Charts I’m Watching: Sep 6, 2013

The e-minis have reached the .886 retrace of the small drop from yesterday’s Gartley Pattern completion.  But, the pattern is more conducive to a Crab Pattern, which extends to the 1.618+ rather than a Bat Pattern due to the obvious Point B at the .707 (a Bat requires that it be <.618.)

An extension to the 1.618 would put the larger pattern in the running for a Bat Pattern at its .886 of 1662.63.

DX continues to show strength, having broken out of and now backtested the falling purple channel.

The USDJPY has fallen back inside the white channel. It has been backtesting the purple channel midline for several days and has failed, so far, to punch through the psychologically important 100 level.

Next move should be to backtest (at least) the red IH&S neckline at 98.53.

NFP coming up…

UPDATE:  8:33 AM

Crappy numbers: 169,000 vs 180,000 estimates.  However, the participation rate dropped to 68.3% — the lowest since 1978 — so, unemployment dropped from 7.4 to 7.3%.  This top line number should give the Fed additional cover to begin tapering this month if they so choose.

The e-minis took the opportunity to bag that .886/1662.63 Fib level, so the market should start backing off from here.

The dollar briefly sold off, only to get a strong bounce off the purple channel again — another back test.

The 10-yr, which reached our target range from several months ago yesterday, backed off slightly on the news.  It still has the potential to tag the .618/1.618 combo at 3.013-30.17, but for all intents and purposes, it should be close to an interim high here.

If the futures can hold their gains for another 30 minutes, look for SPX to pop to the grey 1.618 at 1662.44 or the purple .886 at 1664.72 on the opening.  It shouldn’t last, but I can’t discount the possibility that SPX will tag the top of the white channel (the .500 at 1668.42?) before turning south.

If so, it would set up the dip from 1669.51 as the head in a good-sized IH&S Pattern targeting the 1709 highs after a drop Monday to 1643 — the large purple channel bottom — to establish a right shoulder.

If so, that channel top tag could come late in the day.  I’d be long on the opening and ride the rally as far as it’ll go.

While I’m thinking about it… I’ve been battling the disadvantages of the S&P 500 index as a forecasting tool since I started the predecessor to this blog back on May 2, 2011.

It works fine during the trading day, but as any regular reader of this blog knows, too much happens overnight (ramp jobs) in the futures markets for SPX to work well 24/7. It’s the bane of every cash market investor who dares to hold a position overnight.

For that reason, I will be focusing more on the eminis going forward — both in trading and in forecasting.  They are quite liquid, do a better job of following the chart patterns and harmonic patterns that I use, and offer the ability to set stops overnight that actually mean anything.

They are a futures contract, to be sure.  And, investors can use them to greatly leverage an investment if they so choose.  But, as I’ve said many times on these pages, our strategy does not lend itself to using leverage.

I’m always looking for turning points.  When we’re right, life is good.  When we’re wrong, we might take a 1/2 or 1% hit before being stopped out and switching sides — no big deal.  But, for an options or leveraged futures trader, being wrong regarding a turning point can wipe out your portfolio.  Don’t do it.

I will use them on an unleveraged basis only in our new fund and in forecasting the markets in these pages, and would suggest the same to anyone who asks.  Beginning next week, look for daily charts and forecasts to focus more on ES.

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