether the smaller pattern completions can reverse it.


SPX just hit the neckline of yesterday’s little H&S pattern and almost reached the .886 of yesterday’s push down. I’m going to try switching back to the short side here at 1658 with tight stops.

We’ll keep a very close eye on those currencies.

UPDATE:  9:57 AM

Consumer sentiment just came in at 83.7 vs expected 78 and SPX has leaked up a little higher.  Leading indicators come out in a few…  Key level for shorts is 1660.28 — the .886 of the move down from 1661.49.

UPDATE:  10:02 AM

LEI came in at 0.2 vs expectations of 0.3% and the prior reading of -0.1%.  SPX nudged just past the .886, but still hasn’t bested it — so far, just a deep retracement.  I’ll probably switch sides on any move through the previous high of 1661.49.  Otherwise, I’m holding short for now.

I still like the odds of the currencies punching through resistance/support as discussed above.  Look at the 60-min RSI for DX — a nice clean break through the midline.

I could be wrong, but we seem to have crossed over into “good news is bad news” land — where suspicions of a strengthening economy stoke fears of the Fed withdrawing the QE IV.

And, this market needs a correction, as even the die hard bulls would admit.  Do you allow a little reset and allay the overbought condition, or keep it going strong in hopes of sucking the retail investor back in?

I imagine that very question is bouncing around Washington/Wall Street right now.    My gut feeling is that this spurt this morning was designed to shake out the weak bears and trap a few unsuspecting bulls — using the consumer sentiment results as bait.  We’ll know the answer soon enough, after TPTB position themselves accordingly of course.

Watch your stops, because my gut doesn’t matter nearly as much as whether SPX leaks past 1661.49.

UPDATE:  10:25 AM

SPX just topped yesterday’s high (which I’m sure bugs the EW guys) but still not Wednesday’s 1661.49.  Remember, that high tagged the TL from 1994-2002 — one of the last natural bastions of LT resistance around.

Meanwhile, the USDJPY just reached an important channel line, but faces a quandary similar to the other pairs. The small scale 2.24 is nearby and might make a suitable target if currencies go sideways for a few days.

But, the 2.618 and — more importantly — the large scale .618 are also close by. I suspect the pair will seek out 105.57 — where it intersects the purple channel upper bound on Wednesday the 22nd. More on this in a little while.

UPDATE: 11:00 AM

Getting a little action on the downside finally.

The 15-min RSI is looking nice and bearish…

But, the 60-min RSI chart shows that SPX has climbed back into the broken channel and might take a shot at remaining.

If so, watch out for a potential IH&S Pattern to set up. More charts in a few.

UPDATE:  11:15 AM

Here’s the scenario we need to keep in mind. The target from a completion later today would be right at 1673.50 — the 2.24 of the 1597 to 1536 decline that began on April 11.

BTW, the larger IH&S, with the dip to 1650 on the 15th as the left shoulder, would complete at a lower price.  But, the target would actually be a point of two lower since the neckline is a little flatter.

As Matt Bear points out below, today is a massive POMO day with $5.75BB being delivered to Wall Street as we speak.

It’s also OPEX, which is almost always a lot of fun for anyone betting on a sell-off.  But, corrections that are pumped and primed very often get going on the Monday following OPEX.   Something to think about…

UPDATE: 12:20 PM

I just figured out the way the MM could screw over the greatest number of investors — which means, I think I know how the market’s going to play out today.  Doesn’t mean it has to, but remember we have heuristics for these things.

Most people would agree with Occam’s Razor:

The simplest explanation is usually the right one.

And, Hanlon’s Razor is a favorite of mine:

Never attribute to malice that which can be adequately explained by stupidity.

But, where market makers are concerned, I swear by Pebblewriter’s Razor:

Never attribute to random chance that which can be easily explained by market makers’ malice.

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