Charts I’m Watching: March 8, 2012

UPDATE:  8:00 PM

As all my regulars know, I love trend lines on RSI charts.  The VIX daily chart shows clearly just how valuable they can be.  Notice how clearly the yellow TLs guided VIX to its highs during the July crash.  And, the purple TLs guided it back down.  Now, we’ve broken out through the purple TLs and are following the red TLs up again.

The purple circles mark many of the important reversals, break outs, shifts from one channel to another and back tests.  Here’s a close up, showing just how effective they can be.  Any guesses as to what will happen when we next tag the red line (at the bright blue oval)?

I’ll be the first to admit that forecasting with RSI TL’s can seem a little like reading tea leaves or throwing bones.  But, more often than not, it’s helped me identify important events before they occur.  And, that’s pretty fun stuff.

Speaking of fun stuff…

I’m working this weekend to get the new website up. Take a moment to sign up as a follower of this blog; regulars will be offered preferential rates. And, while we’re on that topic, I’d like to offer the reader who comes closest to picking the price at which SPX closes on March 16, 2012 a free one-year subscription. Post your best guess in the Comments Section for all to see by this Sunday at 5pm PST.

Good luck!

Oh, and here’s a nice little article about TVIX.  Good blog in general, it seems.

UPDATE:  3:20 PM

VIX completing a back test and right shoulder for IH&S;?

Buying a little insurance with 40 TZA Apr 17 puts @ .61 (2.5%).  And, put on a straddle in FAZ with 30 Apr 22 Puts @ .69 and 20 Apr 28 Calls @ 1.33.  Total cost is 2.02, so I want prices to move below 20 or above 30.

FAZ is right up against a TL that dates back to October 4.  Its RSI has broken out to the upside.  I expect a big drop if the market rallies further, or a large increase in the event this rally is nothing more.

UPDATE:  12:45 PM

We’re pushing a little higher, topping 1365.  I suspect it’s an overshoot of the indicators mentioned an hour ago, but am watching closely.  Several positions in which we had gains are at break even.

The daily chart continues to look bearish to me.  In particular, I’m drawn to the daily RSI, which has completed a back test of the broken TL (yellow, dashed).

UPDATE:  11:30 AM

This seems like an excellent spot for the rally to fizzle.  We’ve retraced .618 of the drop from the presumed top (1378.04) and have bumped up against the channel I theorized about yesterday.  Furthermore, 60-min RSI is tagging the TL that’s marked previous tops.  And, last we’ve completed a back test of the broadening ascending wedge (megaphone) that’s formed since Feb 1, and the SMA 10 is just ahead at 1364.

I’ve added to several of my ETF positions in the model portfolio:

+170 SDS @16.21
+80 TZA @ 20.18

Initiated a new position in the bearish financial ETF FAZ:

+100 FAZ @ 25.55

And closed the remainder of my SPY Mar 135 calls for a nice gain.

ORIGINAL POST:

Lovely day for a gap and crap?

Big ramp overnight, follow-through to yesterday’s masterful ramp job that put the brakes on the downturn which began Tuesday.  Apparently, someone forgot to tell the guys at DOL — which just reported an increase in initial claims.

Ignore the seasonally manipulated numbers and focus, instead, on the raw data, which relects a 31,513 increase from the prior week.  That’s a 9.4% increase, which the markets will not like.

We discussed yesterday the possibility of a gap close from Tuesday’s plunge.  We’d need to reach 1359.13, which is going to be challenging unless the futures can hold on until the opening bell.  Eminis, which topped out at 1360, just broke their 60-min RSI TL.

On the EZ front, despite CNBS’s rosy headlines…

… ECB Presidente Supermario Draghi reports that the economic outlook for 2013 has been revised downward.  Recall that the 2012 forecast was revised from +0.3% to -0.1% a few months ago.  Now, 2013 — the year of the recovery — has been revised from 1.3% to 1.1%.  Wishful thinking, IMO.

Please note:  UVXY reflects a 6:1 reverse split today.

Comments

Charts I’m Watching: March 8, 2012 — 26 Comments

  1. Highly correlated underlying indices combined with decay inherent with leveraged ETFs.

     http://www.marketwatch.com/story/leveraged-etfs-can-be-the-best-investment-2011-10-31

  2. I got out of that FAZ trade yesterday. Actually made about 10 cents. I'm much too naive to attempt that straddle you have put in place anyway.

    I did find something I thought was interesting. If you have a look at 6 month charts for FAZ, SH, TWM, DXD … they are identical ! Why do you think that is ?

  3.  A friend of mine spent some time with one of the Fed gov's recently, and listened to the guy going on about how brilliant BB was.  My initial reaction was "what a load of horse manure."  But, the more you think about it, the more you realize how the Fed is playing the only card they've got — given the mess that the pols have created.  I can't fault them for trying to keep it afloat, as much as I hate what it's going to do to the country.

    Re your blog, very nice.  Welcome to the list of favorite sites.

  4. you gotta credit the maniacs 'at the top' for keeping this whole game afloat for this long. I am no fan of them, but…from one perspective its truly amazing.

    Now, not only have they allowed a major commodity trading firm to steal customer money – and massively reduce confidence in the system, but they also effectively destroyed the CDS market that helps to entice people to still buy the stupid Sov' bonds.

    Incredible!

    *hey Pebble, you ever visited my little page yet? Its 2 weeks old now, kinda getting into the habit of posting. Maybe you seen it, but think its so bad, you not even mention it.

    Goodnight from the city.

  5.  I've been thinking the same.  What's the value of CDS on bank balance sheets?  That's a big write down, even in the phoney baloney banking world.  Of course, they'll never have to mark to market… but WE'LL know.

  6. The one thing we know for sure — they're not going to make it easy for the bears.  "Max pain" is perfectly apt. 

    My gut tells me it's a classic "buy the rumor, sell the news" scenario like so many of the Big Fat Greek "breakthroughs."  Once they impose CAC's, it simply exposes the CDS problem — which IMO is equally — if not more — problematic, esp for the banks.

  7. PW, it looks like we created the right shoulder today for a potential H&S; pattern with neckline at 1340 and target of roughly 1300 – do you see that?

  8. PW – Thanks for your updates.  

    Jumped back in the shorts side here as the S&P; might be setting up a bat pattern off the 1/30 low of 1300 and the recent 1378 high.  The down move on Tuesday held right above 50 retrace and now were making the point C.   I'll go short here with a stop at 1378.   The target for the bat is the 88.6 @ 1308.  

  9. Sp 1368

    urghhhhhhhhhhhh

    This is really not good. We are a mere 9pts from making new highs, and then off to 1450? 1550?

    Bears either at max-pain right now – with major fall Friday/early next week), or its merely the start of a full ICBM nuke arsenal launched from bull-land.

    Difficult day.

  10. Hi PW
    So I just followed you on the FAZ trade. 
    Was your rationale the rising RSI and the SMA 10/20 cross on the 5 min chart ?
    Personally I think JPM might be down tomorrow.