Charts I'm Watching: January 5, 2012

UPDATE:  1:40 PM

I've been doing a lot of work with RSI lately -- particularly with trend lines and, today, looking at harmonics.  I was somewhat surprised to see that relative strength moves in harmonic patterns just like underlying stocks.

The past three major turning points (P2, Minutes 2 and 4 of Minor 1) came as RSI completed a Fibonacci .886 retrace of the previous decline.  Now, as we're trying to determine whether Minor 2 is over or in the process of ending, it's very interesting that RSI is, again, approaching the .886 of its recent decline.

I know this chart is a little busy, so I've split it into two parts:  the first shows the time periods involved and the second expands the RSI study pane to better show the Fibonacci retracements. 

As of 1:55 PM, RSI stands at 61.5 versus the .886 target of 61.9.   It's also hard to miss the fact that it's closing in on the red dashed overhead trend line that's marked the past five significant reversals.

***

After a 12-pt drop, SPX has recovered for a 5-pt gain.  But, we've clearly broken the channel that was guiding the upside since Dec 16.

With this last little spurt, SPX tagged again the major channel midline (yellow, dashed), completed a double top (triple if we count 1292) and completed a little Butterfly pattern that looks ready to reverse. 

In the meantime, EURUSD broke through the latest diagonal, completed its Butterfly to the 1.272 extension...so far.  As we've seen lately, these things can and do extend to the 1.618 which would be 1.2723.

XLF, which we've been watching for the past few days, touched it's descending broadening wedge upper bound today, reaching 13.55 (versus our 13.65 Gartley target.)  That could be the end of the run, or we could get one last push up to 13.65 before the downturn.  Stay tuned.

ORIGINAL POST:

Setting aside all the noise and confusion, the market still hasn't managed to break 1288-1292 -- the mark necessary to signal a move higher to 1307.  So, for now, we're left with a 1292 Minor 2 top followed by a .886 minute [ii] retracement of a 130-pt minute [i] of Minor 3 down. 

If we break 1288-1292, then Minor 2 gets moved over to that new high, and we look for the beginning of Minute [i] of Minor 3 down.  Either way, the market is set to tumble significantly from either here or slightly higher than here.