ORIGINAL POST: 10:05 AM

I’m a bit surprised the Plunge Protection Team didn’t protect 1292 (but I imagine it means a Fed governor or the Bernank himself will be making an appearance sometime this morning.)

I had set a mental stop level of 1295 yesterday, given the ongoing weakness in the euro and inability of the market to close positive on the day.  Two schools of thought going into the NFP release this morning: (1) that they would manipulate it upward, as usual, or; (2) that a brutally honest (hence, depressing) number would clear the decks for QE.

I think the enormity of the miss (69,000 vs 150,000 expectations) clears the deck — and then some.  From a charting standpoint, it doesn’t hurt that we just completed a bullish Crab pattern at the bottom of a pretty convincing looking falling wedge with the SMA 200 just below current prices at 1284.56.  So, I not only lifted my remaining stops as the market fell this morning, I am buying more here at 1287.

It also helps that the dollar and euro reversed sharply this morning post announcement. Currency markets are often smarter than equities, or so the story goes.   Guess we’ll find out shortly.

UPDATE:  11:25 AM

This morning’s plunge clarifies the harmonic picture, while damaging the analog — probably irreparably. In 2011, there was no additional lower low after the initial bottom.  Time wise, also, this latest departure would be almost impossible to make up.  So, I’ll reluctantly bid the analog good bye, for now.

Can’t be too upset, as it was good for 20% + returns since inception.  I’ve been working on another interesting one that I’ll post this weekend.

The harmonic picture which, as we discussed yesterday, was a bit muddled to the upside — with multiple Points D, none of which were very much in common.   Remember, we like synchronicity in harmonic patterns; it’s one of the ways we get confirmation.  Note the Points D are all over the map.It’s also important to note that since this morning’s low is lower than the 1291.98 presumed Point A of the patterns we’d been watching, those patterns all need to be redrawn.  I’ll post them later this morning.

The harmonics in the other direction are much better aligned.  This morning’s lows represent a very strong synchronicity:

• 1.618 on the yellow pattern
• .618 on the purple pattern
• .500 on the red pattern
• .382 on the pink pattern

Assuming we get a turn here, it will most likely count as a Point D for the yellow pattern and a Point B for everything else.  The implication is for a bounce higher to establish a Point C, and then a reversal to a new low (Point D) where the entire pattern completes.

The purple pattern’s .618 Point B would argue for a Gartley pattern, which completes at the .786 (1249.45) or a Bat pattern, whic completes at the .886 (1227.45.)

The red and pink patterns would regard this morning’s low as Point B in a Bat or Crab pattern.  Bats complete at the .886 (1188 and 1114 respectively) and Crabs at the 1.618 (off the chart, but 995 and 889 respectively.)

More shortly.

UPDATE:  2:15

A little more downside strength than expected, but there’s an important RSI TL (#7) that might stop the bleeding.  Going to load a few more longs here at 1277.50, and throw a 1270 stop into the mix in case things get out of hand.

Note that RSI TL #7 stopped several big plunges:  April 15, 2011 (95 points), September 22, 2011 (106 points) and November 23, 2011 (130 points.)

The Fib levels between here and 1422 fit pretty well with a low of 1277 or so.

I’m not a fan of playing catch the falling knife.  I’d probably stay away if I didn’t have: (1) lots of profits “in the bank” from the past couple of months; (2) a pretty good feel based on the weekly and monthly charts I’ve put up the past few days; and, (3) a sense of real capitulation for a change.

Bottoms are messy, and Fib-based patterns rarely stop on a dime — particularly when momentum gets going.  But, this is looking more and more like a bottom, regardless of the final stopping point.  But, a drop through 1270 gets me to the sidelines, doing some serious reassessment.

Between the jobs report, ISM numbers, euro zone problems, etc. there is plenty of evidence that the problems are serious and broad-based — as we’ve been discussing for quite some time.  But, I think it takes a serious plunge like this to get the QE naysayers on board.  When all parties are begging for central planning, that’s when it becomes politically viable.

The Fed meets June 19-20; but, I’d be surprised if we go more than a few hours without some comment from 20th and Constitution.  Gold, up over $60 on the day, sure seems to think so.