Will this make 19?  It seems a little ridiculous to focus on the day of the week, when in fact the market has been up almost every day for the past six months.

Since the Nov 2012 low, we’ve seen three corrections of any consequence on the eminis:

• -4.4% over six sessions in late December 2012
• -3.1% over four sessions in February
• -3.9% over five sessions in April 2013

If ES tags 1675 today, it will have gained exactly 25% in a little over 6 months.  Interestingly, the beginnings of those three downturns have lined up fairly well with a time Fib grid, seen below in red.  And, the lows have come at fairly regular intervals.

If the pattern holds, we could be nearing the beginning of the fourth downturn, with a low to come around June 3-4.  Could it be more than a whopping 4%, or is that all that’s programmed in?

*   *   *   *

The dollar is back-testing its channel midline…

 

While the EURUSD is pushing up against its channel midline…

The futures point to a higher opening.  So, we’ll play along on the upside with an interim target of ES 1675.

Note that this is the intersection of the 2.618 extensions from both the 1419 to 1262 decline from Mar – June 2012 and the 1468 to 1340 decline from Sep to Nov 2012.

We’ve certainly seen more than a few Fib patterns bust lately.  But, these two offer the benefit of intersecting there with the top of a relatively significant channel – shown below in purple.

 

UPDATE:  10:10 AM

SPX just completed a Bat Pattern at the .886 of the small white pattern and is reacted fairly strongly.  Yesterday, SPX didn’t quite reach the 2.618 established by the Mar-Jun 2012 decline:  1672.84 v 1674.21. But, it might have been close enough.

SPX also came very close, but didn’t quite tag, the IH&S target of 1673.50.  I’m leery of a fakeout, but we’ll see.  A drop through the previous low of 1663.52 would be a good sign.

I’ll take a short position here at 1670 just in case, with stops right at 1670. Charts in a few…

UPDATE:  10:35 AM

Are we in for a 4% decline over the next 7-10 days?  And, if so, how might that play out?  Is there any chance of a bigger decline?

SPX just pushed below the red channel midline.  So, this downturn is definitely in play. The bottom of the red channel is very close to the purple TL from 1994/2002 later today at 1650 — which would be a great start and a .886 retrace of the 1648-1672 rally (red pattern below.)  This is also the location of the purple channel .75 line.

We should expect a bounce there, as the red channel dates back over 30 days in its own right.  A bounce back to the yellow TL or so (1665) would be quite normal, and would set up a Bat Pattern on both the purple and yellow grids.

The purple midline, purple .786 and red 1.618 all intersect Thursday at 1633-1634.  Here, we would expect to see another bounce.   And, if this correction was to be smaller than the rest, this could be the end of it.

If it bounces up to, say, the purple .75 line, it will have set up a Bat Pattern on the yellow grid and a Butterfly on the purple.  The purple 1.618 and yellow .886 intersect at 1591-1592 early Thursday morning, so this would be a more severe sell-off than the move in the paragraph above.

Otherwise, we might look for the yellow .786 which intersects with the bottom of the purple channel around the 30th at 1600.87 — a 4.3%, 8 session decline from 1672.84.

UPDATE:  11:40 AM

Well, that was exciting.  Not.  SPX is back above the red midline, retracing .618 exactly of this morning’s decline.

Interestingly, the dollar got whacked by this retracement.  Prior to this morning’s opening, I was expecting DX to sell off to 83.609 by tomorrow’s opening.  It would set up a 1.618 extension to 85.075 — same as the light blue 1.618 from the decline from 83.66 on Apr 4.

It appears likely that this tag, if it occurs, would come at just after midnight tonight (EDT) — at the intersection with the bottom of the purple channel.

UPDATE:  12:11 PM

SPX is coming up on 1670, the .786 of the drop from this morning’s high.  As such, I’m hesitant to blow out the short position, and will give the stop a little more leeway — up to 1672.

UPDATE:  1:06 PM

Getting a push through 1672, so I’ll take an interim long position and see if we can get a proper tag at 1674.21 or 1686.73.  Note that 1674 is the 2.618 of the Apr – Jun 2012 drop from 1422 to 1266.

1686.73 is the 2.618 of the 1474 – 1343 drop from Sep – Nov 2012.  Unlike the eminis, these two patterns for SPX do not coincide.

 

UPDATE:  1:09 PM

Didn’t take long.  Closing the long and full short again unless SPX can push through 1675.

With that said, it’s becoming more and more difficult to see the downside scenario. The bounce off 1662.67 came right at the yellow TL from 1994-2002, which I have though was an important line in the sand. A day or two push above wouldn’t necessarily guarantee a continued rally, but the longer we spend up here, the more established the trend becomes.

UPDATE:  3:45 PM

I have no idea what might transpire tomorrow that might be negative for the market.  Well, I do…but, I can’t imagine it actually happening…

If the market reacts negatively to whatever Bernanke has to say, here’s my best guess as to the next few months. Here’s the close up through the end of June:

And, the bigger picture:

I have a lot of fine tuning to do, but I’ll wait until the direction is clear.  If the market likes what it hears, of course, we could shoot up another 10% without the drop to 1600 in early June, bounce to 1666, then drop 1576 in September.

I have to get on the road for a meeting and won’t get back until very late.  So, I’ll catch up with everyone in the morning.  I’ll hold short into the close, with stops still around 1675.

GLTA.

 

 

NOTE:  If you found your way to this page, you know that the correct page is now https://pebblewriter.com rather than https://pebblewriter.  The “s” was dropped is the course of the transfer from GoDaddy to Hostgator because it’s been many moons since memberships were paid for directly through this website.  Now, new and renewing members go directly to PayPal’s website, and they have their own SSL security (and more.) 

I found that the SSL capability didn’t play well with Disqus and a number of other features that we all like.  More on that later.  In the meantime, some of the links within posts and on menus might still point to an “https” page — landing you on an error message instead of the content you sought.  These are being converted over, but if this should happen to you simply go up to the address bar and remove the “s” from the page you’re on and refresh.

I have already been impressed with Hostgator’s speedy and superior customer service.  I think once a few bugs are ironed out, the site will run much faster and reliably.

*   *   *   *

Nothing much has changed since Friday’s close.  There’s a slight negative bias, which could be nothing more than consolidation after Friday’s rally.  We’ll play along on the downside, with the understanding that 1673 is still on the table either intra-day with a reversal, or on the way higher. In other words… tight stops.

Price has been on a tear, but the underpinnings of the rally have been fading the past several days — as seen on the 60-min RSI chart.

We went to cash at the close Friday because of the disagreement between short-term and long-term patterns such as are displayed in the currencies.  The euro and dollar have hit short-term targets, but have more room to go before the tide turns.

UPDATE:  10:10 AM

SPX just pushed above 1667.  I’m going to switch to the long side with stops at 1667 in the expectation that it’s headed to 1673.

Note that we’re currently above the yellow TL connecting the 1994 and 2002 lows, and at 1667.50 have pushed above the top of the purple channel itself.

As I mentioned earlier, this might be nothing more than an intra-day move. But, we can’t ignore the possibility of a breakout here.  It’s visible on both the short-term and longer-term RSI charts — the action immediately ahead of us will determine which it is.

 

The most logical move, given the degree to which we’re overbought, would be a reversal off the channel tops.  But, we’ll see…

UPDATE:  12:47 PM

SPX got within .16 of our 1673 target and is rolling over.  Watch for the latest even-more-steeply sloped channel (white) to catch it around 1669-1670.  A drop back through the top of the purple channel would argue for 1663 (yellow dashed TL) for starters, maybe lower.

I’ll likely take a crack at an interim short position with any push through 1669.60.

UPDATE:  12:56 PM

Here we go… interim short here at 1669.60.

 

I jumped the gun on that one.  Stopped out with a bounce at the top of the purple channel.  Should have been more like 1669.  Too bad, because the dollar’s confirming a drop here — as is SPX RSI.

I’ll probably just wait for a push through 1669 instead.

To give you an idea of how silly this has become, the little white channel slopes up through the red channel which slopes up through (and has, for the moment at least, departed) the purple channel.

This is, by definition, exponential: increasing at an increasing rate.

UPDATE:  1:19 PM

Just got the break.  Full short here at 1669.  Charts in a few…

For the bears, a move back through 1663 is necessary to generate any real downside potential.  Otherwise, this could be viewed as a backtest of the yellow TL.

As always, watch for the back test of the broken channel/TL — in this case, stops around 1670.50 should be safe.

 

 

UPDATE:  2:40 PM

Got very close to the yellow TL and bounced.  It’s not clear yet whether that was the extent of it.  But, I’d expect SPX to at least tag the red channel midline — currently at 1663.75.

UPDATE:  3:55 PM

Holding short into the close.  The dollar and euro appear very ready to reverse, and SPX is still back below the purple channel top, meaning a reversion to the midline is the most likely scenario.

 

more later…

If you just received a text telling you about this new post…it’s not.  It’s from May 17 but was “lost” in the move from GoDaddy to Hostgator.  I managed to retrieve it and am reposting it for posterity sake.

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With the futures pointing north this morning, we’re left to wonder whether that massive sell-off yesterday (-0.5%) was all we can expect.

As usual, we’ll play along on the opening.  We’ll go long, but watch for any sudden reversals.

Why? For starters, the EURUSD continues to crumble.  Here’s the big picture:

But, the 60-min chart shows an 88.6% retracement of the latest move up — a natural place for a for a reversal. If it doesn’t however, and breaches 1.2744, that pretty much kills off the purple pattern, which is the best hope for an end to EURUSD’s slide.

And, a tag of the yellow .618 — the most natural place for a reversal and potentially a stronger attraction for the pair than the smaller scale .886 — would kill off the yellow pattern (Point C cannot be lower than Point A.)

DX is likewise coming up to an important target at the 1.618 extension (Crab Pattern) we’ve been forecasting.

But, while the yellow pattern signals a reversal, the larger light blue pattern is still not done. Its 1.618 Fib is up at 85.075.

And, the even larger purple pattern still argues for at least the 1.272 at 85.746 — along with that big channel line up there. Bottom line, DX has thrust up through two channel midlines in the past few days. This is the kind of momentum that’s every bit as powerful as the equities markets. And, it’s hard to say whether the smaller pattern completions can reverse it.

UPDATE: 9:40 AM

SPX just hit the neckline of yesterday’s little H&S pattern and almost reached the .886 of yesterday’s push down. I’m going to try switching back to the short side here at 1658 with tight stops.

We’ll keep a very close eye on those currencies.

UPDATE:  9:57 AM

Consumer sentiment just came in at 83.7 vs expected 78 and SPX has leaked up a little higher.  Leading indicators come out in a few…  Key level for shorts is 1660.28 — the .886 of the move down from 1661.49.

UPDATE:  10:02 AM

LEI came in at 0.2 vs expectations of 0.3% and the prior reading of -0.1%.  SPX nudged just past the .886, but still hasn’t bested it — so far, just a deep retracement.  I’ll probably switch sides on any move through the previous high of 1661.49.  Otherwise, I’m holding short for now.

I still like the odds of the currencies punching through resistance/support as discussed above.  Look at the 60-min RSI for DX — a nice clean break through the midline.

I could be wrong, but we seem to have crossed over into “good news is bad news” land — where suspicions of a strengthening economy stoke fears of the Fed withdrawing the QE IV.

And, this market needs a correction, as even the die hard bulls would admit.  Do you allow a little reset and allay the overbought condition, or keep it going strong in hopes of sucking the retail investor back in?

I imagine that very question is bouncing around Washington/Wall Street right now.    My gut feeling is that this spurt this morning was designed to shake out the weak bears and trap a few unsuspecting bulls — using the consumer sentiment results as bait.  We’ll know the answer soon enough, after TPTB position themselves accordingly of course.

Watch your stops, because my gut doesn’t matter nearly as much as whether SPX leaks past 1661.49.

UPDATE:  10:25 AM

SPX just topped yesterday’s high (which I’m sure bugs the EW guys) but still not Wednesday’s 1661.49.  Remember, that high tagged the TL from 1994-2002 — one of the last natural bastions of LT resistance around.

Meanwhile, the USDJPY just reached an important channel line, but faces a quandary similar to the other pairs. The small scale 2.24 is nearby and might make a suitable target if currencies go sideways for a few days.

But, the 2.618 and — more importantly — the large scale .618 are also close by. I suspect the pair will seek out 105.57 — where it intersects the purple channel upper bound on Wednesday the 22nd. More on this in a little while.

UPDATE: 11:00 AM

Getting a little action on the downside finally.

The 15-min RSI is looking nice and bearish…

But, the 60-min RSI chart shows that SPX has climbed back into the broken channel and might take a shot at remaining.

If so, watch out for a potential IH&S Pattern to set up. More charts in a few.

UPDATE:  11:15 AM

Here’s the scenario we need to keep in mind. The target from a completion later today would be right at 1673.50 — the 2.24 of the 1597 to 1536 decline that began on April 11.

BTW, the larger IH&S, with the dip to 1650 on the 15th as the left shoulder, would complete at a lower price.  But, the target would actually be a point of two lower since the neckline is a little flatter.

As Matt Bear points out below, today is a massive POMO day with $5.75BB being delivered to Wall Street as we speak.

It’s also OPEX, which is almost always a lot of fun for anyone betting on a sell-off.  But, corrections that are pumped and primed very often get going on the Monday following OPEX.   Something to think about…

UPDATE: 12:20 PM

I just figured out the way the MM could screw over the greatest number of investors — which means, I think I know how the market’s going to play out today.  Doesn’t mean it has to, but remember we have heuristics for these things.

Most people would agree with Occam’s Razor:

The simplest explanation is usually the right one.

And, Hanlon’s Razor is a favorite of mine:

Never attribute to malice that which can be adequately explained by stupidity.

But, where market makers are concerned, I swear by Pebblewriter’s Razor:

Never attribute to random chance that which can be easily explained by market makers’ malice.

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[NOTE:  This is not a new post, but the 2nd of the two recovered posts from the transition from GD to HG in May.  A portion of it is still missing…]

Housing starts missed big time, sliding 16.5% in April. Single-family was down 2.1% and apartments were down a whopping 37.8%. CPI also missed, with both total and core coming in at half the expected rate. But, the big news was initial claims, which jumped back up to 360K versus expectations of 330K and last months 328K (revised up from 323K.)

In a non-QE environment, this news would be good for -15 points on SPX, easy. But, it gives the Fed cover to continue pumping cash into the economy banks’ balance sheets, so SPX is off an astonishing 2 points.

The EURUSD rallied overnight, breaking out of the falling wedge but quite possibly morphing into a channel (purple.) The immediate downside still looks to me like the red .886 at 1.28 (though the smaller patterns suggest 1.2770-1.2775.)

At this rate, it’s probably not a bad idea to talk about what happens if 1.2743 falls. That little channel, if it can keep it together, points towards the red 1.618 where it aligns with the yellow .786 at 1.2398. That’s a full .05 below current prices for the pair.

The red .886 could produce a back-test of some sort, but a drop below 1.2744 (the purple A) would officially kill off the purple harmonic pattern potential (Point C must be higher than A.)

If that should happen — which it appears to be the case — then the yellow pattern takes control. While the .786 looks like a tasty target, the fact that Point B came in a little less than the .618 means a Bat Pattern down to the .886 (1.2231) is more likely.

I’ll give DX a matching purple acceleration channel that points to 84.527 (the yellow 1.618)…

…and we’ll see if SPX can’t manage to top out at 1660 (small white .886) before turning back down this morning.

UPDATE: 10:20AM

SPX did, in fact, put in a nice reversal at the .886 as DX was bottoming and EURUSD was topping. But, it hasn’t yet punched through the rising white channel bottom.

Until it takes out 1650.88, this pattern could serve as the start of a Crab Pattern that completes at the 1.618 (1668.05.) So, we’ll keep an eye on that, and place stops for our short position around 1661.50 just in case.

On a positive note, it appears the candles printed this morning are more or less parallel to the little red channel from yesterday — meaning we might actually have a falling channel on SPX.

And, while I’m jinxing the last remaining bearish scenario, let me extend my heartfelt thanks to those bears who formally and publicly capitulated yesterday on these pages. It was your sacrifice that made this 10 point downturn possible. We shall forever be in your debt.

Please be assured that we will always welcome you back with open arms — even if it spells financial ruin for the rest of us.

UPDATE: 10:35

Here’s a quick big picture look at the dollar — which also has bigger fish to fry in the event it can reach our intermediate objective. Recall that it completed that nice little Bat Pattern at the purple D-1. But, the real prize would be if the pattern extends to D-2 (purple 1.618), which just happens to line up with the white .886.

DX topped out at 84.22 yesterday. A push beyond 84.245 (purple X) officially kills off some important downside harmonic targets and greatly increases the odds of a push to 87.076.

I’ve been talking about DX 87 for a long, long time. It’s still out there, my great white whale. There have been many crash set-ups that might have propelled the dollar that high.

There’s another one setting up right now, that should get under way within the next hour. Anyone interested in playing the downside should prepare themselves right now.

We’ll take a quick look around at other indices to see if they’re in a similar position.

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Stop me if you’ve already heard this one…  Ugly economic reports, US dollar shooting higher, euro and yen breaking down, equity markets selling off after huge uninterrupted gains…

What could go wrong?  I’ll play along on the downside… again…  but can’t help wonder if this merely proves I’m the most stupid person alive.

 

 

Bad news is good news, right?  There’s plenty here.  With the EURUSD continuing to slide…

…and the dollar soars, testing the July 2012 highs…

…in the midst of a downturn in US manufacturing as evidenced by falling Empire State Manufacturing numbers (big miss), declining PPI, declining industrial production, declining capacity utilization (smaller misses)…

Needless to say, a rising dollar won’t do much to help US manufacturing.  Simply put, our stuff will be more expensive to foreign buyers, and their stuff will be less expensive to US buyers.

It’s great if you have your eye on a new Prius or HD TV.  Not so great if you’ve recently hired a bunch of factory workers for the economic rebound everyone’s talking about.

On the off chance that it matters, this chart sums up the May Empire State manufacturing survey.

There are few bright spots in the entire report.  Pretty much every category shows weakness.

The stock market, however, thinks this is just fine.  As long as truckloads of cash continue to be injected into the markets, no problem.  The lack of inflationary pressures, continued weakness in manufacturing and employment… these factors play nicely into the doves’ hands.

UPDATE:  10:20 AM

SPX sold off almost 4 points, but has since retraced almost .786 of the losses since yesterday’s high.

SPX has obviously traded above the latest 2.24 extension (small purple), the 2.24 extension of the 1474-1343 correction last fall (yellow), the TL from the 1994 & 2002 lows (dashed purple) and the red channel midline.

We should see a reversal at the .786 at 1650.15.  If that’s the full extent of the retracement, we could get some momentum on the downside.  Otherwise, SPX would be pointing to 1652.52 and higher.

UPDATE:  10:59 AM

It’s pretty obvious we’re heading to 1652.52 or higher.  Switching to a long position here at 1650, stops at 1649.

If anyone’s wondering, that whooshing sound is my foot striking…nothing; the football was yanked away once again.

It makes sense to take stock at this point and figure out the rules of this “new normal” — if that’s indeed what it is.  Some thoughts on trading this market…

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The eminis continue to bump along at harmonic resistance: the red 2.24 at 1626.41 and the small white pattern’s 1.618 at 1631.62.

ES 60-min…

The DX is right back to the levels reached on Friday — the white channel midline.  A thrust above would likely kill off the equities rally (or, at least hobble it.)  A retreat would be bullish.

The fact that it hasn’t yet pushed through has to be bullish in the short run, but the fact that it’s balanced on the precipice is ample grounds for caution.  Tomorrow marks the day on my charts where the white midline and purple midline intersect.

DX is poised just below both, so a push higher would be very important.

From a harmonic standpoint, a move above the Apr 4 high of 83.66 kills off a potential downside scenario to the white D.  Today’s high so far: 83.53.

SPX has opened stronger, completing the small white Crab Pattern 1.618, the red Crab Pattern 1.618 and the larger white Crab 2.24. The only harmonic target left is the white 1.618 at 1642.38.

I show the top of the purple channel at 1640.34 and the red channel midline at 1640.63.  Remember, 1640.90 was our preferred target.

It is right next to the IH&S target we identified in April and is a great harmonic fit with the downside scenario.  More on that in a moment.

SPX just tagged the red midline and purple top at 1640.89 — close enough for me.  I’m shorting here.

The white 1.618 is still up above at 1642.38 — and it’s a decent looking pattern.  So, we might be a couple of points early.  Any push higher and I’d likely just take an interim long.

There’s also an interesting Fib extension at 1646.73 — the 2.24 extension of the 1074 – 1292 rally in late 2011 as applied to the 1158 Nov 2011 low. It intersects there with the purple TL from the 1994 and 2002 lows of 445 and 776.

And, on a smaller scale, 1640.47 was the measured move target from 1626.74 yesterday.

UPDATE:  10:15 AM

SPX just tagged the white 1.618 at 1642.38.  As discussed above, if we don’t get a reversal here I’ll add an interim long position.

UPDATE:  10:28 AM

Getting a push higher, so I’m adding an interim long position here at 1643, with trailing stops.  If SPX pushes higher than 1648, I’ll consider abandoning the short position.

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RUT has been loitering near the top of a large channel dating back to 1998 and a rising wedge dating back to 2008.  These patterns signaled a possible top.  But, there were some unresolved Harmonic Patterns at slightly higher prices.

Things got resolved on Friday.

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We’ll be watching to see what, if any, fallout there is from the Hilsenrath article on Friday after the close.

The eminis are looking weak this morning.  Recall that they reached the combination 1.618 and 2.24 extension Thursday, and are still down from that level.

Back test or breakout?  Until we actually see a thrust back into the white channel, I’m assuming back test followed by a decline.

We’ll go short on the opening, but be ready for a breakout if/when.

The dollar fell out of the steep, narrow channel – but has yet to react much as it exceeded the previous Apr 24 high.  Not much rationale from a harmonic standpoint to reverse after doing that.

It was the tag of that white channel midline that had me thinking Friday that we’d see a pullback when it reopened, but so far it’s not much of one.

The EURUSD is still showing weakness post the purple channel breakdown, but has still only retraced .618 of its rise from the Apr 4 bottom.

In the absence of a reversal — a distinct possibility given the latest falling wedge — we can expect at least .786 on the red grid (1.2850.)  But, that might be all the weakness we see if the rising white channel holds.

The USDJPY hit both our IH&S and Crab Pattern targets on Friday, but still not much of a reaction.

SPX has put together a really messy topping pattern these past several days since its Mar 9 high a few days prior to our target date of today.  And, it never quite tagged our targets of the yellow 1.618 at 1635.25 and the white 2.24 at 1637.15, let along the IH&S target of 1641.

It closed just below the .886 at 1633.65 on Friday, leading me to think there was a Crab Pattern extension in its future (a Bat Pattern would have required a Point B < .618.)  All we’d need is a reasonable Point C, which I think we just got courtesy of this morning’s little sell-off.

The opening price just fell, so I’m going to try a long position this morning and see if it can rally.  Going to take a stab here at 1630.

The key to the upside is breaking 1633.65 and then 1635.01.  Key support on the downside is 1626.74 and then 1623.09.

UPDATE:  1:55 PM

SPX broke the 1535.01 high, and then backed off some. An .886 retrace of the last leg up would be around 1627.80 — not a bad neighborhood for a stop as it intersects with the red .25 channel line in the next hour.

For reference purposes, the bottom of the red channel is currently about 1617, and it intersects there with the next lower purple channel line (the .75) in the next hour or so.

SPX reached the yellow 1.618, so the Crab Pattern can be considered complete.  Recall that 1635.25 has been on our radar screen since Apr 23 [see: CIW Apr 23] when it first appeared SPX might be setting up a Crab Pattern.

It was confirmed on May 3, when the 1597 high was topped.  The reasons for a downturn then are just as valid today.

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