pebblewriter

Year: 2012

  • AUDUSD Update: Dec 18, 2012

    The chief elements of the AUDUSD long-term chart are its channels.

    Over the past several years, AUDUSD has been a pretty good reflection of equity market performance.

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  • Charts I’m Watching: Dec 17, 2012

    We got the bounce we talked about Friday afternoon, coming at the .618 of the last move up (the Crab completed Wednesday, in red) as well as the last wave down (in white, below.)

    We discussed not playing this bounce until SPX has cleared 1420, which it did this morning.  Even so, I would be cautious in chasing after it.  While the potential is to 1429-1435, as detailed Friday, this is almost certainly just a bounce — nothing more.  And, the next wave down will be swift and severe — particularly if AAPL continues to show weakness this morning.

    For those who opened a small protective position as we discussed Friday, the two most likely upside targets are a yellow channel line or a significant Fib retracement of the last wave down.

    The tightest version of the yellow channel is shown below.  This version ignores the last 10 points of the mid-November plunge.  A stop at the 25% channel line would mean a bounce to only around 1423 — not much of a back-test for the just broken white channel or rising wedge (in purple, below.)

    But a better fit, IMO, would mean including all of the mid-November bottom.  Under this scenario, the yellow channel midline at around 1428 (the purple .618) would be the more likely lower end of the range for the bounce — with a full .786 or .886 (1432-1435) retracement representing the upper end of the range.

    If AAPL gets a bounce at 500 this morning, look for this scenario to play out — with SPX’s bounce forming a nice A-B-C wave into the shaded area below.  A stop in the shaded target area would get the downside going, with the next stop around the white .886 around 1402.

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  • Forecast Update: Dec 17, 2012

    April 11 seems like a long time ago.  It was then that I laid out my forecast for the top we’ve formed [see: New Analog I’m Watching.]  As regular readers know, it was based on a combination of channels, harmonic patterns in price and time, a huge rising wedge, and a promising-looking analog.

    I made several adjustments along the way — revising the 1314 downside target to 1295, for instance.  However, on June 1, when the SPX surprised me by dipping below 1292, I posted that the bottom was at hand — but that the analog was probably broken [see: Why I’m Buying.]

    SPX did indeed bottom the next day, but the chop over the remainder of June convinced me I was probably right about the analog being broken.  We saw no such chop in the comparison period of Mar-Apr 2011, which was a fairly orthodox A-B-C pattern higher to an unorthodox 1.272 extension of the previous decline.

    But, as SPX approached the key 1472 Fib level (88.6% of the 1576-666 2007-2009 decline), it occurred to me that:

    1. SPX would naturally reverse at this Bat Pattern completion [World According to Ben]
    2. This reversal would intersect with the 1.272 extension of the previous decline.

    Despite the huge differences in form between the Spring of 2011 and Summer of 2012, the ultimate price movement was shaping up to be the same.  And, it was happening without a Point B reversal at the .786, which is required of an ordinary Butterfly Pattern.

    This was enough to get me wondering if I’d given up on the forecast too soon.  Sure enough, we nailed the 1474 high on Sep 14 which, after nailing the Apr 1422 high and nearly so the June 4 1266 low, boosted performance to over 60% in less than six months.  The move down after 1474 played out very much according to plan.

    So, by the time I posted A New Old Analog on October 26, I had discovered why the forecast seemed off track in the first place.  It was a great help in forecasting the remainder of the year.  Here’s the forecast from that Oct 26 post, with alternative prices at each turn:

    And, here’s the actual price action overlaid on that same forecast.  We’ve tagged Point A of the first turn, Point B of the second, and overshot Point B by 10 points on the third.

    Does last week’s overshoot of the most recent target spell trouble for the forecast?

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  • Charts I’m Watching: Dec 14, 2012

    We’ve had a decent push down so far, coming pretty close to the .618 mentioned yesterday (1413.65) for the first bounce.  Bulls will see this as the formation of another potential IHS right shoulder.  Personally, I prefer the glass-half-cracked view — another traditional H&S (purple neckline) as we discussed yesterday (3:45 update.)

    I spoke with my local congressman last night, and apparently most of D.C. has already cleared out for the holidays (great gig, right?)  Some of that is posturing, of course, but clearly we are slipping closer to the point where a budget deal can’t/won’t be done — assuming the dem’s were ever willing in the first place.

    Given the current political climate, going over the cliff might be the only way possible to reduce spending and raise taxes.  There are many in both parties who openly support the idea, and probably many more who secretly support it.

    It makes sense.  Politicians know we need to balance the budget.  But, they also know their careers will be damaged if they vote for tax increases or spending cuts.  Could be that all the negotiating back and forth is for show, so neither party can be blamed for the hit to the economy that a balanced budget will necessitate (or both will be blamed, depending on your POV.)

    I’m not advocating one side or the other, mind you.  Our fearless leaders (in both parties) threw us all under the bus years ago, spending much more than we could afford in order to curry favor with those who could ensure their continued employment (lobbyists, special interests, etc.)

    Social Security, for instance, has been on an unsustainable path for decades.  When was the last time you saw a mainstream politician filibuster for a benefit cut or a tax increase?  Don’t hold your breath.

    I merely point out the obvious — any potential debt reduction requires that revenues go up and/or spending come down.  Theoretically, the economy could grow its way into higher revenues as business conditions improve.  Some advocate lower taxes as a means of stimulating growth, the “trickle-down economics” advocated by Reagan in the 1980s.

    But, it’s hard to discuss such things without the discussion devolving into politics — a subject I never touch on this blog.  There’s a decent, relatively non-partisan discussion on trickle-down economics on Wikipedia.  Suffice it to say that our system ain’t working so well, and something’s gotta give.

    UPDATE:  12:00 PM

    We just got the tag of the .618 mentioned above.  Normally, I’d look for a substantial bounce here.  But, the latest H&S pattern argues otherwise.  Bit of a quandary for traders.  To play the bounce, I’d be cautious and wait for a push through 1420, potential target up to 1429-1435, tight stops.

    The bullish argument is an adjustment to the channel rather than a breakdown (yellow vs white).  It’s the same very steep slope as that formed from Nov 2011 to Feb 2012.

    As discussed above, we’ve formed half the right shoulder of a slightly different IH&S pattern (above in purple) that targets 1544ish.  Could it play out?

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  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Charts I’m Watching: Dec 12, 2012

    In widespread anticipation of the Fed broadening its accommodative stance, the dollar poked down through its proposed (white) channel overnight.

    While the EURUSD is back-testing its recently broken rising channel.

    With expectations high that the Fed and Congress (some of you might have heard recent talk about the so-called “fiscal cliff”) will deliver, the cost of any disappointment could be very high indeed.

    The Fed is expected to replace the upcoming expiration of Operation Twist with new bond purchases, bringing the monthly total to $85 billion (including MBS.)  Whether QE was worthwhile or not is a question for future history books.

    But, there’s no question that each round has resulted in diminishing returns for the market — witness QE3’s paltry 40-pt gain on SPX.  Unfortunately for the Fed, they were up against a worthy foe — a well-established Bat Pattern that snuffed out the rally as we expected [see: The World According to Ben.]

    After the subsequent 130-pt decline, SPX is almost back to its pre-QE3 price level. I find it interesting that, yesterday, 60-min RSI tagged the top of the channel line formed from that brief rally.  It’s all the more interesting that it did so in the form of a back test of the channel that contained the rally from 1343 — and failed to break the previous (Nov 2) high of 1434.27.

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  • Charts I’m Watching: Dec 11, 2012

    Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.

    The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target.  Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time.  With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)

    The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched.  I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.

    The slope of the white channel could potentially be shifted, as illustrated by the above chart.  But, it would take a break out to reach the next higher Fib levels.

    A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)  In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher.  If it can hold the channel, the next move up should be explosive.

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  • Charts I’m Watching: Dec 10, 2012

    The market continues to walk a tightrope between another leg up and a very significant tumble.  We’ve been here many times before in the past year, and it isn’t getting any more fun.  To recap…

    We remain short from 1423 on Dec 3 [see: Without a Net].  This was target A established in our Oct 26 forecast [see: A New Old Analog] and can be seen in the original chart below.

    Note that 1423 was very close to the .618 retracement (1424.41 on the white grid below) of the 1474 – 1343 decline.  Prices reversed there as we expected, shedding 25 points to 1398 in its first wave down (in line with our forecast of 1400.)

    That .618 retracement of the 1474-1343 wave down portends one of three outcomes:

    1. the bearish case:  a corrective wave 2 which sets up a more powerful wave 3 down
    2. the bullish case:  the first of a series of impulsive waves to new highs
    3. the middle case: the “A” subwave in an A-B-C corrective wave that points higher before wave 3 down.

    The first case is pretty clear cut, and has been detailed in prior posts.

    The third is also pretty clear, as the .618 retracement to 1423 could be merely a Point B in a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)

    If SPX blows through 1425, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    The big imponderable is case #2.  The top question I’ve received over the past week is whether a fiscal cliff deal would result in such a move.  It’s pretty easy to imagine that sort of a market reaction, even though — like last year’s debt ceiling compromise — it would hardly be justified.

    One thing is indisputable:  deal or no deal, we’ll get higher taxes and lower government spending.  Any combination of the two will negatively impact GDP.   By the same token, though, any deal would almost certainly mean a bump in prices.

    UPDATE:  11:50 AM

    Last Friday, SPX came within 48 cents of retracing .886 (1420.82) of its 1423.73-1398.23 decline.  This morning, it sealed the deal, reaching 1421.64 and completing the Bat Pattern.

    In the process, though, it tagged the neckline of the potential Inverted Head & Shoulder pattern we discussed Friday.   The pattern, if it plays out, targets 1507ish.  For the pattern to play out, we’d (at least) want to see a close above the shoulder line at 1420.80.

    But, it’s important to point out that not every IH&S pattern plays out.   Sometimes, it’s just market makers trying to shake things up a little bit.  Here’s one that didn’t play out last year, for example.

    Suppose we went up and tagged the actual .618 at 1424.41 for instance.  It’d be easy to see it as the bullish case playing out, what with a higher high and all.

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  • Update on Financials: Dec 7, 2012

    The last time I devoted an entire post to financials [June 5: So Crazy, it Just Might Work] XLF was down nearly 19% from its March highs.  I held my breath and made some ridiculously bullish predictions.

    But, all good things must come to an end, and I think the tide is turning for financials.  Don’t get me wrong…I still think they’re dead meat in the longer term.  I just think we’re looking at a sizable bounce here and now if — and let me be clear, it’s a very important IF — the rumors are true and Kumbaya Banking and Quantitative Whatever are back.

    If not, this entire exercise isn’t worth the bytes it’s written with.  The financials, along with just about everything else Bloomberg quotes, will roll over and die.  OK, with that huge caveat out of the way — and before you laugh me out of cyberspace — here are my targets:

    JPM:  today’s close = 31.99, price target = 38.69 (+21%)
    C:       today’s close = 25.75; price target = 34.79 (+35%)
    BAC:    today’s close = 7.10; price target = 11.34 (+60%)

    Turns out that was the low for both JPM and C.  JPM reached our target on Sep 6 and tagged on an additional 5 points by October 17.  Citi reached its target on Sep 14 (same day SPX peaked) promptly dropped 10%, then rallied another 3.5 points to form a nifty little double-top on October 18.

    BAC was my one disappointment.  It had achieved a nice 38% return when it peaked at 9.79 on Sep 14, but had fallen short of my price target — a Fibonacci 61.8% retrace of its 68% 2011 plunge.  Apparently I had been too optimistic.  Or, so I thought…

    Don’t look now, but in the past couple of days BAC has shaken off its laggard status and is once again spiking higher — trading within 66 cents of my June forecast.  As has been widely reported, call option buying is going through the roof.

    Sadly for those speculators, though, it’s going to take lots of unicorns farting rainbows for those calls to pay off very big.  Why?

    Reason #1:  Yep.  Two Crab Patterns pointing to the same conclusion — a reversal near current prices.

    Reason #2:  Uh-huh.  Rising wedge, plain as the note on your place.

    Reason #3:    Bad channel karma everywhere.  Maybe those call buyers don’t look at charts much?  Yikes!

    Reason #4:  How about a Fib .382 reversal?  It’s not usually the end of the world, but it is a Fib. And, it’s surrounded by a bunch of little channels that are about as cute as a pack of Dilophosaurus.

    I’m not going go all negative and start talking about the massive fundamental problems BAC faces — as do most other banks.  But if BAC hasn’t done its thing by the time the market does its mama bear crash here over the next few weeks, it’ll be a couple of months before it gets another shot.

    If it’s lucky, the sell-off will only be to 9.12.  But, it the white channel mid-line doesn’t hold, you could through another point or so on the fire.

    What does this mean for the rest of the financials?  Think in terms of a downdraft on Monday.   XLF needs 8 cents to reach its .786 (or .21 for the .886), which ought to get the party started to the downside.

    JPM needs .47-.61 to reach a prime target for reversal — either 43 or 43.14.

    And, C has about 44 cents of life left in it;  38.19 oughta do it.

     

    When it comes to significant moves, financials often lead the broader markets.  Fortunately for our forecast, they are only one good pop away from being ready for a slide.  Having them on board in the next session or two should get us where we want.

  • Last Call: Dec 07, 2012

    Feeling pretty jazzed, as things should finally get underway today.  Today’s theme music from the late jazz great Dave Brubeck, the last of his kind.  This track features Brubeck, Paul Desmond, Eugene Wright and Joe Morello doing what they did best — laying down some hot licks.

     

    ORIGINAL POST:   9:15 AM

    Though the jobs numbers will give a boost to the market this morning, it shouldn’t be enough to break to new highs.  SPX should come within a few points of completing an inverted H&S pattern, but ultimately fail near the .786 or, more likely, a little Bat Pattern at the .886 (1420.82)

    For anyone who missed the opportunity to go short when SPX nailed our upside target [see: At Last] on Monday, this could be your last chance.

    The rally from 1343 has felt strong, but it’s no more than a back test of a broken channel. The next major move should be much lower.

    As always, stops are advised in the event the pattern completes.  Though this analog has worked beautifully since last April, they all fail eventually.

    BTW, the jobs numbers from BLS weren’t quite as fab as they would have us think (I know — I’m shocked, too.)  In the last four years, those over 55 have scored decent job growth.  Younger workers and those in their earnings prime — not so much.  From Zerohedge:

    UPDATE:  11:45 AM

    The dollar has been a veritable billboard for harmonics lately.  It completed a Bat Pattern back on Sep 14 (red pattern), retracing .886 of its rally from February to July.  Since then, it’s retraced 50% of the drop (not shown, but a Bat Pattern from Aug 28 channel mid-line break.)

    It then proceeded to complete a Crab Pattern (in yellow), reversing at just beyond the 1.618 of 81.138 in mid-November.  Since then, DX formed a nice falling wedge that saw it complete a Gartley Pattern on the 5th (in white.)

    Some might see the purple and red patterns as having further downside potential.  The red Bat could go on to form a Crab down at 74.335 (which would line up nicely with the purple .886 at 74.158.  If our analog/forecast busts, I’d say that’s a good possibility.

    But, it’s hard to ignore the recently broken channel for EURUSD.

    UPDATE:  1:20 PM

    Stocks reversed nicely from this morning’s high, which came within  48 cents of our 1420.82 target — good enough for government work.

    Lots of excitement about financials the past couple of days.  It was certainly one of the hot sectors today, offsetting generally poor results from services and, of course, AAPL.  When it comes to significant moves, financials often lead the broader markets.

    So, in a period when we’re looking for a sizable sell-off, it would be helpful to have the financials on board.  Fortunately for our forecast, they are only one good pop away from being ready.

    For more, check out today’s Update on Financials.