Charts I’m Watching: Feb 13, 2014

USDJPY is on the move, back below the long-term TL at 102.  There should be some support at the previous low of 100.76, but the yellow channel midline is the next major test — probably today or tomorrow.

The e-minis have been stingy in giving back gains — with, so far, just half of USDJPY’s  .500 retrace of the run up between Feb 5-11.  Most important is the broken white rising channel line.  Potential support at 1801, 1793 and 1787 with major support at 1775-1777.

Still, this was a .786 retrace of the move down from 1846 to 1732 and, as such, might be complete.  Our thesis remains that EM weakness will drive yen strength relative to the dollar and dollar strength relative to the euro — a combination that, in the past, has produced some stellar shorting opportunities.

It’s also worth noting that the 1929 analog discovered by DeMark and popularized by McClellan is supposed to be playing out today.  From Spindrift Capital’s January investor letter:

From the Sep 3, 1929 top, the Dow declined for 25 sessions, then retraced 58% of its losses by session #30.  The bottom then fell out, and it lost 50% of its initial value by November 13.

By comparison, the modern-day Dow declined for 24 sessions following the Dec 31, 2013 high (25 if not for the MLK holiday.)  As of today – the 29/30th day – it has retraced 56% of its losses.  A 50% decline from its recent highs would land the modern Dow at 8,294 – erasing about 80% of its gains since 2009.

However, the analog doesn’t suggest an apples-to-apples comparison.  The 1920’s runup was much steeper than we’ve recently experienced.  The Dow quintupled, averaging 25.2% between 1921 and 1929.  That initial 25-day drop was 18%.  Since 2009, the modern Dow averaged a measley 20.6%.  And, the drop since the recent top has been only 7.5%.  So, both the price and timing are off at least a little.

In case you’re wondering, the 1929 Dow survived its 9-week 50% decline, retracing about 50% of it over the next five months – before really getting started.  By the time it finally bottomed in July 1932, it had shed about 90% of its value.  It took 25 years for prices to return to their 1929 highs.

While the 1929 analog is interesting, I’m partial to the period of 1963-1978 as a guide to the next year or two.

UPDATE:  2:45 PM

USDJPY bounced off a potential neckline and is approaching the .618 of the last little leg down as it backtests the neckline of this morning’s H&S pattern.

The key remains the red, dashed TL — which is once again below the pair.  Interestingly, DJIA is getting enough of a boost that it’s approaching the exact retracement exhibited in the Sep 1929 analog: 58.38%, or 16,069.

Note its more docile behavior relative to the irrationally exuberant SPX, which seems intent on reaching its .886 at 1837.

Even high-flying AAPL has only recouped 61.8% of its losses from 575 — backtesting the broken neckline and running into a TL from the top in the process.  Next downside target: 460-475, followed by 408 in May if the rising white channel breaks down.

UPDATE:  3:50 PM

BTW,  financials have only retraced about .618 of their losses since reaching our .500/.886 Fib combo target.

In short, SPX is going it alone based on the USDJPY bounce that — after all is said and done — is merely creating another H&S Pattern.


Charts I’m Watching: Feb 13, 2014 — 1 Comment

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