I was becoming seriously alarmed at the close yesterday about the possibility that my beautiful topping patterns might be broken. The close was very weak and strongly reminiscent of Monday's close, when we continued falling overnight to new lows. The contrast with the action last night however couldn't be stronger, with a very strong recovery to resistance at 1190, and with my support trendline from the low intact, albeit slightly tweaked. 

Yesterday I posted an IHS on ES and described it as sloppy, as the neckline wasn't regular and the shoulders looked poorly formed. No longer. Here it is now on the ES 60 min chart:. I have also marked in the declining channel from 1173, which will break with the neckline to reinforce confirmation that an interim low would be in:

Here it is on the SPX 15 minute chart with a rising support trendline as part of a tentative rising channel marked as well:

Now these head and shoulder patterns are just lines on a chart until the neckline has broken with conviction, and there was quite a while after the low in July last year when talking about head and shoulders patterns was an invitation to be pelted with rotten eggs by angry bears, but these patterns are generally very good performers, and I've lost count of the number of these patterns I've seen play out at the end of significant trends over the last year. That this pattern has formed is at the least extremely encouraging, and if the neckline is broken, and with it the downtrend channel from the 1173 high, then I'm convinced that we will see a very serious rally.

Other indicators are just waiting for breakout too. Here's the Vix 60 min chart with a beautiful uptrend support line. A break of that on an hourly close should give confirmation that the major interim low is definitely in.While we're waiting for that, the strong negative divergence on the RSI and MACD are a very encouraging signal that we've made it already:

CPC has reached a major high and has been trending within a broadening ascending wedge. A downward breakout from that wedge will also provide strong confirmation that the interim low is in:

I was looking at the SPX daily chart yesterday & was considering John Murphy's SPX fib retracement targets that he posted on Tuesday night. The interim low that I think we've made this week doesn't fit well with those, but then again, I'm not seeing this as a final low. As an interim low with a final target of 870, that would fit very well with a 61.8% fib retracement of the rise since March 2009:

Short term this morning, the overnight rise is looking tired, and if overnight uptrend support at 1085 ES can be broken, then we may well see a significant retracement before the open and continuing into it. I'd be very surprised to see the overnight gap filled today, though in the market we've seen over the last few weeks, almost anything now looks possible.