pebblewriter

Year: 2012

  • Spain Downgraded: April 26, 2012

    S&P cuts Spain two notches, from A to BBB+, based on contracting economy…cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain’s key trading partners.

    This could be the catalyst for the turn we’ve been wondering about.  It could be the difference between the H&S and analog playing out versus our top alternative.  Notice that we did break the RSI trend line identified the other day (yellow, dashed) but were stopped by the 2nd one we discussed earlier today.  Today’s high was right at the shoulder line of the H&S pattern, and retraced a Fibonacci .707 of the recent 1422-1357 decline.

    Keep an eye on the CDS and bond rates for Spain/Portugal/Italy and key regional banks.  Remember, all these rates are available right here, just go to the economics menu and select market data.

  • On the Verge: April 26, 2012

    UPDATE:  5:35 PM

    S&P cuts Spain two notches, from A to BBB+, based on contracting economy…cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain’s key trading partners.

     

    UPDATE:  3:25 PM

    Here’s a close up of the alternative path, which looks stronger with every uptick.  I haven’t altered its course since first charting it a couple of weeks ago.  Remember, it remains only an alternative until the H&S pattern busts.

    As we originally discussed, the thick, red dashed line is our target.  It’s the center line of a channel that goes back to 1935.  Really.  The rising wedge apex intersects with it at around 1462, which is the 1.618 extension of the purple Crab pattern detialed below (Point X at 1422.38).

    FWIW, it’s also the 3.000 extension of the small Crab pattern (yellow) nestled in the B-C-D legs of the larger Crab.

    UPDATE:  3:15 PM

    Interesting that today’s ramp has come without any help from the euro zone.  EURUSD continues to stall at the channel line discussed in this morning’s update on the euro.

    ORIGINAL POST:  1:45 PM

    Yesterday we examined the fact that SPX had broken a 26-session channel and was in danger of following our alternative forecast higher — the purple dashed line marked “alt.” in the chart below.  Remember, that alternative calls for a strong move to 1462-1472 in short order, while the analog calls for a breakdown first.

    We took a close look at the RSI trend line that, broken back on the 5th when the rising wedge was broken, was being back tested big time.  I mentioned I’d be watching it like a hawk, as I felt it would hold the key to which way this confusion resolves.

    As of right now, that RSI trend line is being broken.  While it’s possible this is an intra-day head fake, I’m not so sure that I’m willing to bet cold, hard cash.  Note the highlighted circle on the RSI portion of the chart below.

    And, expanded here…

    There is the possibility that the downward sloping red, dashed TL will catch it on the way up, but the yellow TL just broken was a major feat.  A close above the TL would imply a definite momentum shift.

    From a bearish perspective, one small Bat pattern that indicated more downside busted when we moved above 1392.  The larger Butterfly (labeled in red) will need its Point C moved over to today’s high, but won’t bust until/unless we exceed 1422 (where C > A.)

    From a bullish perspective, the Bat/Crab pattern marked below in purple correlates very well with the smaller yellow Crab — which, until this morning, was just a Bat.  Remember, Bats terminate at the .886 retracement, and Crabs at the 1.618 extension (or more).

    The small yellow Crab’s 1.618 is 1413.74, while the larger purple Bat’s .886 is 1414.97.  When two targets are in such close proximity, it lends additional credence — all else being equal.    Technically, we could get a move to 1414ish and still have a valid H&S pattern, but as we discussed yesterday, it puts additional strain on the pattern — and the analog — playing out, unless we see a very quick reversal.

    As we approach 1400, the market should at least pause.  It’s the original H&S “idealized” shoulder line, the 1.272 of the small Crab pattern, and a nice round number.  But, unless we reverse in the next hour and see that RSI dip back below the TL, I’m increasingly positive about a move to at least 1414-1415 to fulfill the Crab and Bat.

    Remember, this is still a back test of the rising wedge.  But, I’ve been studying rising wedges a lot lately; and, as we discussed many times [see: In a Fix], it’s not uncommon for a back test to go on up and tag the original apex — faking out all who were playing the broken wedge.

    More later.

  • Update on EURUSD: April 26, 2012

    A couple of days ago, I updated all the EURUSD charts [see: Update on EURUSD], commenting that the pair was approaching a crucial test of the channel that’s guided it for the past year or so.  With this morning’s mildly positive action, things have gone about as far as they can.

    Note in particular the dashed, red channel and the corresponding RSI trend line.   It looks more like a very strong back test than anything else.  If so, and things get going on the downside again, we should finally complete the H&S pattern (lots of those lately) and reach Point D (1.2721) of the presumed Bat without any difficulty.

    One thing of particular interest to bears is the series of fan lines from the Jan 16 lows.  Each has very clearly provided stair steps lower over the past two months.  The latest to be back tested is highlighted in yellow and happens to form half of a rising wedge over the past 16 sessions.

    This rising wedge is about 2/3 of the way to the apex (1.3335), which is also the .886 of the little Gartley or Bat that’s under construction.  We reached the .707 earlier this morning, poking just above the red, dashed channel line intra-day.

    A close outside the channel and above the RSI TL would be wildly positive for the euro; I must admit, I just don’t see that happening given the conditions in the euro zone vis-a-vis the craptastic picture everyone’s painting on this side of the pond.

    More later.

  • The Bulls Fight Back

    The market is parading around in yesterday’s Apple earnings report like a glamor queen in a mink stole.  An economy that can pump out eleventy zillion iPhones is very pretty, indeed.  Then, along comes the stink of a very disappointing durable goods report.  And, that mink stole is suddenly, jarringly out of place in this economic favela.

    It was a nice overnight ramp.  It’s taken us past the channel line we identified as key for the bears in yesterday’s analog update.   But, is this the hard bounce at the neckline we’ve been discussing?  Is our alternative playing out (the purple, dashed line) or is this yet another in an endless series of head fakes?

    Looking at the daily RSI, we’re back testing a trend line (yellow, dashed) going all the way back to last August’s lows.  We broke it on the 9th — remember that 16-pt tumble out of the rising wedge?  I’m going to watch that TL like a hawk, as I believe it holds the key to which way this latest confusion resolves.

    Bottom line, you can’t break down from an eight-month, 400-point rising wedge and not expect the bulls to put up a little fight.  That’s what back tests are all about.  It’s a case of the bulls not being ready to give up, and the bears not having enough conviction.

    Just like confirmation of a H&S pattern has its levels of certainty, so does the bust of a H&S pattern.  One key indicator to watch is whether we exceed the previous shoulder — 1392.76 on the 17th.  So far we haven’t, reaching only 1390.81 this morning.

    Another is whether this ramp causes the overall pattern to start looking malformed.  In this case, the left shoulder was very lumpy and drawn out to begin with — a complex H&S left shoulder with two touches of the neckline.  So, a complex right shoulder with two touches would actually be in keeping with the existing pattern.

    Remember, we had originally been looking for 1400 in order for the right shoulder to be proportional to the left.   We never did reach the parallel shoulder line, and so an A-B-C move to 1400-1408 would leave the pattern looking slightly better.

    The only issue with that scerario, though, is that the analog doesn’t fit as well if the right shoulder extends more than a few additional sessions.  In 2011, the H&S pattern took 41 sessions, with the left shoulder lasting 13 sessions (32%), the head lasting 18 (44%) and the right shoulder lasting 10 (24%).  Thus far, this pattern has taken 57 sessions, with the left shoulder lasting 22 (38%), the head lasting 24 (44%) and the right shoulder (so far) at 11 (19%).

    While no particular proportionality is required of H&S patterns, it is for analogs.  I’d be a little leery of the analog playing out if the right shoulder lasts too much longer.  By Tuesday of next week, the right shoulder — and the entire H&S pattern — will be roughly proportional to the 2011’s.  That means whatever bump this pattern has in store should run its course pretty quickly if the analog is going to hold.

    Bernanke speaks at 2:15 EST.  I suspect most of the fireworks is done till at least then.

    Stay tuned.

  • Analog Update: April 24, 2012

    The analog we’ve been watching since April 9 is playing out nicely so far.  We got the original bounce at 1357 as forecast, followed by a rise to the middle of our 1380-1400 target range.  The H&S pattern we expected did, in fact, set up and complete yesterday.

    Now, we’re back testing the little channel (solid yellow) formed by the right shoulder.  It was broken during yesterday’s plunge.

    As we discussed yesterday, if the wheels fall off the analog, it’s going to happen here — at the H&S neckline.  A hard bounce would likely send SPX up to tag the initial rising wedge apex at 1462-1472 (the purple dashed line.)  It can be viewed as a Crab pattern with the 1.618 at 1462 (in purple, points not marked.)

    But, I think we’re more likely to see the analog continue to work.  The key will be a failure of this morning’s rally/back test and a close below 1363.  Note that we’ve also established a channel to the downside (red, dashed) that coincides nicely with the harmonic picture.

    The pale blue Bat/Crab indicates a potential to 1335-1340, which would be a nice spot for a back test of the H&S pattern itself.  From there, the larger red Butterfly pattern takes over, with potential to 1317 (the 1.272) or 1289 (the 1.618.)  Though, a drop below last October’s 1292 would be a challenge.

    The key levels I’m monitoring today are 1378 — at which point the back test starts to intrude into the previous channel, and 1382 — at which point the larger red, dashed channel is jeopardized.

    Good luck to all.

  • Update on EURUSD: April 24, 2012

    April 24, 2012

    From both a fundamental and technical standpoint, the long-term, medium-term and short-term pictures are all negative on the EURUSD.  Yet, it keeps hanging in there, the beneficiary of a great deal of ECB and, yes, Fed intervention.

    Here’s the long term picture as of this morning.  EURUSD has been stuck in that purple channel for years, and isn’t likely to break out anytime soon.  Note the fan line off 2000-2002 coming into play again soon.

    From a harmonic standpoint, the purple pattern calls for a trip to the .886 at .9115, but not anytime soon.  The red pattern has more immediate import.  There are plenty of candidates for a Point B — near the .382, the .618 and the .786.  While it’s possible we’ve completed a Gartley, it normally requires a bit more precision than this, so I’m assuming that was a near miss.

    There’s a good chance we’ll target at least a Bat pattern with completion at the .886 of 1.2226 — spitting distance from the larger (purple) pattern’s .500.  But, to get there, we’ll have to continue following the red dashed channel and not be waylaid by the fan line.

    The channel is fairly strong — in place for over a year.  And, there’s a fan line just above current prices for reassurance purposes.  The close up picture below gives us an idea what to expect in the near term.

    This potential Bat pattern calls for a move lower, to at least the .886 level at 1.2721 — which, coincidentally, is right at that fan line.  We can also see that the last fan line off the presumed Point X leaves a rather narrow margin of safety for the next move down.  A break of 1.3110 would start the ball rolling.

    The H&S pattern we’ve been watching for what feels like forever has resisted playing out, though the channel will force its hand soon enough.  It’s mirrored by an RSI trend line which is there for the breaking after another crash into the upper TL.

    Investors who play the EURUSD would be wise to use stops.  The ongoing problems in Greece, Italy, Portugal, Ireland, etc. have been exacerbated by election angst in France and the failure of the Netherlands government.  But, the ECB has learned much from the Fed about propping up markets.

    While their efforts don’t promise of a return to prosperity anytime soon, they’ve grown very fond of the stick save press release.   They’ll be using it a lot in the coming weeks.

  • A Recommendation

    Regular readers know how fixated I am on the ballooning national debt.  In my opinion, it represents the single biggest threat to our future.  So, I get pretty excited when I come across an important step in the right direction.

    Some friends of mine have put together a coalition that urges our leaders to end their partisan bickering and get on with the job of putting this country back on course to financial solvency.

    I’ll post more later, but as you head into the weekend, please click on the link below and check out this incredibly important message.  If it resonates (you’re in the wrong place if it doesn’t!) please pass it along.

  • OPEX Games: April 20, 2012

    SPX reversed right on schedule at 1370.  While my comment about the little channel intersecting with 1400 today was delivered somewhat in jest, the analog — which called the recent bottom at 1357, top at 1392 (middle of our 1380-1400 range) and now yesterday’s 1370 stick save — has been remarkably accurate so far.

    Our original chart from July 11th [see: Analog Charted] is looking rather prescient.

    July 11 Analog Forecast
    Actual

    Yet, as we discussed last week, the key will be a break of the neckline [see:  Analog Details].  A failure to do so in the next few trading sessions means we’re going up to tag the apex sehr schnell.

  • City of Dreams

    I’ve been harping on the incredible threat represented by the $250 trillion in almost entirely off-the-books, unregulated derivatives market — 95% of which is should be but isn’t on the books of the top five US banks [see: The Wipeout Ratio.]

    It’s an astonishing 550 times the tier 1 capital on the books of these same banks — all of which are considered too big to fail.  Looking at it another way, a two-tenths of 1% decline in the value of those derivatives could completely wipe out all tier 1 capital altogether.  If that weren’t bad enough, it’s dwarfed by the global derivatives market of $707 trillion.

    It’s hard to appreciate just how much money we’re talking about.  But, demonocracy.com does an outstanding job of putting it into perspective, focusing on the 9 largest banks’ $228.72 trillion in exposure.

    Take the time to read this, and please pass it along. Click anywhere on the nice pretty picture below.

  • Going, Going…

    I’d be impressed if the bears were able to deck OPEX — the perennial champ — and let the H&S pattern play out just yet.  But, here we are, at the bottom of the nice little channel that’s guided the upside since 1357 on April 10.  I suspect the sell-off will be limited to 61.8% of the rise, or 1370.

    The nice thing about the .618 is that it leaves open the possibilities of a Gartley, with a reversal at the .786 at 1365, or extension to a Crab’s 1.618 at 1335 — which would be a nice level at which to start a back test of the neckline.

    If there’s one thing you can count on these days, it’s the market’s insistence on maintaining maximum ambiguity for as long as possible.

    More later.