With the future of the human race at stake (ok, maybe just a few percent off the S&P 500) Congress will probably give us their usual “they gave us no choice” solution (not) sometime after the deadline.  That doesn’t mean they will resolve anything (why start now?) and it certainly doesn’t mean the market will take it all in stride.

There are a number of bearish patterns setting up in the markets that should, at the very least, put a scare into folks.  The USDJPY has completed yet another H&S Pattern (yellow) within the right shoulder of the very large red H&S Pattern.

Interestingly, the gap down has stopped short of dropping through the IH&S neckline.  So, the jury’s still out on the potential for a vicious drop.  I suspect the pair will find its way down to the big red neckline or the yellow channel midline before long — perhaps getting a bounce off the falling white midline.  In any case, there’s a great deal of support in the 94.66 – 96.34 range.

The E-minis are selling off nicely this morning, with the original white .886 in danger of failing.  At the very least, I expect the purple channel bottom to be tested (1664ish.)

Note, the bottom of the purple channel caught the falling knives of Nov 2012, Dec 2012, Jun 2013 and Aug 2013.  So, it has a pretty good pedigree.  But, of course, a tag of the white channel — our downside case at 1590 for quite some time — remains on the table.

continued for members… (more…)

After 18 cities in 10 days, it’ll be great to see my family and sleep in my own bed again. Still, I’ve really enjoyed touring the country and meeting so many interesting, intelligent and gracious people.

Thank you all for taking the time to sit down with me, share your thoughts, inspire me (and, feed me.)  I only wish I had done this months ago when I didn’t have documents to proof, auditors to hire and computers to network.

I’m gratified that so many of you will be joining me on the next leg of the journey.  The fund will have a live, password-protected website and documents ready to send out in a matter of days.  My best guess is somewhere between Oct 1-3.  Thanks for your patience.

And, I should be back in the groove re the markets by Monday.  These next few weeks should be very “interesting.”

In NY for the day, then on to Chicago tomorrow.  If you haven’t yet RSVP’d, tempus fugit.  The most up-to-date schedule can be found HERE.  Click HERE to contact me.

*  *  *  *  *

While the rising red channel gave up the ghost after tagging the 1.272 we discussed last week, the potential remains for the channel to be simply widening. If so, this slide should be pretty much done and it’s time to jump in with both feet here at 1687.50.

Note, there was no .786 Point B back in July, so a Butterfly is a less likely ultimate outcome than a Crab Pattern, which terminates at the 1.618 (1767.63.)

We’ve already had the backtest of the 1586 high from 2007 (the yellow grid), though a second is always a possibility.  But, the more likely target is a steady grind up to the 1.272 at 1837 around Oct 11.

What’s the turd in the kiddie pool?  The three rising red channels — the latest of which broke down last week — are part of a larger system.

continued for members… (more…)

The last time we did any heavy lifting on bonds was back on March 7, when it seemed to us that prices had topped out and yields had bottomed.  ZN had broken down from a rising wedge and was meandering towards the bottom of a long-term rising channel.

We saw more downside ahead, but wondered what was taking the “significant retreat” first called on January 21 so long.  Mar 7 marked the bottom of a 1st of a 3rd wave down, retracing nearly .886 of that wave by May 1 before things got rolling.

Since then, the retreat has been quite significant, dropping from 133’250 to 123’205 over the next four months and plunging right through the bottom of the rising channel.  From all appearances, we’re backtesting the channel —  probably at its intersection with top of one of the two potential falling channels.

Yields on the 10-yr got dangerously close to 3% before QE saved the day at a combination  .618/1.618 target range.

It’s hard to tell whether this move is done, as there are still higher potential Fib targets and a very viable alternative (in white, below) to the falling purple channel whose top TNX just tagged.

Even if TNX does continue to hold the rising white channel, it offers plenty of range.  A bounce at 2.14% around December 4 would represent a .618 retrace of the latest rise.  While, a push higher to, say, 3.2% in late October would flesh out the big falling white channel.

With QE tapering (if/when?) and another debt ceiling battle looming, neither is out of the question.  My crystal ball on those issues is more than a little cloudy at the moment.  So, we’ll continue to watch these key Fib levels and channels and let the market tell us which way it’s going.  In the end, price is the only indicator that matters.

The Market

The markets are a little skittish today.  The current rising channel is currently broken, but only just below the .886 of the previous high.  What matters is where it closes.  Anything around 1700+ is helpful to the bulls; 1702.60 would be even better.  Note the placement of the TL from 1994/2002.

The USDJPY continues to consolidate, forming a pennant within the pennant.  It has to break one way or the other by mid-December, and after all this coiling will likely break big.

A close-up:

Interest rates (TNX) obviously hit our target from several weeks ago.

While these were an important couple of Fib levels, the rising white channel could easily usher rates up to 3.35 or 3.82 by year’s end.  It’s lower bound, however, is way down at 2.02; so, take your pick of economic/political/Fed scenarios.

The Trip

Heading into the home stretch – only 5,000 miles to go.  Thanks, everyone, for a great response so far.  It’s working out best for most of you to do one-on-one meetings, so we’ll stick with that unless there’s a need to double up.

The fund website is partly up; I’ll post here when it’s fully live.  If you have contacted me about a city below and haven’t yet heard back, please contact me ASAP.  It’s quite possible an email slipped past me.

 

SEP 23-27

Saturday/Sunday: Philadelphia/D.C. (taken)

Monday am:  New York (breakfast meeting – taken)

Monday pm – Boston (meetings at 2:00 and 3:00, available after 5pm)

Tuesday: New York (currently available between 11:30 – 2:30)

Wednesday: Chicago (meetings at 9:45 and 11:00 (ORD), available after 12:30pm — either downtown or in O’Hare area)

Thursday am: Chicago (until 10am)

Thursday pm: Indianapolis  (no slots available)

Friday/Sat:  Minneapolis and/or Denver  (tbd)

Saturday: San Francisco (tbd)

Greetings from Philadelphia. Still on the road… will update the schedule for next week this afternoon.

*  *  *

ES’s rising channel is intact at these levels, but it’s important that it hold here.  A failure to remain above 1707 would open the door to 1666 or lower.

The more important development is the dollar, which has broken down from the rising red channel.  There’s a very good chance it will break 80, probably to 79.60.

GLTA.

Greetings from Houston.  I’m still on the road, but wanted to toss out some thoughts.   The Bat Pattern that completed yesterday is holding, with no breakdown or break through the prior highs. SPX sitting tight at 1700.

That’s about to change, of course.  The key level on the upside is SPX 1710 (ES 1705.)  A drop through SPX 1695 probably targets 1657 and, ultimately, 1600.

While, a burst through 1710 indicates 1721 (ES 1722) and then 1760.

The dollar suggests equities downside, so I’d bet in that direction with tight stops — as the potential for a positive surprise far outweighs the negative.

The current rising red channel (parallel to the last two) still offers a pretty clear shot at SPX 1823/ES 1837.

UPDATE:  13:00

No taper.  ES through 1705.  Buy.

That sucking sound is the dollar, which could easily slip beneath 80 today.

UPDATE:  4:15 PM

ES tagged our initial target, the 1.272 of the drop from 1685 on May 22.  The more legit target for that pattern is the 1.618 at 1767.  An alternative is the 1.618 of the drop from 1705 on Aug 5 which targets 1755.  We could still get a decent reversal here, but I’d rather stay long with loose stops.

At this rate we should arrive at ES 1837 by Oct 7-11.  Note, this is the same interim target we posted on the chart below on Aug 23 — the most bullish case.

 

 

I’m traveling this week and next, so won’t be posting intra-day.  But, hopefully this big Bat Pattern completion hasn’t escaped anyone’s notice.  I’m shorting here at SPX 1704.89/ES 1698.25, with stops just above the previous tops (1709.67 and 1705 respectively.)

Initial objective for each is its .786, with a secondary objective at the .618s.

UPDATE:  4:05 PM

ES reached our objective moments ago — the .786 @ 1687.83. I’d take the 11 points profit and go to cash here, though a drop through 1687 would get me interested in playing additional potential downside to 1674.34.

GLTA.

As mentioned last week, I will be out most of this week and next, visiting pebblewriter.com members across the country.  We’ll talk about the markets and how to make sense of all the scribbles on our charts. I’ll also answer any questions you have about our Fund scheduled to launch Oct 1.

BTW, I sent a separate email update a short while ago to all those who have expressed an interest in the Fund and completed the accreditation questionnaire.  If you didn’t receive it, please add your name to the list HERE.  If you’ve already filled out an accreditation questionnaire and added your name to the distribution list but didn’t receive this email, please CONTACT ME.

Please feel free to forward this post and/or bring friends to these get-togethers — just give me a head count when you RSVP so we don’t have any issues with venues which will, for the most part, be centrally-located hotels or restaurants (recommendations gladly accepted.)  Details for this week’s venues will be posted late tonight.

PLEASE RSVP by Monday evening and let me know which meeting you’re able to attend.  In some cities, there are quite a few of you.  In others, only one or two.  Please don’t assume someone else will RSVP.  If I don’t hear from someone in your town, I might cancel that visit in favor of a town where folks have expressed interest.

If I have inadvertently left your personal neck of the woods off the schedule, it’s either an oversight or I have no idea where you live.   Please CONTACT ME ASAP and I’ll make every effort to squeeze it in.  I have some wiggle room here and there, but it’s first come, first served. And, there’s always next time.

Here’s the tentative schedule.  I look forward to meeting you!

SEP 16-20

Monday-Tuesday morning: LA

Tuesday afternoon: Orange County

Wednesday am: Dallas

Wednesday pm:  Houston

Thursday am: Atlanta/Nashville

Friday:  Miami

SEP 23-27

Sunday-Monday: Philadelphia/D.C.

Monday am – Tuesday: New York

Wednesday: Boston

Thursday: Chicago

Friday:  Minneapolis and/or Indianapolis?

Saturday: Denver/San Francisco

 

*  *  *  *  *

I’ll do a market wrap-up at the end of each day or the following morning as travel permits. But, intra-day posts will be few and far between.  For those of you who could care less about meeting and are peeved that I’m not working the markets these next two weeks, please feel free to contact me and request that an extra 2 weeks be tagged on to your membership.  I promise I won’t take it personally!

July 2013 was our second best month since inception: 15.96% versus 5.08% for the S&P 500.  This brings ytd 2013 to 92.95% (18.67% for the S&P 500) and the average monthly return to 11.95%.

As expected, we didn’t repeat last month’s 26%; but, July helps answer the question of whether our strategy can succeed in the face of a steadily gaining market.

I made an effort this month to reduce the total number of trades — about 40% fewer than last month (I’ll post on the performance page.)  I continue to try to find a balance between  trade volume and performance.

Our hit ratio was terrific this month, with over 90% of trades in the green.  But, we also suffered our first 1% loss since May: a 1.2% loss on a short position held over a weekend that was partially offset by a concurrent trade.  Fortunately, these trades have been few and far between, and we have yet to incur a negative month or even week.

But, this incident raises my interest in switching the primary focus of our forecasts to the E-mini S&P 500 contract rather than the S&P 500 index.  It’s how I intend to invest in our upcoming fund, as the e-mini offers tight spreads, minimal trading costs, and the ability to leave positions open overnight while maintaining effective stops loss orders.

The only other way to protect oneself is go to cash every night — which means lots of trades.  More on this in the coming weeks…

*   *   *   *   *   *   *   *

The Fine Print:

1. Represents performance of a theoretical portfolio, where SPX is bought or shorted based on signals generated by my research.  Your mileage will vary.
2. Assumes no leverage:  100% long, 100% short or 100% cash.
3. Prices listed reflect the index at the time tops/bottoms are called and/or trades are made and are believed, but not guaranteed, to be accurate.  Dividends ignored.
4. MTM = marked to market.
5. Results are since inception of pebblewriter.com on March 22, 2012.
6. Past results are not necessarily indicative of future results.  See Disclosures and Use Agreement for important information.