Our theme song for the day is the pop song What’s Up? from 4 Non-Blondes in 1992 — not for its title, but for its popular refrain “what’s going on!?”

It’s a bit of a departure from my usual jazz or standards, but I think it perfectly captures the mood on the Street right now.  With a rate hike now virtually certain (according to Fed presidents and pundits), do current valuations make any sense?

If they’re to be believed, the rate increase is a done deal.  Will Wall Street throw another fit like yesterday?  More importantly, will TPTB do a better job of propping things up?  They’ve been trying their best to convince the muppets that higher rates are a good thing.  Here’s their chance.

We’ll start with DX, which fell precipitously yesterday after Draghi’s flopped attempt to cheapen the euro.continued for members…

As we pointed out yesterday, it fell to the red .618 – Fib support.  There’s better support where the SMA100 and 200 sit, but the .618 could hold.

And, the USDJPY could well push back into the broken red channel.

And, the NKD’s rising red channel and red TL and moving averages could hold and see it push through overhead resistance at its SMA200 at 19515. And, CL could get a strong bounce from current levels or, better yet, the purple .886…If all that happens, then SPX could hold at the white channel .236 line, or failing that, the SMA50/100 combo just below at 2034ish.

Right now, the futures are saying a 2-pt gain.  So, I’ll assume SPX is heading higher — with our initial goal the SMA200 at 2064.83 and secondary goal the purple midline around 2076.  But, I’ll be watching like a hawk for the first signs of weakness.

UPDATE:  9:38 AM

So far, so good.  If/when SPX gets to 2064-2066, I might go to cash — at least initially.  I think this initial push is mostly short covering, and could fall apart quickly.

But, it could just as easily push through on strong support from CL and USDJPY — which have been pretty quiet thus far.Another key chart to watch is EURUSD, which is fast approaching its 100/200 day MAs. UPDATE:  9:48 AM

SPX pushed through the SMA200 — mostly on NKD futures and VIX — and is nearing the purple midline at 2076.  Not convinced it’ll get there, so I’d recommend extremely tight trailing stops here.CL is starting to weaken, and USDJPY is going nowhere, so we’re probably close to the first pullback.  The purple midline would make perfect sense (see 60-min chart above.)

UPDATE:  9:55 AM

I’m assuming it’ll either pop on up to 2076-2080, or backtest the SMA200 at 2064.83 first.  If it reverses and finds support at the SMA200, I’d be comfortable taking another long position for the next 12-15 points.

Note that this push was all short-covering, stop-running on the backs of NKD and VIX.  CL and USDJPY have been extremely quiet.  So, if/when they wake up and start moving, we’ll have a better sense of what to expect.

UPDATE:  10:12 AM

I’d keep a tight leash on this, as CL is still very non-committal and might want to drop down and tag that .886.We’re in melt-up mode here, and I’ve never been real comfortable with this kind of algo-driven rally. UPDATE:  10:31 AM

UPDATE:  11:07 AM

If it reacts, odds are it’ll dip down to the rising 5-min SMA20 — currently at 2071.  If it punches through, then the white channel midline at 2089ish would make sense.

UPDATE 12:04 PM

Pushing a little lower here.  Decent chance it’ll decline to the 5-min SMA100 or 50  — though will perhaps wait until they cross the SMA200 at 2064.83.UPDATE:  1:12 PM

SPX just reached the white channel midline at 2089 — my highest target for the day.  If you’re still along for the ride, I would strongly suggest selling here and going to cash for the weekend.Stocks are supposed to reverse lower after a bounce from the .236 to the midline.  Ideally, they’d drop all the way to the channel bottom.  In this case, it would suggest 2019 or lower.  But, we’ll not make any such assumptions at this time.  It should be perfectly clear to everyone just how easily TPTB can prop up this “market.”

From now on, we’ll post a summary of results from our daily long/short calls on our Results Page.  It’ll help us track how things are going relative to the S&P 500 during the month, as opposed to end-of-month only.

Here’s the first installment through today, Dec 3.  To see the reformatted page, click HERE. 

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These results are not necessarily indicative of those that current or future
subscribers might achieve.  For full disclosures and details, please click here.

When we noted that TNX had reached important support a couple of days ago [see: Is DX Really Breaking Out?] we had no idea it would only take two days to return to important overhead resistance.  Yet, here we are.

As usual central bankers are doing their best to manipulate the symptoms of a faltering economy — in the hopes that investors will mistake this for a cure of the actual ailment.continued for members…

Will TNX punch through this time?  Since Janet and I don’t talk that much anymore, it’s anyone’s guess.  But, if TPTB want to stop this correction dead in its tracks, the opportunity has arrived.  A push through the red, dashed TL would do the trick.

Remember, a retreat from the red TL from June 2007 means a correction.  Pushing above it — which hasn’t happened since, well, ever — presumably means a rally.

The Nikkei 225 is a great indicator of what’s happening with the yen carry trade.  It’s a “first derivative” of sorts that reflects the degree of yen bashing that’s going on, and also whether or not the BoJ is stepping in to prevent further losses.

So, when it approaches a potential bottom, like it is today, I always pay attention.

continued for members… (more…)

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Will there ever come a day when Draghi isn’t massively front-run?

Two days ago, we risked ridicule and asked Is the Dollar Really Breaking Out?  With the ECB about to increase its QE and the FOMC about to raise rates, a higher dollar was a foregone conclusion and, in fact, the most crowded trade out there.  Based on this morning’s actions, the answer is “maybe not.”

DX had pushed what appeared to be strong overhead resistance.  Similarly, EURUSD was forcing its was beyond strong support.  Our Nov 23 bottom call [see: Update on EURUSD] was stinking up the joint (with EURUSD almost 3% higher since that call, it’s smelling just fine, thank you.)

While EURUSD and DX matter, the key drivers of the “market” are USDJPY and CL.  And, it’s their reaction which will make the most difference in today’s action.

For a while, EURUSD’s continuing slump disguised the fact that USDJPY wasn’t going anywhere. DX was happy to push higher, no matter which pair was driving it — which made the yen carry trade seem healthy.  But, with the euro now strengthening and DX slumping, the yen might actually have to do something in order to support stocks.

continued for members…
(more…)

This chart doesn’t need much commentary.  It’ll either bounce or not!

Our current membership promotion is set to expire at midnight tonight.

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In a now all-too-familiar setup, CL has cratered, USDJPY has spiked, and the futures are playing things very close to the vest.  This would be a confusing technical picture if we hadn’t seen it a dozen times in the past few weeks.

continued for members… (more…)

November was a breeze compared to October’s frantic moon shot.  Our results came in at 10.82%, a slight improvement over last month and a generous margin over the S&P 500’s 0.05%.

The biggest challenge was the number of gaps — both up and down — at the opening bell.  Seven of the eight sessions during the decline (Nov 3-13) involved gaps down of 10+ points.  To make matters worse, almost all of them came after a bullish close the previous day.

Needless to say, this made for a few nervous nights.  Bears are typically punished severely for such foolhardy stunts as holding short overnight.

All turned out well, though, as we both called the top and came up with a fairly accurate target 72 points lower (not to mention the strong bounce afterwards.)  The daily chart from Beware the Bat, posted on Nov 3:

The daily chart from yesterday’s close shows our forecast was pretty darned close.

I anticipate that December will be full of more twists and turns, given the highly-anticipated FOMC rate decision.  The ECB and BoJ are also expected to stir things up.

I will continue to look for opportunities for larger, longer-term swing trades.  But, I suspect scalping will generate better returns with less risk in the coming month.

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Membership Promotion

Thanks to all our new members.  I appreciate your business, and will do my best to continue generating reliable forecasts.  For those who aren’t yet members, please be aware that we are currently running our best promotion of the year.

New annual members can save almost 60% off the price of a regular annual subscription, and almost 70% off a year’s worth of monthly payments.  It works out to about $2/day.  Just enter the coupon code “Black Friday” where indicated.  Better yet, for only $200 more, you can lock in your rate for as long as you’re a member.

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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, transaction costs and any hedging costs are ignored.
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5. Past results are not necessarily indicative of future results.  See Disclosures and Use Agreement for important information.

Final 24 hours…subscribe to pebblewriter.com and enter the code “Black Friday” in the space provided for a cool 68% savings off the first year of a regular Annual Membership — only about $2/day!

Better yet, lock in your savings with a Charter Annual Membership.  For about $2.60/day, your price is guaranteed to never increase. 

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Ever since DX completed its Bat Pattern on Nov 18, it has been established a series of higher highs and higher lows.  Given that the lows were rising faster than the highs, it formed a rising wedge, seen in red below.  It was significant, because it not only enabled DX to finally close above its .886 (ever since the 27th,) it kept stocks on the rise even as USDJPY faltered.

So, it was with great interest that we watched DX’s rising wedge break down last night.  It was confirmed by both the yen and euro, in that it was accompanied by a rapid plunge in USDJPY and spike in EURUSD.

But, look closely at where its decline stopped, and you’ll see that DX has, so far at least, merely backtested the broken .886.  Will the Fib level hold, or is there more downside to come?  And, what does this tell us about the Fed’s widely-anticipated rate rise?

continued for members… (more…)

Final 24 hours…subscribe to pebblewriter.com and enter the code “Black Friday” in the space provided for a cool 68% savings off the first year of a regular Annual Membership — only about $2/day!

Better yet, lock in your savings with a Charter Annual Membership.  For about $2.60/day, your price is guaranteed to never increase. 

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The big picture shows several very significant features.  First, the drop from 1998 followed a fairly well-formed channel that was interrupted in October 2011 by a massive QQE expansion.  The subsequent yen devaluation (USDJPY increase) sent the pair screaming higher where it barely reacted at the yellow .382 — not even dropping to the next lower Fib level.Another QQE expansion sent it spiking out of the huge channel and up to the yellow .618 at 120.11 where it was quite overdue for a retracement.  However, since the pair is carefully managed by the BoJ, and any decline is instantly translated into falling equity prices (thanks to the yen carry trade), it was, again, not really permitted to react.

It has occasionally drifted lower, but as soon as equities start sagging it is immediately brought right back up to that key Fib level.  Finally, this past May, it broke out.  But, it almost immediately ran into the rising purple channel that broke down back in 2008.

This backtest has proven problematic for USDJPY’s continued upside, as has the BoJ’s pause in announcing additional QQE.  USDJPY dropped and almost backtested the .618 in July.  Stocks were not pleased.  But, it was nothing compared to the bloodbath that ensued when USDJPY dropped below the .618 in last August.

That’s when the wheels came off the bus.

continued for members… (more…)