Once in a while a forecast comes together so nicely that people accuse you of having an unfair advantage.  From one of our members on Friday:

Are you sure you don’t have a time machine to travel to the future?  On Feb 10, you had a upper target of XLF at 22.51.  The actual close today is 22.49.

In all the excitement over the broader market, I haven’t paid much attention to XLF since Feb 10, when it closed at 20.28.  From that update:

Looking ahead, I’ve identified a few potential targets.  It think the next downside target has to be the purple .886 at 19.26 where it intersects with an expanded falling red channel midline in the next couple of days.

If it fails, the white .382 and that midline intersect in mid-April.  This would also complete a pretty clear C=A corrective wave.

If it holds, the immediate upside case is pretty much limited to a backtest of the broken yellow TL and white channel bottom at 22.51 in mid-March.

XLF bottomed out the next day at 19.53, 0.27 from our downside target.  It then rallied rallied over the next month, reaching 22.52 on Friday, just .01 from our upside target.It’s a nifty 15.3% return based solely on chart patterns, harmonics and technical analysis — and, a sharp poke in the eye for those who insist technical analysis doesn’t work.

Of course, nailing a target is a double-edged sword.  There’s the joy of a job well done, but the fear of badly botching the next forecast.  With that said, we’ll take a look at what to expect.

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The bounce off the Feb 11 lows has puzzled many investors.  But, it’s not all that complicated.

As more and more traditional investors and traders abandon investing, markets are increasingly driven by complex algorithms.  The most powerful is the yen carry trade [what’s this?], as seen in moves by the USDJPY.  The S&P 500 futures (ES) are shown for comparison purposes.A close second is an algorithm driven by oil prices — specifically CL futures.  We’ve been following this for a long time — first noticing the effect in the Jan and Mar 2015 rallies and writing about it frequently, including this Oct 2015 post: What Really Drives Stock Prices?If you want to know, for instance, why stocks suddenly reversed off their post-Draghi plunge, look no further than the short-term CL chart.  With ES in the midst of a 40-pt swoon, CL suddenly reversed (the yellow arrow.)  In rather short order (and, after USDJPY finally reversed) stocks got the message and rose along with them.Ditto for last night’s ramp job: all CL and USDJPY.  It should be enough for SPX to top harmonic resistance at 2009.13 this morning.  It will blow up a number of bearish patterns, enabling the rally to continue unmolested.Don’t take my word for it.  Former Fed President Dick Fisher, in a candid interview on CNBC earlier this week, confirmed what many have been sensing for years:

“…we injected cocaine and heroin into the system, and now we’re maintaining it on Ritalin….This has been a hell of a rally.”

Today, the injections are taking the form of higher gas prices.  On February 11, I filled up my wife’s car with regular grade unleaded at $1.94/gallon.  Today, that same station is selling gas for $2.15/gallon.

That 11% increase pales in comparison to the 50% increase in CL over the same period.  But, for anybody on a tight budget, it’s a bitter pill to swallow — particularly when they enjoy few of the benefits of the wealth effect Fisher and his cronies are now crowing about.

No doubt, the Have-Nots’ sacrifice (think of it as another gas tax) is much appreciated by those whose portfolios have increased in value since the Feb lows by — come on, you already know the answer!  — exactly 11%.

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Having been chastised in the past for not doing enough, today the ECB threw a little of everything at the problem of falling stock prices inflation that’s too low.  The Special High Intensity TLTRO (S.H.I.T.) in particular is nothing but a giveaway to banks who are, of course, the power behind the throne and the primary beneficiaries of the measures.

The result was a EURUSD that tested its former lows, only to bounce back to higher highs.  Will there ever come an ECB announcement that isn’t front-run by every trader on the planet?The question is often asked: “are central banks out of ammunition?”  Wrong question.  The correct question — the only one that matters — is whether they remain willing to manipulate the real drivers of the “market”: currently USDJPY and CL.

Futures initially spiked, but have fallen back to barely green on the day, clinging for life to the SMA100.  Part of the problem was that the spike took ES up to the .618 (2007.37) of the fall from the May 2015 highs to last month’s lows.  Poor planning on the algo-masters’ part.  But, the day is young.continued for members… (more…)

For a moment, yesterday, it almost felt as though markets weren’t being guided every step of the way.  CL was actually dropping — in sync with reality.  USDJPY was actually dropping — in sync with reality. And, stocks got all the way down to our 2nd downside target.

That was then.  This is now.  With CL within 0.16 of a believable turning point, TPTB decided enough was enough.  CL turned tail after the close, and is currently backtesting the SMA100.  Mark it down as yet more evidence in the “someone’s manipulating CL” case.  By the way, Zerohedge has run a series of articles regarding JPM’s role in levitating CL — for purposes of averting atrocious losses in its energy loans.  Great food for thought, though I would add BoJ, ECB and SNB to the cast of characters who might well be involved.

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By my count, SPX either tagged or passed through the SMA100 over 30 times in the past two sessions.  ES continued the assault overnight, with the latest attempts fueled, of course, by USDJPY and CL.

Looking at CL, though, it’s just possible that the moving average and Fib combination that led us to identify 1999 as a turning point several weeks ago will actually hold.

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Friday, USDJPY plunged below the bottom of the rising purple channel it’s been in since Feb 24.  Between that and CL’s initial sell-off, it was enough to shave about 20 points off ES’ overnight highs.   SPX had been nearing our 1999 target, and it was enough to make us wonder if the tag would be delay a week or more.

But, the “markets” opened, CL quickly rebounded 6.5%, and USDJPY popped right back above the channel bottom, and SPX gained 24 points from its lows.  Ah, the delights of algo-driven trading.

It’s a pattern we’ve seen over and over during the past week, and is reminiscent of pretty much all of 2014.  So, what does it mean if USDJPY is doing it all over again this morning?  Should we take it seriously this time?continued for members… (more…)

Gold reached our next upside target range this morning, tagging 1280.70 a short while ago.  Recall from our February update [Update on Gold: Feb 10] we were looking for GC to test a TL connecting several tops since May 2013.

If [the trend line] is broken, then the white .886 at 1277.90 comes into view.  Note that it’s in close proximity to both the yellow .382 at 1286.30 and the purple channel midline currently around 1274.

The TL was broken later that day, and it was off to the races for GC, which tacked on 7.3% in the process.While I’m always happy when a forecast works out so well, I’m fascinated by why it worked out.

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February’s results came in at 24.43% versus -0.28% for the S&P 500 — a 24.72% outperformance.

The early part of the month was the most profitable, with the market nearing free-fall at times.  But, the entire month featured above-average volatility — with only 18 of the 21 sessions exceeding 20 points in intraday range.

This fruitful environment, however, wasn’t without its challenges.  One-third of the sessions opened with a significant gap higher or lower, and 2/3 featured a reversal of trend from the previous day’s close.  In other words, scalping and day trading continued to benefit while swing trading was very tough.

Having said that, our mid-range forecast has been fairly accurate.  SPX gained over 6% by the end of the month following our long entry point on Feb 11 and, just today, reached our 1999 upside target — a total of 180 points in about three weeks.

We averaged a little over 6 position changes per session in February, with about 2/3 being profitable.  This number was inflated in the last half of the month when many typically attractive shorting opportunities were negated by CL manipulation and trades were closed at essentially no gain.  Our biggest loss on a single trade was 0.38%.

Our average monthly results since Jan 2015 increased slightly from 18.58% to 19%.

Following @pebbletrades?

I set up a private Twitter account @pebbletrades to disseminate notices of intraday position changes.  If you trade frequently, just go to the twitter page and click “follow.”  This generates a request that I can then approve.  It’s generally pretty fast unless you make the request in the midst of a busy session.

If your twitter handle bears no resemblance to your actual name, please drop me a line saying so.  This service is for subscribers only, and I’d hate to inadvertently exclude you.

Note that I will still post all intraday position changes on the website, first.  Once the post is entered, I tweet a trade alert that references the position change in some way (e.g. “target reached.”)  Hopefully, these tweets will make it less necessary to constantly refresh the web page throughout the day.

It was a few short weeks ago we slapped a 1999 target on SPX for early March.  180 points later, we’re here — though it hasn’t been without drama.  And, there’s likely more to come today.We’ll take a look at the path forward.

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Last night was a quiet session for ES, CL and USDJPY.  With the futures off just 2 points and our upside target within easy reach, the question is whether it’ll occur today or towards the middle of the month — which actually suits the charts a little better.

USDJPY shed some of its gains, but is holding on to channel line support.continued for members… (more…)