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Monday, May 23, 2011

Skating on Thin Ice

Putting together the harmonics with important support and resistance levels, I'm looking for the Apr 20 gap to be filled, then a strong rebound, reaching the 1350 area in the next few days.  I still have a target of 1380 as the end of P[2], but am looking at the possibility of a truncated fifth at 1350-1355, depending on how the next few days play out.

If we rebound off the 1312.70 gap low, it would appear that the 1370 high from May 2 was the 87-day cycle high, with a 4.2% decline -- at the low end but within the range established over the past 4 years.  But, the cycle's declines average 11.4% within the first 30 days, so it's also possible we'll see further declines within 30 days (by June 2) that could reach the theoretical target of 1214. 

I'm watching the primary rising wedge very closely.  The end of May marks 2/3 of the time span from 2/18 (when the rising wedge began tightening) to its apex in late July/early August.  Today, it intersects with the channel from the May 2 top.

A close above 1319 today keeps us within the channel and the rising wedge, and should result first in a rebound to the upper end of the channel (1339), then potentially the wedge (1372.)  With so many anticipating the .786 fib target of 1381.50, and the overwhelming bullishness that would accompany a strong rebound from this scare, I would not be surprised if we ultimately fell short of it.

But, eventually we will.  The wedge's range began at 530 points in Mar '09, diminishing to 270 by Apr '10, 100 by this past February and currently stands around 50-60 points.  By comparison, the range of the rising wedge that produced the Oct 2007 high started at 265 points in Mar '03, shrinking to 210 by Jul '06, 120 by Jul '07 and 100 just before the market crashed.  Over 4 years of gains were wiped out in 17 months.

You can almost feel the market tugging at the constraints.  Today is only the 7th time in the past 3 months that the daily range has exceeded 20 points.  In the 3 months leading up to the 2007 highs, there were 28 such days.

In comparison to 2007, we're skating on very thin ice.  The further out we go, the greater the risk.  The Fed will do everything in its power to keep us skating, but is running out of magic tricks.  Once we plunge through, even a ruinous QE3 wouldn't be able to save us.

Significant numbers:


Bottom of the primary rising wedge from Mar '09:  1319
Bottom of secondary rising wedge from Mar 18th:  1322
Bottom of channel from May 2 top: 1310.60
Gap from Apr 20:  1319.12 - 1312.70
Previous low on May 17:  1318.51
Next major prev low from Apr 15: 1294.70
50 day EMA: 1328.46
200 day EMA: 1256.48


Channel from May 2 top:  1339
Top of primary rising wedge from Mar '09:  1372
Previous high on May 19: 1346.82
Next prev highs (past three weeks): 1351, 1359, 1370
Trendline from Oct '07 high:  1328.7
Exhaustion gap from May 11: 1351.19 - 1356.19
Apex of the primary rising wedge: late July - early August at 1390-1400
Intersection of rising wedge with supercycle line:  8/31 at 1430
10 day EMA: 1336.56


Bullish SPX Gartley 4/15 - 5/17 targets 1388 this week.
Bearish SPX Gartley from Oct '07 targets a high of 1381.50 before P[3] (near term)
Bullish SPX Gartley 5/17 - 5/22 targets 1352 (poss invalid with today's open)
Bullish VIX Gartley 4/28 - 5/19 targeted 20.50 this week


Inverse H&S from May 10 targets 1370 (poss invalid w/ today's open)
Inverse H&S from 2/18 targets 1436
Hourly RSI and MACD: bottoming?  Daily and weekly declining
Yesterday's OPEX study suggests an up day, closing above 1334
Memorial Day effect:  week before has been up 4 of last 6 years

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