For those interested in the new fund, I have added a page to the website where you can sign up for news and updates.  Because the offering will be a private placement, you will be asked to affirm that you are an accredited investor* before being able to register.  

Please note that pebblewriter.com members will be given priority (first come, first served) for the 100 slots I plan to offer.  To sign up, CLICK HERE.  If you received an email update on June 20, there is no need to register again.  If you have signed up since June 20, you will included in the next update going out later this week.

In conjunction with the offering (and because it’s long overdue) I am planning a road show in late July or August.  Domestic stops will most likely include NY, Chicago, Atlanta, Miami, Dallas, Denver, LA and SF.  I’ll provide dates as soon as the schedule firms up.

* we are still working on a means by which non-accredited investors may participate — details later.

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As discussed yesterday afternoon, the rally is on.  Our scenario is playing out as expected so it will be safe to be long on the opening.  Once SPX reaches that cluster of upside targets [see: 3:10 update], watch for a swift downdraft to our 2nd downside target.

DX will be under pressure initially, but should resume its push after fleshing out the little corrective channel.

EURUSD’s backtest of the broken channel line could theoretically get as high as 1.3178, but — like DX — it seems to know this is a head fake and doesn’t want to get caught rallying for no good reason.

UPDATE: 10:18 AM

At 1588.31, SPX came within about 3 points of closing the gap at 1591.17 from Friday, and is doing its best to shake out the weak hands before doing so.  Note that we’re within striking distance of our other targets [yesterday’s post: 1:45 update]:

The midline of the red channel (the one I’m expecting to play out) intersects with the midline of the more bullish white channel at 1593 or so, and a move to that level would close the gap at 1591.17.

Also, 1593.77 is the .618 of the same pattern where the .786 was 1568.38.  A retracement from the .786 to the .618 is quite normal, even when the eventual move is to the .886.  And, of course, 1593.98 is a .886 retracement of the drop from Friday’s high.

Last, don’t forget about the white dotted line lurking behind the white .618.  This is the TL connecting 1552 and 1576 (the 2000 and 2007 highs.)  SPX obviously exceeded it in April, but fell back through as reported on Jun 20.  Today’s rally can legitimately be considered a backtest of it.

This bump up is likely a corrective wave in pursuit of our goal set back on May 29.   It’s obviously coming much earlier than expected, following a rebound from 1598 to 1664 (versus our forecasted 1594 to 1668/1677.)

As we discussed yesterday, the timing changes things a bit.  I am working on revising the forecast, and will hopefully post it later today (assuming we reach our target by then.)  continued for members… (more…)

I hope everyone had a great weekend.  Friday morning [see: Channel Tilting] we looked at the big picture, a breakdown through some key support levels — most notably the purple channel that guided SPX from 1343 to 1687 between Nov 2012 and May 2013.

This continues to be the elephant in the room from a chart pattern standpoint.

DX, EURUSD and SPX came very close to the target levels posted Friday morning.  I was looking for 83.075 for DX.  This morning, it reached 83.05 — just shy of the white .618 and purple .75 line.

After breaking channel support, EURUSD almost reached its .618 at 1.3032.

And, SPX acted pretty much as expected:

I suspect it’ll reverse around 1598 and head down to 1580, then possibly to 1568 and finally 1553.  Don’t know if it’ll all happen today, but those are the key levels I’d be watching for.

It rallied on the opening to reach 1599, then fell to 1578 before bouncing to close at 1592.

This morning, we’re getting the next leg down.  SPX just arrived at our 1568 target, the .786 of the 1536 to 1687 rally.  It should at least pause here, and could get a nice Fib bounce (1577ish?)  The real target is 1553, though.

I’ll play the bounce here at 1568.32, but with tight stops in the (quite possible) event that the bounce turns out to be nothing much.

UPDATE:  9:55 AM

Just got stopped out on the interim long position, reverting to full short here.

BTW, if 1568 sounds familiar, it’s because we talked about it on Jun 17 as the initial target in the downside scenario [see: This Time Really is Different – members section.]

The downside case is just a matter of degree.  At 1598, SPX recently retraced just shy of .618 of its rise from 1536 (Apr 18 low) to 1687.

It also came within 4 points of the trend line connecting the 2000 top of 1552 and the 2007 top of 1576 — which is more of a bullish argument, really (looks like a backtest of an important TL.)

In any case, a drop to the .618 indicates the potential for either a Gartley, Bat or Crab Pattern — which would complete at 1568, 1553 or 1442 respectively.

Now that we’ve reached our initial target and are closing in on our second, we’ll update and review this scenario.

continued for members…

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A reminder to subscribers… I am taking early tomorrow morning for a long weekend off for a long weekend (my first day off in about a year I’m told.)  So, my last post will be prior to the market opening.  I’ll be with you in spirit.

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The eminis are up about 8 points at the present time, about 3:00 AM EDT.  But, the market closed at another odd point from a harmonic standpoint.  So, I imagine things will have changed by 7 hours from now.

I laid out several scenarios Wednesday afternoon.  SPX spent the afternoon in apparent pursuit of the most bearish one.   Among the support it broke today:

• the purple channel bottom
• the 1608 low
• the 1598 low
• the .618 of the 1536 – 1687 rise
• the TL connecting the 2000 and 2007 highs

While I pounced on a few bounce opportunities, they were mostly figments of my imagination.  Like Don Quixote, it would have been better had I kept my suspicions to myself.

The most important market development today was the loss of the purple channel.  When channels break down, they usually don’t just disappear.  They tilt.  That is, a steep channel gives way to a less steep one which morphs into a fairly flat one which eventually becomes a falling channel.

Catching one of these in the early stages is the key to avoiding losses when markets turn.  For those who are wise enough to short such markets, it’s a great way to goose your returns.

That has clearly happened with SPX.  Consider the red channel inside the purple channel from last November. It took SPX on a wild ride between Apr 18 and May 22: up 10% in about a month.  It died at the top of the purple channel on May 22 and I was confident in going short at 1687 when it did.

The purple channel itself is also a subset of a larger channel, seen below in white.

Here’s a view from a little further out…

We could keep pulling back, but I’m sure you get the picture.

In fact, channels with the same slopes keep showing up over and over within the larger patterns, as is seen with the purple channel from 2009 – 2011.  That channel breaking down was one of the factors that helped me nail the crash in July 2011.

I mention these things because the purple channel from 2009-2011 is the exact same slope as the more recent reincarnation that broke down yesterday.  This is no guarantee of a tilting to the white or any other channel in the near future.

Bernanke could put a stop to the current meltdown (at least temporarily) with a simple phone call to the WSJ.  But, these are things I look at when I’m forecasting.  And, they’ve worked pretty well so far.

UPDATE:  9:20 AM

The eminis dipped overnight but are back to up 8 pts.  But, DX has broken through resistance at the channel midline and is likely on its way to 83.075.

And, EURUSD has broken channel support.

SPX might bounce up to retest 1598.  Additional resistance is at 1606, then 1624.

But, I suspect it’ll reverse around 1598 and head down to 1580, then possibly to 1568 and finally 1553.  Don’t know if it’ll all happen today, but those are the key levels I’d be watching for.

I’ll post later tonight.  Good luck to all.

Fund Note:  emails have now gone out to all members who asked to be added to the distribution list for information on the new fund.  If we somehow missed you, please CONTACT US.

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Investors around the world were apparently shocked to hear Bernanke repeat what he and other Feds have been saying for months: they’ll likely cut back on bond purchases if the unemployment picture improves.  Talk about risk-off…

Between that acknowledgement and the recognition that things aren’t so rosy in China, markets have continued to sell off broadly overnight, with the eminis currently down to the purple channel bottom at 1608. For more on China, check out Zerohedge’s great articles starting with THIS ONE.  For more on the Hindenburg Omen recurrence, check out Albertarocks’ excellent coverage HERE.

The two previous dips have exceeded the channel bottom, so the important issue is whether or not we get a bounce here.

The dollar obviously did, as expected, reverse at the .707 Fib.

But, it should find tough resistance at the intersection of two channel midlines and a .618 of the 84 to 78 slide.

SPX fell to our 1633 target toward the end of the session, but the bounce didn’t hold.  This morning, it appears very likely that SPX will join the eminis at the purple channel bottom which, once again, becomes the line in the sand. 1608 is an important previous low for bulls to hold.  The critical level is 1593.

I will short on the opening, but be prepared to switch sides once there.

UPDATE:  9:36 AM

The decline appears to be slowing as we approach 1608 — the previous bottom and the red TL from 1994/2002.  Bulls should take a stand here, so I’ll play a bounce at 1608.

Just tagged 1608.34, which is good enough for me.  Full long here with obviously very tight stops.  For additional support, we have the red .886 at 1604.61 — though these patterns are already quite messy.

As long as 1608.07 holds, this can be characterized as a very deep retracement of the rally from Point C.  Any breakdown and that pattern loses all credibility.  Either yesterday’s 1654.19 high becomes our new Point B or, if 1598.23 is taken out, we’re looking for a new Point A altogether.

We have several important economic reports coming out at 10am:

• NAR’s existing home sales
• Philly Fed survey
• Leading Economic Indicators

Judging from the market’s skittishness, I would imagine that poor results would bolster investors’ expectations re the Bernanke put.  But, I suspect the PPT is standing by just in case…

UPDATE:  10:05 AM

Apparently the NAR didn’t get the memo, and reported very strong results: +4.2% to 5.18 million units. This won’t help the bounce.

The Conference Board is playing ball, however, with a 0.1% increase versus 0.2% expectations — perfect for the “bad news is good news” paradigm.  But, is it enough to offset the rosy housing numbers?

Oops… the Philly Fed’s survey numbers were very positive — also a negative for a market addicted to QE.

Needless to say, a drop through 1598 would change everything — as opposed to the many things that will change with a drop through 1608.07.  Coming up, our revised forecast with the three most likely scenarios.

continued for members… (more…)

A quick overview of the dollar in the hours leading up to the FOMC announcement at 2pm this afternoon…

DX has declined from 84.595 to this morning’s low of 80.64 in a well-defined channel dating back to the May 22 S&P high of 1687 — which means it was positively correlated for the 1687 to 1598 drop, but has reverted to a more typical negative correlation since then.

This explains the recent stall at the bottom of the purple channel, seen better on the 4-hr chart below.

 

Does it mean the downside has completely run its course?

continued for members… (more…)

David Tepper was right.  There are only so many places in this world in which one can invest.  That will be true even if the Fed tapers back their $85 billion per month rolling bank bailout.

Tepper’s comments on May 14 helped spark a rally from 1633 to 1687 over the following week — at which point investors decided that it might matter after all.  SPX plunged to 1598 over the next two weeks.

Through yesterday, SPX had recovered a Fibonacci .618 of those losses — despite Bernanke’s apparent confirmation that tapering is coming sooner or later, and President Obama’s apparent announcement that Bernanke’s time is up, and despite turmoil in practically every other market around the world.

With the FOMC statement only 5 hours away, should we fear the taper?  Much of the market’s gains over the past 4 years have come from Fed intervention.  So, simple logic would suggest that the withdrawal of the mechanism that blew the bubble would at least allow the bubble to deflate a bit.

But, where would money go?  It’s not as though there’s an alternate universe with vast stores of undiscovered,  undervalued assets.  That’s the trouble with QE — the money has gone everywhere, and overpriced just about everything.

Even if the Fed disappoints today, money will eventually come back to the markets — at whatever price that may be.  If I were David Tepper, with a $15 billion hedge fund and $7 billion of my own to manage, I would probably view the world the same way.

But, those of us with slightly smaller balance sheets would do well to get out of the way – or even short the market.  It was true when Lehman and AIG went broke.  It was true when S&P downgraded the USofA as SPX was completing an analog.  It was true when SPX completed Harmonic Patterns in April [here] and September [here] of 2012… you get the picture.

UPDATE:  9:34 AM

We remain short from 1653.50 yesterday based solely on the tag of the .618 retracement (of the drop from 1687 to 1598) which happened to intersect with several other channel lines.

SPX completed the Inverted Head & Shoulders Pattern (in red, above) we’ve been expecting by finally closing above the neckline yesterday.  The pattern targets 1673 — near the 1.618 extension of the red harmonic grid and the .886 of the white.

It’s not unusual for IH&S Patterns to backtest their necklines, which in this case is down around 1642 — also the location of the small purple channel’s midline and the next lower Fib line on the white pattern: the .500 at 1642.71.

BTW, several members are fondly remembering Sep 14, 2012 when — the day after the FOMC announced QE3 — SPX ran up and completed a Bat Pattern at the .886 retracement of 1576 to 666.  In addition to raining on Bernanke’s parade, it provided a fabulous shorting opportunity [see: The World According to Ben.]

While a disappointing FOMC release could certainly send the market into a tailspin, there is no comparable harmonic pattern currently in the works other than the aforementioned .618 tag.  Markets often reverse at the .618, but corrective waves more frequently reverse at the .786 or even the .886 Fib levels.

UPDATE:  10:26 AM

Speaking of Fibs, SPX just arrived at the .618 of its drop from 1654.19 to 1646.94 — also backtesting the top of the grey channel.  This, or the .786 at 1652.64, would be a natural place for a reversal of the bounce from 1646.

Of course, there’s no guarantee that the drop to 1646 wasn’t the full extent of the drop.  A push back through 1654.19 would be cause to revert to a long position.

A quick hat tip to Airyk, who asked about the potential Butterfly Pattern at the 1.272 extension on the red grid at 1659.  Please note it would coincide with the white .707 Fib (1661.12.)  What’s even cooler, though, is that it happens to intersect with the purple TL from the 1994/2002 lows at…drumroll please…2pm EDT (as in when the FOMC statement is released.)

 

With a few hours left to go, we’ll resume yesterday’s discussion about the big picture — including a quick look at DX and EURUSD.  I’ll announce on this page when they’re posted.

BTW, one interesting scenario I’m looking at is a drop to the white .382.

It would make for a nice C=A corrective wave — without busting the rising white channel — for the bulls, and would set up a Bat Pattern down to the .886 at 1633.06 (the bottom of the small purple channel) for the bears.

It’s even pretty darned close to the large purple channel .25 line.  Something for everyone!

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Lots of warning signs this morning.  The futures are absolutely flat at the moment.

The USDJPY is backtesting our new yellow channel midline after having completed two large H&S Patterns.

I’ll take a short position on the opening, with stops around 1644.  I’d like to see if SPX can push up through its neckline, or whether it again acts as resistance.

UPDATE:  9:41 AM

I show two small rising channels fighting for control of the near-term results: the white and purple.  Both have room to the upside, but both also offer interim resistance — as does the falling grey channel — which is an excellent fit as a corrective influence.

The small red harmonic grid shows a potential Butterfly or Crab Pattern down to 1617 or 1610, but it would bust at 1646.51.

UPDATE:  10:14 AM

SPX looks like it’s breaking out.  I’ll switch to the long side here at 1643.40 for a likely bump up to 1650-1653 — if it can break through 1646.50.

There’s a very good chance SPX will bounce around in the vicinity of the neckline now that we seem to be caught in the tractor beam of tomorrow’s Fed announcement.

The IHS Pattern is quite bullish, but confirmation requires that SPX close above it.  A break through 1646.50 would be a great start.  The next resistance is at 1648.69, then our interim target of 1650-1653.

UPDATE:  11:40 AM

SPX just breached the 1648.69 high, so there is little in the way of upside resistance from a harmonic standpoint.

We could see a reaction here at 1651-1653 — possibly as far back as the neckline at 1642. So, set your stops accordingly.

I’ll try a short-term trade here with a short position at any break through 1650, tight stops at 1650ish.  This might well be premature, as the white .618 is just above at 1653.20.

I started to review the bigger picture yesterday, but was interrupted by the late session volatility.  Let’s pick up here where we left off.

continued for members… (more…)

Note to members:  I have received responses from almost everyone regarding the mailing list for the new fund in the works.  If you would like to receive an accredited investor questionnaire and future updates on the fund as they come available, please contact me.  I will update the list tonight and do my best to respond to everyone by Tuesday, June 18.

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The futures are pointing up. I’ll go long on the opening, but I’m looking for a reversal at the neckline (about 1641) of the IH&S we’ve been tracking.
For seven months, now, SPX has shot up through a steep channel — tacking on over 300 points since its 1343 low last November.

Including the November reversal itself, SPX has bounced off the bottom or the .25 line of the channel 4 times prior to June 2013.

Each time, the bounce was vigorous — jumping up into not just the next higher level of the channel, but two levels higher, and with little hesitation.

This time, SPX didn’t just hesitate.  It came right back down and bounced off the bottom of the purple channel a second time.  We can characterize that as a successfully passed test.  We could also say it’s a testament to the growing influence of the bears.  But, it was different.

The reversal off the recent top wasn’t terribly difficult to anticipate.  Seemingly every talking head on the boob tube was calling for a 5% correction, and it did have a very “engineered” feeling about it at times.

Before the market opened on May 21 — the day I first called the top [a day early, see: If It’s Tuesday] — I wrote:

…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?

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

When SPX reached our target later in the day, I posted a forecast showing a drop to 1600.  In the end, we reached 1598 on Jun 6.

Without getting into a metaphysical discussion about greater forces, etc., is the market really that predictable?  Buy and hold types argue that owning a well-diversified portfolio of solid companies with good balance sheets and smart management is a good way to make money in the market.

I can’t argue with that.  In a constantly rising market, it makes perfect sense.  But, is it necessary to ride out every downturn along the way?  Why not profit from them, instead?  Why not keep an eye on moving averages, channels, harmonic patterns, analogs, etc. and manage your exposure accordingly?  It sure hasn’t hurt our results.

Consider the past 20 years.  Wouldn’t it have been nice to reduce exposure or even go short during the crashes of 2000-2002 or 2007-2009?  It’s something to think about the next time someone tells you that shorting is too risky.

Our purple channel looks significant even against the backdrop of past 20 years. It levitated SPX right up through the midline of the yellow channel this past New Years Day, when many patterns called for a reversal (holiday week, low volume ramp job on the fiscal cliff “solution” – don’t get me started!)

It broke the pattern of SPX dropping three rungs on the channel and regaining two (the next drop would have been out of the channel.)  But, note that every single previous move through any of the channel lines was followed by a backtest of some sort.  There were zero clean slices through — up or down — without some sort of reaction.

I can’t imagine that this one will suddenly break the mold.  When it happens, it will announce itself by doing something out of the ordinary, something different.  It will almost certainly involve the breakdown of a channel…maybe even our purple channel.

Stay tuned.

UPDATE:  9:40 AM

Reached the neckline, taking a short position here at 1641, stops at 1642.

It’s not that I don’t expect it to complete, just that these patterns usually struggle at bit at the neckline itself.

UPDATE:  9:45 AM

Just tagged our stop, so I’ll switch back to the long side.  The next serious resistance isn’t until 1650, though we should expect a back test of the neckline at some point.

Our previous resistance — the neckline at 1641 — is now our support.  So, 1640ish stops make sense.  Don’t be surprised if SPX closes just below or at least near the neckline in advance of the Fed policy statement (due out Wednesday at 2pm ET — at which time the neckline should be about 1641.60.)

Recall that the last time Bernanke had anything to say about QE, the market began the 89 point slide discussed above.  See his prepared remarks to the Joint EconomicCommittee here.  There had been plenty of talk about QE ending or tapering before, but this time Bernanke seemed a little more serious about the idea.

This one is pretty easy:  if Wednesday’s news amps up fears of tapering, look for a sell off.  If, instead, Bernanke grins and yells “psych!” then it’s probably off to the races again.  Since the market seems intent on doing nothing until then, we’ll examine what either of those eventualities might mean.

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