pebblewriter

Month: February 2018

  • Off to the Races!

    I’ve been a little mystified as to how DXY could take a dive as per our forecast from two weeks ago [see: The End is (Probably) Near] while accommodating our forecast pop in both EURUSD and USDJPY.  We discussed this in our analog details back on Feb 7, wondering whether the comparable drop had already taken place.

    …things are further complicated by the fact that both the white channel bottom and the red TL already broke down before the VIX breakout — that first white dot on Jan 26. In fact, this breakdown was a big factor in the VIX breakout.

    The puzzling aspect of the puzzle was that USDJPY is so integral to propping up stocks that it was hard to imagine a continuing rally without USDJPY’s help.  And, it seemed unlikely that EURUSD’s target could be reached without USDJPY faltering too.

    So, here we are — with DXY declining right on time……and USDJPY dipping toward the 106.50 target we had in place prior to the analog.  Is this the time shift we had contemplated or something more?

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  • Charts I’m Watching: Feb 12, 2018

    So far, so good.  VIX popped just high enough to get SPX to its SMA200, then subsequently dropped through a TL of support that spurred the futures into action overnight.continued for members…
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  • Oil and Gas: Important Role Players

    On January 3, SPX reached a potentially important Fib level: the 2.24 extension of the drop between 2007-2009.

    Now, it doesn’t matter whether or not you believe in harmonics — the application of Fibonacci ratios to price forecasting.  But, you’d have to be blind to not see that plenty of people (or, at least the machines) do.Why begin a post on oil and gas with an SPX chart?  Because, as has happened so frequently the past several years, oil (CL) and gas (RB) were instrumental in a plan to get SPX up over resistance.

    For nearly two years, CL has followed a well defined rising channel, shown below in purple.  It bounced back and forth between its top and bottom with some regularity until it broke out — you guessed it — on January 3.Fibonacci ratios and chart patterns can tell us a lot about future price movements.  But, we must also consider ulterior motives — particularly for oil and gas, which are integral to telling algorithms when to buy and when to sell.  I mattered when we called the bottom in Feb 2016 [see: USDJPY Finally Relents] and it matters today.

    When CL and RB both reached our next downside targets from Jan 17 [see: Targets!] this morning, we had to stop and consider whether stocks had yet done what was desired of them.  With SPX still 50 points away from its SMA200, it seemed they weren’t quite done.  Turns out they weren’t.

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  • The Only Chart That Matters

    It’s pretty simple, really.  VIX got SPX up to 2872.  It got it back down to 2580.  If it’s not stabilized right here and now, SPX is going lower.Fortunately for the bulls, VIX made a lower high yesterday.  SPX didn’t care.  It made new lows anyway.  Because, after years of being tweaked by VIX managing to go just a little lower when needed, the algos need to see VIX stop rising at all before they’ll trigger any buying.

    The inverse VIX ETFs have thrown a 300-pt monkey wrench into the works, forcing buying that would otherwise have dissipated by now.  But, one has to ask: where are the central bankers?  We know they have hammered VIX in the past in order to prop up stocks.  Will they come through this time?

    And, if so, what about the dollar and, by extension, the USDJPY — the other factor which, along with oil prices, engineered the post-US election rally [see: Why the “Trump Rally” is a Fraud.]

    Oil and gas hit our downside targets moments ago, providing one more measure of support for stocks which are desperately in need of it (update coming.)Will it be enough?  Not if VIX can’t be wrestled under control.

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  • Analog Details: Feb 7, 2018

    Our analog is playing out nicely so far.  I’ve spent 18 of the past 24 hours charting, and have some additional info on what to expect from SPX, ES, DXY, USDJPY, EURUSD, TNX, ZN, RB, CL and, of course, VIX over the next two months.

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  • What is Deutsche Bank Trying to Tell Us?

    This morning’s rally is pretty good confirmation that our analog is playing out.  I’ve spent 18 of the past 24 hours charting, and have some additional info on what to expect from SPX, ES, DXY, USDJPY, EURUSD, TNX, ZN, RB, CL and, of course, VIX over the next two months.

    I’ll post it later today, but I’ve yet to come across anything that concerns me from a charting standpoint (i.e., conflicting signals.)  But, of course, there are any number of things that could throw it off track or bust it all together.

    One example is Deutsche Bank.  I don’t usually post about individual stocks, though I do a lot of charting on them for consulting clients.  In this case, I had a client who was trying to decide whether to throw in the towel on the stock.

    I called the bottom 2 days and 4 cents early at 11.23 on Sep 27, 2016 [see: Deutsche Bank – Will it Survive?] and it dutifully bounced up through our various targets until reaching the last target (20.43) I laid out in our Dec 7 post on the stock [see: Deutsche Bank – Another Pause or More?]My view at the time was that DB would correct modestly.

    If DB makes a meaningful reversal here, the rising white channel I’ve sketched in should take form – opening the door to a deeper backtest and fleshing out the rising white channel. It emerges from the falling red channel around Jan 13 at 14.30ish. But, the more conservative target would be the midline at 16.90.

    As it turned out, DB topped out at 20.94 (after gapping higher, gaining 5.6% that day alone) on Jan 25, and reached 16.90 (-19%) less than 3 months later.  It didn’t stop there, however.  It dropped on down to and through its SMA200 and a 50% retracement of its rise where it finally bounced at 15.79.

    Since then, it’s been bouncing back and forth between roughly 15 and 20.  This has been going on for almost a year, since March 2017.  It’s enough to make you wonder where senior management’s incentive stock options are priced.

    The Feb 2 drop was a real blow — the latest drop through the SMA200. As of this morning, DB had dropped 22% since Jan 24.  It’s in line with the string of 20% drops and 20% rallies which had occurred every month or so through last September.

    But, this one looks different from a charting standpoint.

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  • Analog Watch: Feb 6, 2018

    I love analogs.  Sometimes called fractals, they can provide an excellent road map for future price moves based on past ones [for details and a general explanation, CLICK HERE.]

    The first one I ever discovered was the best I’ve ever seen — a repeat of the 2007 top in 2011.  It forecast the summer of 2011 drop to the day and the dollar with very few head fakes along the way.

    My favorite analogs forecast big drops and provide an opportunity to score big gains by shorting or simply avoid big losses by hedging.  But, I’m not picky.  I’m a big fan of any opportunity to figure out where the market is going before it gets there.

    Of course, I always post these with a little trepidation.  Even though almost all of them have worked out, there have been a few notable exceptions over the past 7 years.  Even those have value, though, as the failure for a move to takes place usually confirms the likelihood of the opposite move — also useful.

    The drop since Jan 26 offers an intriguing possibility to repeat a previous pattern which, if it plays out, could produce a nice 15-20 gain over the next couple of months.  More importantly, it could keep us on the right side of the ledger in the midst of heavy volatility.

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  • That Escalated Quickly!

    It was just last Tuesday we asked “where’s the bounce?”  SPX had gapped lower and failed to rebound the way it always seems to has for the past year.

    We had watched a trend line dating back to Dec 29 (below, in red) break down, and were wondering about the small, white channel.  From Where’s the Bounce?

    After that, it gets a little messy. ES has an important backtest at 2773, which would be 2730 on SPX — nothing all that important in the vicinity. Below that, however, the white 2.24 at 2703.62 remains very interesting. It would be a hell of a drop from here: 117 points or 4.1%.

    The closer we got to 2703, the more plausible it seemed.  When we reached it today, though, SPX leveled off for only about 10 minutes before plunging lower.  Why?

    There are two primary reasons.  The first, of course, is VIX.  Was there a single session this past year when I didn’t bitch about the degree to which timely beatdowns in VIX were triggering algos to bid up stocks?  Doubtful.

    After VIX broke out of the falling channel on Friday, Our charts suggested it would reach 16.29 and, if/when that broke, 25.65. 

    When 25.65 broke, at approximately 11:48 this morning, it triggered an additional wave of selling from those very same algos which have learned so well to take their clues from VIX’s every twitch.  Live by the sword…

    The second reason was USDJPY and the ubiquitous yen carry trade.  As we noted in our last update [see: Jan 24 Update on USDJPY], the pair reached a channel bottom which represented important support.

    We’ve reached the bottom of the rising white channel which has held on four previous occasions since its origin in late 2012…Bottom line, USDJPY isn’t necessarily done until DXY is done. We had bounces at the .500 and .618, so an overshoot to the .786 at 108.90 or even the .886 at 108.16 is a distinct possibility.

    As it so happens, the white channel bottom didn’t hold.  Despite Kuroda’s desperate jawboning, USDJPY has continued to falter.  It backtested trend line resistance yesterday — all well and good.

    But, instead of catching support as it almost always does, it broke down.  At 11:56, it dropped through a tiny trend line of support.  Seconds later, when that TL broke down……it broke down through a larger TL of support.

    Bottom line, VIX and USDJPY are the two most powerful drivers of algos there are (oil occasionally takes the lead.)  When they were going strong…melt up.  The slightest hint that they’re not…melt down.

    SPX bottomed out yesterday at 2638.17 and closed a good 55 points below the 2.24 Fib.  While it’s always scary to see major Fibonacci support fail, there was an obvious effort to keep the uptrend alive.  Note the SMA100 crosses the bottom of the rising channel which was established with the Feb 11, 2016 lows.  In other words, it’s important.

    Significantly, the channel bottom was defined by the Nov 9, 2016 lows.  If that date sounds familiar, it was the election night in the US.  And, it was the last time a major effort was made to salvage important Fibonacci support. [see: Why the Trump Rally Is a Fraud.]

    It worked spectacularly, resulting in a 38% rally.  All it took was a 17% spike in USDJPY, a 55% rally in oil, and a 63% collapse in VIX.

    How about now?  The algos are primed and conditioned to respond.  I’m sure Jim Bullard still knows his way to Bloomberg’s studios.  Can TPTB manufacture another recovery?  For the answer, we need only to examine two similar, previous meltdowns: the night of the US election in Nov 2016, and August 16, 2007.

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  • The Beat (Down) Goes On

    With VIX finally unshackled from its falling channel, the question of the day is “how bad can this get?”

    It all depends on whether ES or SPX will be in the driver’s seat.  ES closed at our purple TL target, but as we discussed last week, its 2.24 Fib extension is a little lower at 2728.79 — the equivalent of SPX 2730.Now, 2730 isn’t terribly significant on SPX’s chart — a .707 Fib and well above SPX’s 2.24 way down at 2703.62.  So, we have an important conflict.The way this sort of conflict is usually resolved is a bounce at the higher target, followed by a leg lower or…. a nonsensical V-shaped recovery.  Which outcome do the charts suggest?

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  • Are We There Yet?

    Despite yet another ramp job, ES fell overnight to our next downside target at 2797.99.  It is currently holding just below its SMA20, with a very good chance of putting SPX in a position to at least tag its channel midline (2790ish.) This is made possible by TNX which, at 28.43, came within 0.13 of our upside target……and, ZN, which has reached our 120’315 target.One notable holdout in this morning’s TagFest is VIX — which is still languishing below 15.  If our forecast is correct, it has further to go — as do stocks.

    Keep an eye on oil and gas, which are also due for a tumble.

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    SPX’s targets from yesterday — the “channel is holding!” headfake.  UPDATE:  10:05 AM

    TNX has reached 28.54 and SPX has reached the white midline.  RB and CL are helping a great deal, though RB is at potential support and ES just reached its gray .786.  We should see a bounce here.Should see a bounce here for RB, at channel support, and CL — to hold the white midline.
    Note that ES still has another 20 points to go in order to reach its channel top backtest at 2773.  Since it and SPX are already down 30 points, I imagine we’ll get a bounce before it plumbs much lower.There is still plenty of dry powder in the form of EURUSD, which is backtesting its neckline after pushing as high as 1.2521 yesterday… …and, DXY, which is pushing up past its white midline.  As we’ve discussed many times, the question is timing.  Will they rip the bandaid off or let things cool down a bit first?UPDATE:  12:00 PM

    I’ve had a lot of charts point to Feb 12 as a potentially important date.  Here’s another one. I believe this bounce is probably going to fail, and we’ll get more downside next week.  For brave souls, I’d consider staying short with relatively tight stops.

    On the assumption that DXY is going to make another dip, I’d also take a chance on GC bouncing here and revert to long.  Probably early, though…The tricky thing is VIX.  If it tags 16.13 today, where does that leave it with respect to an 86+ point drop?  I don’t believe it could accommodate that without blowing out of the falling white channel that it’s already poking out of.  I had assumed it would snap back into it after reaching 16.13.  At this point, that assumption is looking iffy at best.Updates on the rest… Note that USDJPY has bounced back into the rising white channel, but has backtested the red TL connecting recent lows.  For nimble traders, this probably represents interim resistance — especially if DXY is going to complete a trip to 87.26-87.45. UPDATE:  13:23 PM

    A look at the daily chart on VIX.  If we’re going to reach SPX 2703, a breakout in VIX might be just the ticket.  Still, cautious traders might want to either take profits at 16.13-16.24, or at least consider trailing stops.The biggest problem with SPX 2703 is ES 2728.79 — the 2.24 extension of its decline between 2007-2009.  It’s the equivalent of 2729 in SPX — a good 26 points away from Fib support.  Looking at it the other way around, reaching 2703 on SPX would mean 2700 on ES — pretty much no man’s land in terms of Fibs.

    Sure, we could get an overshoot after hours — happens all the time.  Just know that there’s a conflict there.  The easier, safer course for TPTB would be to hold SPX at the white midline — about 2787, or even let it drift down a little lower in order to get the VIX tag before snapping it back above the midline by the EOD.  But, judging from VIX, they might have either misjudged it, or even lost control.

    UPDATE:  2:00 PM

    Keep a close eye on VIX.  I don’t trust it to hold these levels and worry that it’ll retreat to 14.33 into the close in order to close below the channel top — perhaps to pop up to 16.13 on Monday?

    We originally got in at 9.33, so this is a pretty nice 68% gain already — especially since almost all of you got in with options or futures.  At the very least consider some stops.

    UPDATE:  2:24 PM

    Probably a decent place to exit if you’re not planning to hold short over the (long, risky) weekend.  VIX is at 16.21 — right between our two upside targets — and ES just tagged our next downside target.  I’d be right back to short, though on any move through these levels. Though I haven’t mentioned it today, remember that EURUSD and DXY could complete their moves after-hours either today or on Sunday.  VIX also “trades” for 15 minutes after SPX closes. In other words, there’s no guarantee that any of these will have any effect on SPX.  Would it surprise anyone if SPX bounced back to the white midline (2789ish) in the final hour?

    UPDATE:  3:00 PM

    Well, here we go! Just broke below 2770 in ES and SPX with VIX popping above 16.29 (next stop 18.09.) Next support is 2760, followed by ES 2748, 2728, 2712 and 2701.  SPX: 2760, 2749, and 2703.  If 2703 doesn’t hold, things will get very ugly.  The next major support is the SMA100 at 2632, and then the bottom falls out: the SMA200, currently at 2533.

    Trailing stops are strongly advised at 2770ish, as we don’t know when the PPT will cry “uncle.”  If VIX crashes back to 14.30, SPX/ES could backtest 2790.

    Unfortunately, I have to run out for a meeting.  So, I’ll be watching from my laptop.  Best of luck everyone.

    UPDATE:  6:00 PM

    Nice acceleration into the close, but ES stopped at the purple TL — meaning the jury is out on follow through on Monday.  Here’s the picture on SPX…

    We start with the large purple channel from 2009……within which we have the more steeply rising white channel which originated at the 1823 stick save (the 1.272)……within which we had the rising red channel that lifted SPX past the white 2.24 at 2703.  SPX closed Thursday at the bottom of that channel.  It went on to break down today.

    Also breaking down, the white channel midline.  This is important, because the next stop on a drop through a midline — especially after the .786 line is tagged — is usually the .236 line.  In this case, that .236 line just passed through the 2.24 Fib at 2703.Right behind it is the purple channel .786 line that SPX broke above via the red channel.  The purple channel .786 line passes through 2703 next Friday.  And, a falling channel (white) which contains the recent highs and a reasonably significant low intersects with 2703 next Friday.

    Bottom line, a drop to 2703 would backtest the 2.24, the bottom of the falling white channel, the purple channel .786 line and the white channel .236 line.  That’s a lot of support.  The only problem with that scenario, as we discussed earlier, is that 2703 on SPX would mean a drop through ES’ 2.24 at 2728.

    So many times, ES takes precedent over SPX — especially when it reaches support ahead of SPX.  If we get capitulation, ES’ SMA200 is around 2532, roughly in line with SPX.  Unless VIX reverses immediately, I’d say that’s a very good possibility.