SPX reached our 1543.43 target yesterday, exceeding it by 4 cents before reversing to close below 1540.  This was a 1.272 extension of the decline from 1530.94 to 1485.01 that began on Feb 20.

But, 1.272 completions result from Butterfly Patterns.  And, Butterfly Patterns require a key reversal (Point B) at the .786 Fib level.  The move up from 1485 barely reacted at the .786 Fib level, but saw a significant reversal at the .886 Fib.  So, harmonics suggest a move to the 1.618 extension for a Crab Pattern (though not always so, see the 1:30 update below.)

The futures are all pointing skyward this morning, with the eminis indicating a willingness to ignore several key Fib levels – albeit on negative divergence – and the dollar and euro at key inflection points.

 

Keep an eye on the EURUSD 15-min chart, which shows the precarious position of the pair.

Good time to review stops…stay nimble today.

UPDATE:  10:05 AM

The EURUSD just broke down from the little channel we were watching earlier and is back below 1.30 again.

The next significant Fib support is 1.2875-1.2885, but the .786 or .886 on the 15-min chart above should be watched.  If one produces a reversal, the pair could try to redefine its falling channel from the current steeply sloped white channel below to a kinder, gentler version such as the purple.

Any break out of the white channel should be viewed as such a move and would likely result in a retest of the light blue channel midline currently at 1.3167.

Stocks spurted higher this morning on a better than expected ADP employment report which, for all the hoopla, shows a month over month decline.

Offsetting the “good news” is slightly more credible word from the Census Department that durable goods fell off a cliff last month.  Total new orders for all manufactured goods were reported down 2% in January.  The real, non-seasonally adjusted decline, however, was 6.96%.

New orders for manufactured durable goods were reported down a whopping 4.9%, which is bad enough.  Remove the varnish of seasonal adjustment, and the real decline was from $239 billion to $204 billion, a 14.4% plunge.

The optimists will say this decline was due to worries over the sequester.  And, there’s probably some truth to that.  They also say we should ignore transportation and defense spending — an argument which has never made the slightest bit of sense to me.  It’s also an argument you will never hear when transportation and defense orders surge as they did last month.

According to the Aerospace Industries Association, that industry alone accounts for about 633,000 jobs (about 6% of all mfg jobs) and $224 billion in revenues (17.9% of all durable  goods revenues) including $95 billion in exports — 6.2% of all durable goods exports and one of the few success stories in America’s perennially crummy balance of trade picture.

A decline in orders, such as might be expected when, say, the US is trying to reign in spending in the midst of winding down a couple of wars, could put a real dent in those figures.  And, these are relatively high-paying jobs with benefits, not part-time Wal-Mart greeters.

Defense spending accounts for about 2/3 of all government spending (federal, state and local) which, in turn, accounts for nearly 20% of total GDP.

Please don’t get me wrong.  I’m not arguing that defense spending should be increased, or even maintained.  Other than increasing the shamefully paltry benefits provided to wounded veterans, I’d love to see the budget slashed dramatically.  It doesn’t take a lobbyist to see we probably spend a bit more on defense than is necessary.

But, when someone suggests we should ignore transportation and defense spending when assessing the country’s economic future, it’s because those components are in decline.  Excluding them makes the economy look stronger, just like excluding the long-term unemployed makes employment statistics look stronger.

It’s all about perception.

UPDATE:  12:40 PM

SPX is off its high (1545.25) for the day and trending lower.  It’s early still, and it’s likely to be expanded, but the operative channel is probably something like this:

Note that SPX is flirting with the white channel midline, while the yellow TL off the 7/23/11 and 9/14/12 highs is still well below at about 1532 — near the 1.618 of the latest spurt higher.

continued for members… (more…)

MEMBERSHIP NOTE:

I have added a Q&A section to the page discussing the fund in the works and will continue to expand it to include additional questions submitted by members. Those members who are accredited investors may learn more by clicking here.

Also, I received many emails regarding the category of annual membership some of you have (charter or not.)  Because (1) it will take time to go back and check, and (2) I’d like to be able to offer an ETA on the proposed fund, I’m postponing the fee increase — probably through the end of the week.

For those who haven’t checked in lately…

The current annual membership price of $950 is going up to $2,500 shortly [why?]  For those monthly, quarterly and semi-annual members planning to renew in the coming months, it pays to grab a charter annual membership now, regardless of whether you’re interested in the fund and regardless of whether the fund comes to fruition.

If you’re a regular annual member, it might also make sense to upgrade to a charter annual membership.  Even if your current membership doesn’t expire for months, the new rate will be higher.  Because it’s impossible for me to know exactly when the fund might be up and running, your membership could expire before you’re able to take advantage of the perks for annual members.

And, if you upgrade to a charter membership, you wouldn’t have to worry about future fee increases if, say, the fund launch is delayed or you decide not to participate.  And, as mentioned above, you’d be eligible for a rebate of your fees anyway if you end up subscribing to the fund.  So, your downside is pretty limited.

As always, any new membership will simply be tacked on to the end of your existing monthly, quarterly, semi-annual or annual membership.

If you’re already a charter annual member, do nothing.  You’re golden.  Your annual pebblewriter.com rate is locked in for the life of the site and you’re already eligible for all the perks for the proposed fund.  The only thing left to do is forward membership information to every investor in your address book.

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ORIGINAL POST:

In the words of that prescient market technician from the 60’s…

You know the day destroys the night
Night divides the day
Tried to run,
Tried to hide
Break on through to the other side
Break on through to the other side
Break on through to the other side, yeah…

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We started yesterday’s session wondering whether the reversal at the red .786 would lead to a downturn or was Point B in a Butterfly Pattern. From the initial post:

As we discussed last week, the reversal at the red .786 could be the full extent of a corrective wave on the way lower (the B wave in an A-B-C)  that is meant to test the bottom of the white or purple channels.  But, it could also be the Point B in a Butterfly Pattern targeting 1531 or 1540.

We spent the day harvesting several 7-pt moves, waiting for some kind of breakout or breakdown. With a few minutes to go before the close, the markets approached the neckline of the Inverted Head & Shoulders Pattern we’ve been watching for the past week (dashed yellow line below.)

The technical picture was mixed, but we went with the IH&S and went full long at 1525 as was our plan [After the Funding’s Gone – 1:45PM update.]    Thirteen points later and from this side of 1530, it was obviously the right move.  But, it wasn’t quite so obvious at the time.

Now that we’ve broken on through to the other side, the question is “what’s next?”

continued for members… (more…)