What Recovery?

[NOTE:  This is not a new post, but the 2nd of the two recovered posts from the transition from GD to HG in May.  A portion of it is still missing…]

Housing starts missed big time, sliding 16.5% in April. Single-family was down 2.1% and apartments were down a whopping 37.8%. CPI also missed, with both total and core coming in at half the expected rate. But, the big news was initial claims, which jumped back up to 360K versus expectations of 330K and last months 328K (revised up from 323K.)

In a non-QE environment, this news would be good for -15 points on SPX, easy. But, it gives the Fed cover to continue pumping cash into the economy banks’ balance sheets, so SPX is off an astonishing 2 points.

The EURUSD rallied overnight, breaking out of the falling wedge but quite possibly morphing into a channel (purple.) The immediate downside still looks to me like the red .886 at 1.28 (though the smaller patterns suggest 1.2770-1.2775.)

At this rate, it’s probably not a bad idea to talk about what happens if 1.2743 falls. That little channel, if it can keep it together, points towards the red 1.618 where it aligns with the yellow .786 at 1.2398. That’s a full .05 below current prices for the pair.

The red .886 could produce a back-test of some sort, but a drop below 1.2744 (the purple A) would officially kill off the purple harmonic pattern potential (Point C must be higher than A.)

If that should happen — which it appears to be the case — then the yellow pattern takes control. While the .786 looks like a tasty target, the fact that Point B came in a little less than the .618 means a Bat Pattern down to the .886 (1.2231) is more likely.

I’ll give DX a matching purple acceleration channel that points to 84.527 (the yellow 1.618)…

…and we’ll see if SPX can’t manage to top out at 1660 (small white .886) before turning back down this morning.


SPX did, in fact, put in a nice reversal at the .886 as DX was bottoming and EURUSD was topping. But, it hasn’t yet punched through the rising white channel bottom.

Until it takes out 1650.88, this pattern could serve as the start of a Crab Pattern that completes at the 1.618 (1668.05.) So, we’ll keep an eye on that, and place stops for our short position around 1661.50 just in case.

On a positive note, it appears the candles printed this morning are more or less parallel to the little red channel from yesterday — meaning we might actually have a falling channel on SPX.

And, while I’m jinxing the last remaining bearish scenario, let me extend my heartfelt thanks to those bears who formally and publicly capitulated yesterday on these pages. It was your sacrifice that made this 10 point downturn possible. We shall forever be in your debt.

Please be assured that we will always welcome you back with open arms — even if it spells financial ruin for the rest of us.

UPDATE: 10:35

Here’s a quick big picture look at the dollar — which also has bigger fish to fry in the event it can reach our intermediate objective. Recall that it completed that nice little Bat Pattern at the purple D-1. But, the real prize would be if the pattern extends to D-2 (purple 1.618), which just happens to line up with the white .886.

DX topped out at 84.22 yesterday. A push beyond 84.245 (purple X) officially kills off some important downside harmonic targets and greatly increases the odds of a push to 87.076.

I’ve been talking about DX 87 for a long, long time. It’s still out there, my great white whale. There have been many crash set-ups that might have propelled the dollar that high.

There’s another one setting up right now, that should get under way within the next hour. Anyone interested in playing the downside should prepare themselves right now.

We’ll take a quick look around at other indices to see if they’re in a similar position.

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