The Storm Before the Calm

November 12th, 2012
in contributors, forex

by Pebblewriter

pebbleLast Friday's action wasn't terribly reassuring for bulls or bears. SPX's dip to 1373 on the opening was largely a carry-over from Thursday's decline. And, from a technical standpoint, remaining above the May 2011 high of 1370.58 was net positive. The surge to 1391.39 eased traders' fears, but they quickly returned when SPX erased most of the day's gains by the close.

Follow up:

Click on any graph for larger image.

Today's action was what we would expect for a holiday weekend, with prices oscillating about the SMA 200 most of the day. SPX is still attempting to break out from a falling wedge -- which would be more convincing if SPX would first completed a bullish Bat Pattern and a proper A-B-C move down to 1375.12, but it's not necessary.

There's perhaps a 50:50 chance we'll move slightly lower before reversing. Note that on the small purple pattern, 1370.63 marks the .500 retracement of the 1266 to 1474 move. Right there with it is the .886 (red pattern) of the 1354 to 1474 rally -- at 1368.31.

Click on any graph for larger image.

As SPX is poised for a bounce, so is the dollar poised for a dip -- having already reached our Point D target (Crab Pattern), but still lingering. While the larger trend remains positive, we should see a pullback to at least 80.30-80.40, with greater potential down to 79.55.

And, the EURUSD is likewise almost due for a breather. It has completed a small Butterfly Pattern to the 1.272 at 1.2711 (the red pattern), though a dip to the 1.618/.500 combination at 1.26 -- in the proximity of the red channel bottom would make for a much stronger case for a reversal.

Click on any graph for larger image.

Our analog remains on track, with a high probability of some consolidation in this price range before the next big move -- which will likely catch many off guard. But, it's the move after that one which will pack a wallop.

The trend for the next 7-10 sessions is quite positive, with potential up to around 1430. Afterwards, though, prepare for a strong sell-off into the end of the year.

Click on any graph for larger image.


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