Charts I’m Watching: Aug 30, 2013

Back in Carmel, where today’s high temperature should be a perfect 70 degrees (21 C.)  LA was great, but I had all the 105 degree days I need for a while.  Best wishes to Bella and Ed on their nuptials.  Thanks for including me!

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SPX reached our 1636.81 reversal target as expected yesterday afternoon.  The eminis are up 3 pts this morning on disappointing economic news (bad is still good), so shorting at 1644 and going long at 1636 appears to have been the right decision — for now.

As we discussed yesterday, a reversal at the red .786 might have been a set up for a bearish Crab Pattern down to 1620.84.   If so, prices should stay south of 1646.41.   We’ll watch to see how the market reacts to Chicago PMI at 9:45 and Michigan sentiment at 9:55 AM.

Stops at 1636 just in case, as a reversal at the .618 could also produce a Gartley at the .786 or Bat at the .886.

The dollar reached the purple channel’s upper bound as expected — also the midline of the falling white channel and the rising red channel .146 line.  Also note the completed IH&S Pattern.  To say this is a critical moment for DX is an understatement.

UPDATE:  10:02 AM

Stopped out on the long position, so I’m switching to short here at 1636.

As mentioned above, there’s a good chance of some serious whipsawing here.  Completion of a Gartley or Bat Pattern would mean another reversal at 1634.20 or 1632.65, which would establish nothing until we get a breakout or breakdown.

A drop below 1630.88 would help the 1620.84 scenario.  Note the grey 1.618 in the same vicinity (1621.28) as the red Point D.

Right now, SPX is sitting at the bottom of the purple channel.  So, the downside could pick up steam quickly if it’s breached.

A breakout above 1646 would be a great start for the upside, but the direction wouldn’t be all that clear until we top 1669.51.

The 60 min RSI isn’t all that helpful.  The red channel is bearish, while the purple is bullish.  Based on this chart, my preferred view is a strong intra-day dip to the purple channel bottom on positive price divergence, putting in a distinctive bottoming candle for the day at 1620.

But, it is the last trading day of the month.  Wall Street hates to close out a month on a negative note (bad for business.)

The daily RSI shows strong potential support at the bottom of the red channel that dates back to the 2011 lows.  No divergence there, as the tags have come at increasingly higher prices.  But, the low on Aug 27 followed another two quite closely — the first time that has happened in quite some time.

At the same time, RSI was tagging the bottom of the falling white channel, which shows nothing but divergence. The succession of lower lows in RSI accompanied much higher lows on SPX: from 1401 on Dec 28, 2012 to 1560 on Jun 24 and now 1645, 1639 and 1629 on Aug 19, 21 and 27.

Similarly, the three declining tags on the top of the white channel have accompanied higher highs on SPX: one each in the 1500s, 1600s and, a few weeks ago, the 1700s.

The top of the purple channel also shows plenty of divergence.  Since the Nov 2010 tag (SPX 1227) the RSI highs have continued to decline even as SPX itself has risen.

Divergence is a funny thing, though.  It can continue for a long, long time until rectified.  So, I don’t ascribe too much importance to the daily charts other than to note when RSI moves through a key channel line such as the drop through the yellow/purple midline this month — always a negative sign.

The fact that RSI went on to register two successively lower lows and hasn’t been able to break back above the midline is also negative.  The fact that it’s occurring in the context of higher rates, tapering, a looming deficit battle, etc certainly raises the stakes.

UPDATE:  11:15 AM

SPX just tagged the grey .886 and bounced.  Keep an eye on the falling white channel for signs of a break out.

Also, remember that 1620 itself isn’t the most likely target if SPX does take a dive.  The purple .618 is just below there at 1617.27, and — being on a larger scale — makes a much more appealing target.

And, if such a dip didn’t recover intra-day, our A:B = C:D scenario starts to make a log to sense.  An exact replay would put SPX at 1582 on Wed Sep 4 (the yellow D.)  It’s a 3% move (each way), so I’d really like to see it play out.

In fact, short of a break out today, I’ll probably go into the weekend short in order to be positioned properly (not recommended for nervous types, hedging recommended.)

UPDATE:  1:15 PM

Backtesting the purple channel bottom?

UPDATE:  3:55 PM

I’m tempted to hold short over the weekend.   The near-term looks quite negative from my standpoint — with those 1617 or 1577 targets looking particularly tasty.  But, I’ll cover my shorts here at 1631 and go to cash over the long holiday weekend just to be on the safe side.

I’ll write more later.  Have a great weekend everyone!

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Charts I’m Watching: Aug 30, 2013 — 2 Comments