pebblewriter

Month: February 2013

  • Charts I’m Watching: Feb 28, 2013

    Yesterday was a great example of the beauty of Harmonics.  In conjunction with my RSI work and channel work, we were able to rack up 23 points on a day when the big picture is still fairly negative (remember Italy, the sequester, negative GDP, retailers’ horrid guidance?)

    By drawing important Fibonacci lines in the sand, we made the market prove to us it had more upside by crossing those lines. As we’ve discussed many times before, Harmonic Patterns don’t, by themselves, always tell you what the market is going to do in a particular time frame.

    But, they do an excellent job of “if-then” forecasting, such as “if the market reverses at Point A, we can be very confident of reaching Point B.”  Again, combining this information with other fairly reliable patterns, we can capture most of the points most of the time

    The market didn’t fall out of bed overnight, so I’ll take a long position on the open this morning in anticipation of tagging the .786/.886 combo at 1521.11/1521.19 or the .886 at 1525.70.

    Fresh charts in a few…

    UPDATE:  9:45 AM

    The channel placement is still somewhat speculative.  But, again, in a volatile situation like this, the market will show us whether it has more potential or not.

    We are nearing the .786 retracement of the move down from 1530, and the .886 of the move down from 1525.  They’re on top of one another, lending added validity.  So, all else being equal, we can expect a reversal here — especially given the 60-min RSI chart.

    Note we’re taking a 2nd crack at breaking out of the yellow channel at 61 — the range in which most moves fail.  Stay tuned.

    UPDATE:  9:50 AM

    Just tagged our target level, so I’m booking the 5 points from this morning here at 1521.29.

    A strong move back up through 1521 opens up 1526.  The immediate downside target is around 1510 a combination of Fib levels and the next lower purple channel line (the 25%.)  If that doesn’t hold, the bottom of the purple channel is currently down at around 1494.

    BTW, I’ve had a number of questions about the new fund in the works and the changes it might bring for this website.  I think the past few days are an excellent example of why a fund makes a lot of sense.  Yesterday, I was in and out of the market (on these pages) six times for a total of 23 points:

    1. Bought at 1497
    2. sold at 1507 (+10)
    3. bought at 1507
    4. sold at 1514 (+7)
    5. bought at 1514
    6. sold at 1520 (+6)

    Twenty-three points on 1497 is a little over 1.5% — a decent day, especially given that it occurred on a bounce in the midst of a downturn, which are generally tricky.  Twenty or thirty of those in a year would be a great year for most investment advisors.

    Given that it takes a few minutes to identify a situation, a few more to chart it, a few more to make the chart readable for members, and more still to post it online and compose a cogent comment or two, it’s challenging to get that information out to readers fast enough so that you can capture every single point that I do.

    Then there’s the issue of how to trade the information.  I just shorted SPX at 1521 with the expectation of an initial 10-point drop.  Suppose it pops up to 1525 60-seconds later?  Were you stopped out?  Do you hold on?   Wait, now it just dropped 20 points!  You refresh the screen…where’s the update!?

    While you’re anxiously refreshing the webpage, I’m looking at RSI channels (in multiple time frames), various chart patterns, checking the dollar/euro/bonds/VIX, looking for any news just out, etc.  I make a determination and either trade on it or sit pat.

    I then start the process of updating the chart and posting it online with supporting comments.  Best case…3-5 minutes.  Worst case, all hell is breaking loose and it takes 10-15 minutes or more.

    This is why I like the idea of a fund.  For better or worse, it’s the quickest, most efficient way to transfer value from my noggin into your net worth.  Investors can go on with their business meeting/golf game/ski run and leave all the sweating it out to me.

    BTW, I know a fund isn’t for everyone. For the rest of us, the website will continue to provide the exact same kind of information it always has.  But, it will evolve, ideally becoming more efficient with streamlined delivery accompanying the charts for the pebblewriter.com veterans and investment professionals who want to go it alone.

    For example, those who have been around for a while would completely understand a comment like “hit .786/.886 combo at 1521, Gartley/Bat or Butterfly Point B?  Charts later.”   That way, I could cut down on the time it takes to convey the essence of the post.  I’m also looking into ways to post the information on a chat-like platform, which might also eliminate email and log-in problems.

    The trick with investment advisor clients is finding a way to deliver timely information at a reasonable price without giving away the secret sauce to potential competitors.  It will mean substantially higher fees for future subscribers ($2,500 on Mar 4), but won’t affect current members who have taken advantage of the current membership offer.

    Have you locked in your subscription price yet? CLICK HERE

    More shortly…

    UPDATE:  12:50 PM

    SPX won’t go down without a fight.  It has retraced almost .886 of its declines from 1521.37, meaning it’s about to reverse at 1520.65 and head lower (a Bat Pattern) or is destined for the 1.618 at 1525.29 — also the .886 retracement of the 1530-1485 decline (1525.70) and the level of the last high on the 25th.

    As noted earlier, a push through 1521 opens up 1526.  SPX has till about 1:30 EST to decide: push up through 1521 or a channel breakdown.

    Note the close proximity of the white channel line, which will always, always offer support… until it doesn’t.

    The RSI picture is mixed at present, so we’ll stay focused on harmonics and channels.  Looking at other indicators, the dollar is hanging in there in its own rising channel.

    It recovered its midline just before equities opened this morning, and broke out of its a channel on its 15-min RSI.  It tagged 82, but hasn’t yet been able to break above — much less reach its short-term target of 82.136-82.281.

    UPDATE:  1:20 PM

    There’s our answer, a breakout above the .786/.886 Fib at 1521.11.

    Playing the long side again, with initial target of 1525.70, trailing stops starting at 1521.

    Charts in a few…

    UPDATE:  2:05 PM

    Getting pretty close, now.  This should also be a tag on the large purple channel midline and the proposed yellow channel top.

    UPDATE:  2:20 PM

    Let’s review the implications to our forecast of tagging 1525.70.  We started into this yesterday, but got interrupted by a pretty wild intra-day ride.

    continued for members… (more…)

  • The Big Picture: Feb 27, 2013

    ORIGINAL POST:  6:00 AM

    SPX ended yesterday just below our 1497 trigger point at the neckline.  I know the bulls would love to blow through this level and negate the H&S, but I think they’ve really got their work cut out for them, especially given the political mess in Italy and the looming US sequester.

    Bernanke isn’t likely to say anything new today.  And, judging from AAPL’s price action, the market isn’t looking to Cupertino for salvation.  The durable goods data?  Ho hum…  Saying it was a good number if you ignore defense and aircraft is like saying a shark attack was fine except for those pointy things in their mouths.

    Defense is due to get a lot worse starting next Monday.

    I’d put slightly greater odds on a breakdown of the purple channel.  As for targets, I’ve mentioned the 1474.51 level a lot – the Sep 2012 high and roughly where the SMA 50 was at the EOD (hat tip to Mike for the question.)

    I still think this area has potential, as a retracement to the .886 of the 1576-666 decline would set up a move to 1576 itself.  Why?  Think of stair-steps, where each major Fib tag or break is followed by a back test to a significant lower Fibonacci level.

    continued for members… (more…)

  • The Future of Pebblewriter

    Some of you have heard about the new Fund I’ve been contemplating for some time [more info HERE.]  While I’m excited about its prospects, I want to reassure members that  pebblewriter.com will still be here, putting out the same kind of market analysis for which it’s become known.  Sometime in the next few months, you may notice…

    The site will be more streamlined, focusing on existing members, fund subscribers and financial professionals who don’t require quite as much hand-holding.  Those of you who have been around very long don’t need another explanation of Gartley Patterns every time I chart one.  If you’re new, don’t worry; we’ll get you up to speed first.

    I might implement a premium chat-room format for active day traders.  I’m looking into ways to share trading information on a semi-live basis for both fund members and blog members without cannibalizing the fund.  Still much to be worked out here…

    The website (and customized services) are moving to a more sustainable business model that won’t compete with the fund.  That’s a fancy way of saying the cost of an annual subscription will increase to $2,500 on March 4 (except for charter members, whose rates are fixed.)

    This increase will cover the cost of hiring administrative support for the website (sign-ups, log-in issues, etc.) that will be necessary once the fund is up and running as well as some long overdue enhancements in technology and communications.

    I understand $2,500 represents a steep increase for some, but it is comparable to the annual fee charged to someone making a $100,000 investment in the fund, or a $150,000 investment in the average equity mutual fund.  And, I dare say, we’ve had better success than just about any mutual fund out there.

    Nevertheless – and,  in order to reduce the sting – I am extending the following offer:

    All members as of March 4 will have the opportunity to become a charter annual member — meaning your annual membership fee will be locked for the life of the site.

    If you are a current monthly, quarterly, semi-annual or non-charter annual member, simply purchase a new annual membership ($950) by March 4 and I will add one year to your existing expiration date.  All future renewals will be at the same rate for the life of the site.

    If you are just now joining (or recently joined) pebblewriter.com,  you may also join as a charter annual member at the current price of $950 before prices increase to $2,500 in a few days.

    SIGN ME UP!

    I value each and every member, regardless of your interest in the fund or portfolio size.  You made this journey possible!  I’m excited about this next step, and will continue to do my best to earn the faith you’ve shown by being a part of pebblewriter.com.

  • Bernanke Speaks

    PLEASE NOTE THAT MEMBERSHIP RATES ARE SET TO INCREASE ON MARCH 4.

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    A new day, a new bounce.  As we discussed late yesterday, SPX has reached the bottom of the purple channel that’s guided it since 1343.  So, naturally, we’ll get some reaction — probably at least to the white midline at 1495.

    Whether it sticks or not is pretty much up to Ben.  Press conference at 10AM EST.

    The yellow channel on the 30-min RSI shows decent support here.  Looks like resistance at the purple midline, though, likely in conjunction with the white midline mentioned above.

    I’ll be surprised, though, if we don’t make it all the way back to 1497 for a proper back test of the H&S neckline – yellow dashed line.

    UPDATE:  09:40 AM

    That’s close enough for me.  I’m closing my ST long position taken yesterday (3:50PM update) at 1490 for a 6-pt gain and will let my core short position ride — for now.

    Many Bernanke pep rallies have left me feeling like a crash test dummy.  I’ve learned to keep my stops tight or stay on the sidelines all together.  For intrepid day traders, I suggest staying nimble.  A breakout or breakdown is to be expected.

    But, we did just complete a H&S Pattern, and that counts for something — as do the incomplete harmonic patterns.  We’ll take a look as soon as the Bearded One is done scolding Congress for messin’ up a good thing.

    UPDATE:  12:30 PM

    Equities are clinging to gains following Bernanke’s testimony — which was mostly a non-event.  IMO, he said nothing to help the bulls’ or bears’ case, which means Italy and the sequester will likely drive prices over the next several days.

    We should continue to see periodic bounces over the balance of the day, but the onus is on the bulls now to turn the trend.  We’ll keep an eye on the 5 and 15-min RSI charts to determine breakouts that merit an intra-day long, and revisit the daily charts to get a sense of intermediate-term possibilities.

    continued for members… (more…)

  • Charts I’m Watching: Feb 25, 2013

    FOR MEMBERS LOOKING FOR NEWS AND INFORMATION ON THE FUND CURRENTLY IN THE WORKS, CLICK HERE.

    ANNUAL MEMBERS WHO SUBSCRIBE TO THE FUND WILL BE ELIGIBLE FOR PRIORITY, PREFERENTIAL PRICING AND MEMBERSHIP FEE REBATES.

    PLEASE NOTE THAT MEMBERSHIP RATES ARE SET TO INCREASE ON MARCH 4.

    *  *  *  *  *  *  *  *

    ORIGINAL POST: 09:30 AM

    High potential for a pop and drop this morning, with key levels being 1523.74 and 1527.10.  I’m operating on the assumption that this is a bounce in the midst of a larger move lower.

    Recall that we shorted at 1530.50 on Feb 19 (the 2:45 update) and went long for a bounce at 1499 on Feb 21 (10:20 update.)

    I’m taking profits on the long position here at 1523.60 and going full short again.  Any move up through 1524 is cause to consider an intra-day long.

    Why am I suspicious of this rally? The dollar has back-tested the 25% line in the big rising channel, as well as the 1.272 Fib in what looks like a Crab to the 1.618 at 82.281 (and red .618 at 82.136.)

    The DX daily RSI also looks strong, having broken out of and back-tested the red channel and making a beeline for the intersection of the white and yellow channels.

    UPDATE: 10:00 AM

    SPX is taking a crack at the .886 at 1527.10.

    I’ll take an intra-day long position at 1524 with tight stops.  Keeping the short position unless we move up through 1530.

    UPDATE:  10:10 AM

    That move didn’t take long to fail. A reversal here leaves a nice tag of the top of the white channel, a tag of the 75% line of the light blue channel, a near tag of the .886 (1525.84 v 1527.10) and a nice reversal candle on the 60-min chart.

    Closing the intra-day long at 1524, and full short again from 1523.60 (above.)

    UPDATE:  11:25 AM

    SPX broke back down through the big purple channel midline, which augers well for further downside.  Watch for a backtest to the midline (around 1519.)

    UPDATE:  2:00 PM

    We’ve racked up a nice 24 points since shorting this morning, which is especially cool on the heels of the 26-point gain from our long position (the bounce from 1497) and the 32-point gain since originally shorting at 1530.50 on the 19th.  That’s a 5%+ week — much appreciated after the market’s directionless churning in the days leading up to 1530.

    As we approach the .886 retracement (1500.54) of the rally from 1497 to 1525, we should be on the lookout for a bounce at the still-important 1500.  A good place to start is the  RSI channels on short-term charts like the 5-min. A break of the upper bound of a well-defined channel is always a warning signal of building momentum.

    The US dollar is approaching our 82.22 – 82.28 price target and the top of the daily RSI channels we charted this morning.  It will likely need a breather before attempting higher.

    Much of its strength is being attributed to euro weakness which, of course, is being blamed on Berlusconi’s unexpected success in the Italian elections.  It goes without saying that his reelection would be a disaster for the euro zone.

    The EURUSD, which had carved out a solid channel to the moon (well, 1.39 anyway) broke down and backtested the channel that’s guided its upside since last July.

    We should expect some support here at the .886 of the 1.2996 to 1.3710 rally at 1.3078 (also a potential price channel bottom in yellow.)  It’s also the bottom of an RSI channel (below in white) on the daily chart.

    But, I’m not so sure that this support will hold.  We could be looking at a drop to the bottom of the red/yellow/white RSI channels, meaning the pair takes out 1.30 support.

    As unpopular as Monti is with Italians, Germany thinks he’s just swell.  He’s been a team player, falling in line with Merkel’s efforts to salvage Germany’s investments throughout the continent.

    Berlusconi, who was heavily criticized by his former contemporaries around the time of his resignation, is a wild card whose election, at best, would leave Italy with a divided leadership at a time when a unified front seems essential to the euro’s continued survival.

    This is not what the bulls needed, especially as they try to get through the sequester week unscathed.

    UPDATE:  3:00 PM

    Adding the complications of the euro mess to the sequester mess makes for a very tricky path ahead for equities.  Last week, I theorized that a decline to 1490 would make for a deliciously ambiguous setup (for market makers, at least) to fleece the greatest possible number of investors.

    Does that scenario still make sense?

    continued for members… (more…)

  • The Fund

    A couple of months ago, I mentioned I was looking into starting an investment fund.  I’ve decided to move forward with it.  There are several reasons, but the two main ones are:

    1. FORMAT: using a blog to convey market information that produces consistent results for the average armchair investor is difficult; and,
    2. BUSINESS MODEL: while enormously enjoyable, the amount of work I put into the website is, unfortunately, not proportional to the financial reward.

    THE FORMAT

    As we come up on the one-year anniversary of pebblewriter.com and two-year anniversary of pebblewriter.blogspot.com, I’ve taken a long, hard look at the website’s effectiveness.  What I do is sometimes fairly complicated, which explains why almost half of our members are investment professionals (investment advisors, brokers, etc.)

    The balance are split between pretty serious investors who have the time and energy it takes to learn and implement my techniques, and those who don’t (seriously, who wants their surgeon taking a break during an appendectomy to trade his portfolio?)

    In blogging, it’s tough to write a post that satisfies the needs of all three groups.  Some members want to know how the watch works, while others simply want to know what time it is.  Others, especially those new to the site, just want to be less confused.

    Even when I pen the perfect post, there’s always the issue of getting information out quickly.  Charting already takes a lot of time.  Making the charts presentable and offering even minimal explanation obviously takes even more.  In a fast-moving market, this can affect performance.

    I believe a fund would allow investors of all kinds to benefit the greatest from the research I do. When I make a trade decision, they won’t have to worry about deciphering the information or being available to act on it.  It’ll just happen.

    I’ll continue to offer research for determined do-it-yourself’ers who don’t need quite as much hand-holding — perhaps offering periodic webinars to discuss things in more detail.  And, of course, I will continue to offer specialized services to those professionals who use my technical analysis to augment their own analysis.

    BUSINESS MODEL

    My hope in starting pebblewriter.com was that it would grow enough through word of mouth that I could make some reasonable coin while putting in only 40-50 hours/wk and still have the flexibility to hang with the family, travel, etc.

    Instead, I’m putting in about 70-80 hours/wk and making a little more than I did as a first year associate straight out of B-school.  Old Wall Street chums with the same level of expertise as I do average 10-30X and have a lot more free time.

    I’ve studied some of the other successful web-based investment services, and have come to believe most are really better at marketing than they are forecasting markets.  Frankly, I’m not interested in building a marketing company that offers investment products.  I am very interested, however, in being an excellent forecaster for those investors who value (i.e. are willing to pay for) such services.

    Though most on Wall St would laugh to hear me say it,  it’s not always about money.  About 70 of my friends/co-workers didn’t come home on 9/11 because they were busy chasing money.  We all gotta go…but I’d like it to be in pursuit of something meaningful and enjoyable. I really enjoy the challenge of forecasting markets, and love helping others reach their financial goals.

    But, if I’m going to spend 10-12 hours/day away from my lovely family, I owe it to them to provide something tangible such as, say, a decent college education or the occasional trip to Disneyland.  And, I owe it to subscribers not to burn out.

    THE PLAN

    In 2012 (from inception March 22), pebblewriter.com members who went long SPX when I called bottoms and sold short when I called tops would have earned about 100% on a highly diversified, unleveraged portfolio.  It turns out this was no small feat — more than 2X the best-performing hedge fund’s 2012 return.

    According to Barron’s, only one of the hundreds of hedge funds tracked by HSBC earned over 40% in 2012; only another 7 earned even 30%. The average fund earned 7.32% and about one third actually lost money. The S&P 500 itself earned returned about 16% (including dividends.)

    My plan is to generate high risk-adjusted returns for investors in a hedge fund using the same techniques I use every day on pebblewriter.com to determine tops and bottoms.  But, instead of  writing about them (and trading for my own account) I will go long and short broad equity markets (primarily the S&P 500) and, to a lesser extent, currencies and risk instruments such as VIX.

    The portfolio might occasionally be all or partially long or short, or even all cash.  This would be a slight departure from the website, which generally reflects either 100% long or 100% short. This added flexibility would allow the portfolio to reflect the degree of confidence I have in a particular move.  It would also allow us to move to the sidelines in the event of high-risk situations such as an election or FOMC announcement.  I would use no leverage other than that required to hedge existing positions.

    The fund would be managed by me, but all assets would be held by a third-party custodian such as BNY Mellon or State Street.  Another entity such as Citco or Apex would provide administration and a major accounting firm would provide audited tax returns.  This isn’t the cheapest way to run a hedge fund, but it’s the safest.

    I intend to keep the size of the fund manageable, which to me means no more than $100 million.  The legal stuff is in the works, but the plan is for a private placement for about 100 accredited investors.  The US fund would be domiciled in Delaware, but I’m looking into a master-feeder arrangement with an offshore fund in either the Cayman Islands or BVI for non-US and tax-exempt investors.  About $5 million in capital is already earmarked.

    Minimum investment would mostly likely be $100,000, though there might be a limited number of smaller slots for non-accredited investors.  Fees would be the standard 2/20 hedge fund structure and feature a high-water mark and hurdle rate to be determined.  Liquidity would most likely be quarterly.

    Annual pebblewriter.com members would receive several perks – my way of saying thanks for being an important part of the journey.  First, annual members would get first crack at the 100 subscription slots.  If there are still slots available after annual members have subscribed, I intend to open it up first to other members, then those referred by members, and lastly to outside investors.

    In addition, annual members who invest in the fund would be eligible for a rebate of their unused subscription fee to pebblewriter.com.  So, an annual member who paid $950 one month before investing in the fund would receive $870.83 (11/12 of 950) back in quarterly installments over the course of their first year.  And, subject to the lawyers’ okay, I plan to offer annual members an additional 10% discount on their first year’s total fees.

    It’s hard to say exactly when everything will come together, but I’m shooting for late March/early April.  I can’t offer any more guidance at present, but want to stress that the above perks will be offered to annual members on a first-come, first-served basis.  My goal is that every annual member who desires to participate will have the opportunity.

    But, when the slots are gone, they’re gone.  So, the best way to ensure a spot is to: (1) become an annual member right away; and, (2) act quickly when the offering goes live.  Those current quarterly and semi-annual members who wish to become annual members now may have their current membership extended by one year, and would thus be eligible for the membership rebate and fee discount as described above.

    PEBBLEWRITER.COM

    As for pebblewriter.com itself, I intend to migrate the website and customized services to a more sustainable model that won’t compete with the fund.  This means that the cost of an annual subscription will be raised to $2,500 on March 4 (except for charter members, whose rates are fixed.)

    I understand this represents a steep increase for some, but it is comparable to the annual fee charged to someone making a $100,000 investment in the fund, or a $150,000 investment in the average equity mutual fund.  It will cover the cost of hiring additional administrative support for the website (sign-ups, log-in issues, etc.) that will be necessary once the fund is up and running as well as much-needed enhancements in technology and communications.

    Speaking of running the fund… I plan to run it from Carmel, California where my family and I reside.  An added bonus for fund investors, the Monterey Peninsula is one of the most beautiful places in the States to visit. While checking up on your investments, you can take in the ATT Pebble Beach Pro-Am golf tournament, the Monterey Jazz Festival, the world-famous Monterey Aquarium, or a drive through gorgeous Big Sur.

    Carmel is about a 90-minute drive south of San Jose/San Francisco, but is also served by the Monterey Airport which offers a 7,600 foot runway and several excellent FBO’s as well as direct flights via United, American, US Air and Alaska Air.

    It will help immeasurably to have a good sense of how many US vs non-US members plan to participate in the fund — if and when it is offered. So, look for an email in the next day or two asking for your opinion. In the meantime, please don’t hesitate to contact me, as many of you already have, with any questions about the fund or the website.

    I’m excited about taking this next step, and will continue to do my best to earn the faith you’ve shown by being a part of pebblewriter.com.

    *  *  *  *  *  *  *  * 

    important note:  

    The above is not an offer to sell or a solicitation of any offer to buy any securities. Offers are made only by prospectus or other offering materials. To obtain further information, you must complete our investor questionnaire and meet the suitability standards required by law. The  fund discussed above is strictly in the planning phase, which means it might never be formed nor offered to subscribers. If it is, essential elements might differ significantly from those discussed above.  The information contained on this and every page of pebblewriter.com is subject to our Disclosures and Use Agreement available here.

     

     

     

     

     

     

     

     

     

     

     

  • Charts I’m Watching: Feb 22, 2013

    ORIGINAL POST:  09:25 AM

    UPDATE:  09:30 AM

    SPX overshot our initial target by just a couple of points yesterday, reaching the channel 25% line at 1497.29 before getting the bounce I expected at 1499/1500.  Note that SPX completed a Bat Pattern down to the .886 in the process (larger white pattern.)

    The .618 Fib of the decline from 1530 is up ahead at 1518.09 — also the 1.618 of the 1422-1266 decline last summer (1518.57.) It intersects with the channel midline either later today or early Monday.

    Daily RSI reached the white midline as we expected, and is currently backtesting the purple midline. It’s still too early to say whether the new falling channel I sketched in yesterday is legit or not.

    The dollar is backtesting the channel line it broke through Wednesday after completing a Butterfly Pattern (the small white grid) to the 1.272, but the 1.618 awaits at the confluence of the purple 1.272 and red .618 up around 82.1-82.2 after the backtest is complete (not yet, I think.)

    The big question: what happens after the backtests are complete?

    continued for members… (more…)

  • On Our Way: Feb 21, 2013

    ORIGINAL POST:  9:50 AM

    SPX is off another 10 points so far, for a total of almost 30 since we went full short at 1530.50 on Feb 19.  Look for a bounce at 1499/1500 – a psychologically important line in the sand, and also the .886 of the rise from 1495 to 1530.

    It also satisfies pebblewriter’s corollary, which is that the market seeks levels at which the greatest ambiguity can be maintained.  At 1499, the market could be setting up a bearish Crab Pattern down to  the 1.618 at 1472.82 (shown below in purple) which would find support around the Sep 2012 high of 1474.

    OTOH, SPX could be setting up a bullish Crab Pattern (in yellow) to the 1.618 up at 1555, which also happens to be the 1.618 extension of 2012’s 1474 to 1343 decline (1555) and the 1.618 of 2011’s 1370 to 1074 decline.

    So, which can we expect?

    continued for members…

    (more…)

  • Charts I’m Watching: Feb 20, 2013

    As expected, equities have sold off since tagging the 1.618 Fib of the July 7 – Oct 4, 2011 sell off — dropping as low as 1522.19 this morning.  While it’s gratifying to see a reversal at a major Fib like this, it won’t mean much until SPX can make some new lows.  I’d be thrilled just to see the purple channel midline broken. I remain full short from 1530.50.

    There’s great interest in the Fed minutes due out at 2 EST.  Will the new FOMC composition affect the language re QE?  How did they take last quarter’s GDP decline?

    Housing starts and permits were released this morning.  Overall, starts fell 8.5% since December.  But, it was multifamily residential that was really responsible — declining 27% from Dec 2012 nationwide, an alarming 41% in the Northeast and 62% in the Midwest (versus 16% and 30% in last year’s Dec/Jan comparison.) The South and West regions rose modestly, as did permits.

    The EURUSD has found support at the .886 (yellow pattern) of the Feb – July 2012 selloff.  The rally fizzled several weeks ago at 1.3710 — just above the Feb highs — after initially reversing at the .786, hinting at a Butterfly Pattern objective of 1.3877.  This is also the 2.618 of the white pattern and the .618 (1.3832) of the purple pattern (May 2011 to July 2012 decline.)

    If the pair manages to hold the .886, it augers well for a move up to that target level.  The next white channel level to intersect 1.3832 is the midline around March 18-20.  The bottom of the white channel is currently around 1.3250.

    The dollar, in the meantime, has retraced the losses sustained the past two days.  In the process, it reached the midline of the white channel since Feb – so, we’ll be on the lookout for resistance.

    Remember, DX RSI broke out of a daily channel (red, below) on Monday and back-tested it yesterday. It also successfully back-tested the midline of the rising purple channel and is poking up above the yellow 75% line — so, the upside case is clear.

    What, then, would a dollar break-out mean for stocks?

    Quick aside: just read the FOMC minutes from stem to stern (available here) and there’s nothing of any importance that I can tell.  This is really no surprise, given that the last statement was virtually identical to the previous one.  Here’s the discussion of the statement:

    The media is reporting “increased concern” about the level of QE and inflation, but there is very little change in the outlook and the hawks are still vastly outnumbered by the doves.  I suspect that as long as inflation stays under control, and the dollar remains in a trading range — meaning no new pressures or relief for importers/exporters — the FOMC will leave things pretty much as they are.

    Getting back to the dollar and equities… It’s always interesting to compare the DX and SPX.

    Stocks are a mirror image of the dollar through from 2010 through October 2011. At that point, however, they generally move in tandem — except that, as DX forms a pretty docile channel, SPX leaps out and forms a rather extended rising wedge.

    DX has been locked in a trading range between the .382 and .618 of its decline into May 2011, while SPX has obviously blown through its May 2011 highs.

    Since last September, the comparison is especially interesting. DX spent about 6 months bouncing between the .382 and .500 Fibs, while SPX retraced 127.2% of its 1474 to 1343 losses (actually more, but it looks like it’ll probably back test to the 1.272 today.)

    Now, if DX starts to make a move, how will SPX react?  Will it react?  The dollar will need a serious push to get through current levels, since today’s equities weakness/dollar strength produced a Bat Pattern completion at the .886 — just as DX RSI also reached the next higher channel line.

    While, SPX has broken channel support…

    …even though prices reached a potentially important channel midline.

    In the end, I suspect it all spells a breather for SPX’s downturn and DX’s strength – at least until the RSI’s are reset and each can take yet another stab at a real breakout/breakdown.

    I’m holding with yesterday’s short-term forecast/scenario [the 2:45 update], but am open to revision if SPX can push strongly through the channel midline.  I should get a chance to post again tomorrow morning.

    GLTA.

     

     

  • Charts I’m Watching: Feb 19, 2013

    The dollar index has cleared an important hurdle to higher prices.  Note RSI has broken above and is back-testing the red channel on the daily chart.

    Of course, it’s not a back-test until it reverses and stays higher.  The first key level to confirm a breakout are the Jan 4 80.995 high — at which point DX will run into the 25% white channel line.The harmonic picture is muddled at best, as DX has tagged the .886 retracement of the move from 78.725 to 81.515 three separate times – preferring to remain in a trading range rather than breaking down or out.

    Breaking this RSI channel is the first very (potentially) positive news for the bears in quite a while.  One caveat, there’s probably a 50:50 chance that the DX RSI will need to tag the midline of the rising white channel before the reversal really gets going.

    One potential problem here is that the midline and the red channel top don’t intersect until early March, so this could mean sideways currency markets for several weeks — which would likely be accompanied by higher stock prices.

    For the past week or so, I’ve been opening intra-day long positions on strength while maintaining a short core position.  Today is no exception.  I’m closing my intra-day longs here at 1526.50, as we’ve reached a 1.618 Fib level of the latest move up.  A move back up through this level, and I’ll add them back on again.

    I must admit, though, that I find the SPX RSI chart a little unnerving.  If DX looks bullish based on a channel breakout, SPX does, too.  Chart coming shortly — if my internet signal will cooperate.  I’m writing today from a hotel lobby in Lake Tahoe, and the connection is a bit slow.

    SPX is obviously trading above the upper bound of the big rising wedge again today (the yellow TL).  This marks five days in a row, though we’ve managed to close below it every day.  As we’ll discuss today, the next day or two is vitally important to the market’s overall direction.

    I put the yellow TL at about 1524 today (1521 on the arithmetic scale rather than log).  This is drawn from the July 21, 2011 high of 1347(inception) through the Sep 14, 2012 1474.51 high.  IMO, a strong move through this TL would be very bullish and practically guarantee 1553-1555 — with one caveat.

    In 2011, there were three potential Point X’s to kick off the downside and calculate the upside: 1370.58 on May 2, 1356.48 on July 7 and 1347 on July 21.  I referred to these in the post All The Pretty Butterflies in calling the April 2012 high.

    I favored the 1347 high because it best fit with the definition of a Butterfly – a Point B reversal at the .786 retrace. The 1356.48 Butterfly didn’t quite reach its .786, and the 1370.58 Butterfly didn’t come close.

    As we found out, the 1347 pattern was the correct one.  It signaled a reversal at its 1.272 Fib of 1421.05 and, in fact, the market reversed at 1422.38.  The decline from there to 1266 set up another Butterfly Pattern (in purple). The 1.272 actually targeted 1464, but SPX stretched to reach the .886 of 1576-666 at 1472 (ultimately reaching 1474.51).

    Because 1347 figured prominently in two important patterns, and neither of the other potential point X’s have seen any real reaction off their Fibs, I have pretty much discarded them.

    But, I show them above just in case.  This market is currently flouting, if not completely ignoring, the rules.  And, the 1356.48’s 1.618 at 1530.58 might suddenly decide to assert itself.  It’s just above current levels and would make for a nice intra-day high.

    And, the 1370.58’s 1.618 at 1553.39 lines up very nicely with the 1.618 extension of the 1474-1343 decline (yellow pattern.)  It also would fulfill a measured move I’ve been tracking.

    On the chart above, the distance from (2) to (3) is 207.77.  Adding 207.77 to the 1343.35 low (4) yields 1551.12 – right there with those 1.618 Crab Pattern completion points. If SPX can break through 1530.58, there are no other Fib levels between there and 1553.

    Obviously, we are still looking at strong negative divergence on the daily and 60-min charts. And, with the sequester looking more and more likely, we’re not lacking for a catalyst. But, the market continues to shrug off some pretty strong headwinds.  I still wouldn’t commit new capital at these levels, and I sure wouldn’t be long and unhedged. But, a close above that yellow trend line and 1530.58 Fib would be hard to ignore.

    More later.

    UPDATE: 2:00 PM

    SPX broke back above 1526.50, so I put the intra-day long on yet again.  As we approach 1530.58, I’ll take another stab at lifting it.  We’re certainly not making any money with this approach, but I’m much less concerned with a sudden 30-point updraft than a sudden 100-pt downdraft.  I seem to have plenty of company, however, and this concerns me.

    OTOH, today’s USA Today headline reads: Mutual Funds Breaking Records.    The only thing missing is the exclamation point.  Inside the Money section, you can take your pick of “Has Dow Outgrown Crazy Days?”, “It’s Hard Out There for a Repo Man” and the imponderable “Fast Foreclosures Help Home Prices.”

    Turns out judicial foreclosures slow things down because the banksters are occasionally restrained by the rule of law (that must really suck for them.)  When it takes too long to kick families out of their homes, it creates “real uncertainty.”  Of course, so does having your former neighbors living out of their Toyota.  Guess that’s where the repo man comes in.

    More shortly.

    UPDATE:  2:45 PM

    Taking another stab at an interim top here at 1530.50 — lifting the intra-day long, full short again. Tight stops on this sucker; as mentioned above, whole lot of blue sky between 1530 and 1553.

    Remember, this is the 1.618 of the Crab Pattern formed by the 1356.48 to 1074.77 decline between July and October 2011.  Downside targets that matter include 1474.51, of course. But, first, let’s think about the scenario that would confuse the most people: a decline to 1490-1497 that would leave open the possibility of a new Butterfly/Crab higher to 1553-1555.

    I’m being summoned for Dad duty (the kids are off school this week and it’s snowing outside – yay!) so I’ll leave it at that for the time being.  I’ll be back later this evening to tidy things up and answer any questions.

    GLTA.