As discussed very early this morning, the H&S Patterns on SPX and ES have completed.  The downside course is clear. The neckline is the same slope as all the other juicy H&S Patterns of the past few years (really!) and it bears a strong resemblence to the H&S Pattern of

SPX came within 10 points of its Fibonacci target — same as occurred in April 2010 and May 2011 before those big downturns.

SPX already broke the Dec 4 and Nov 20 lows, so the bullish harmonic scenarios are rather limited.  ES, on the other hand, stubbornly refused to play ball — staying north of 1774.50 until just a moment ago.

It finally cut loose, only to stop way down at…wait, 1771.75?  That’s not even 3 points.  It isn’t even a Fib level, for crying out loud!  Or, is it?

Turns out 1771.75 is one of those magic numbers that the bulls are hoping can turn the tide.  It’s also one of those moves that MM’s live for, that are so meticulously well-planned that they separate all but the most paranoid traders from their hard-earned money.

continued for members…The decline from 1812.50 to 1771.75 creates a potential Crab Pattern, the 1.618 extension of which is 1837 — the eminis’ Big Butterfly equivalent of SPX 1823.

If 1721.75 should hold, it’s pretty easy to see a path to 1837 around the end of the year.  This is important, of course, because TPTB want to be able to impress on us just how profitable buying their stock can be.  What better way than to end the year up 28%?

I know what you’re thinking.  What if — right this very minute — Jamie and Lloyd are explaining to Janet the way things have to be…and she’s hesitating?  Is there any way they could impress on her the importance of keeping the printing presses going?

I’m glad you asked.  The narrow channel that’s funneled prices lower so far — if left to its own devices — would land at 1721.44 by Dec 16-17.  A 1.272 extension from there would land ES at 1837.

Note: I have it drawn on Dec 27 at the red channel midline, but it could just as easily be on Dec 31 at the bottom (a backtest) of the broken purple channel.  I actually like that scenario even better, as it reminds me of another favorite New Year’s Eve treat in 2007 — repeated courtesy of an analog in July 2011 [see: Happy New Year!]

Here’s how that might look:

Pretty simple, really.  Let the H&S play out, maybe a bounce at the red channel bottom/red 1.618 combo to backtest the neckline, then southward to 1721.  It’s the purple 2.24 extension, the red 2.618 extension and about a 50% retracement (grey) of the rise from 1640 on Oct 9 (the birth of the purple channel that just broke down.)

If only there were some important catalyst scheduled for that time period…say, an FOMC meeting and Janet’s first press conference.  Do you really think she wants to explain to the world why the market is tanking?  I don’t either.

I know, I’m a cynical bastard.  I’ve heard it before.  But, ES still hasn’t pushed below 1771.75…

UPDATE:  2:40 PM

So far, so good.  Just backtested the grey channel after a breakout, setting up an IH&S that targets 1791.50 or so.  More importantly, ES is back above and just backtested the red neckline.