MEMBERSHIP NOTE:

I have added a Q&A section to the page discussing the fund in the works and will continue to expand it to include additional questions submitted by members. Those members who are accredited investors may learn more by clicking here.

Also, I received many emails regarding the category of annual membership some of you have (charter or not.)  Because (1) it will take time to go back and check, and (2) I’d like to be able to offer an ETA on the proposed fund, I’m postponing the fee increase — probably through the end of the week.

For those who haven’t checked in lately…

The current annual membership price of $950 is going up to $2,500 shortly [why?]  For those monthly, quarterly and semi-annual members planning to renew in the coming months, it pays to grab a charter annual membership now, regardless of whether you’re interested in the fund and regardless of whether the fund comes to fruition.

If you’re a regular annual member, it might also make sense to upgrade to a charter annual membership.  Even if your current membership doesn’t expire for months, the new rate will be higher.  Because it’s impossible for me to know exactly when the fund might be up and running, your membership could expire before you’re able to take advantage of the perks for annual members.

And, if you upgrade to a charter membership, you wouldn’t have to worry about future fee increases if, say, the fund launch is delayed or you decide not to participate.  And, as mentioned above, you’d be eligible for a rebate of your fees anyway if you end up subscribing to the fund.  So, your downside is pretty limited.

As always, any new membership will simply be tacked on to the end of your existing monthly, quarterly, semi-annual or annual membership.

If you’re already a charter annual member, do nothing.  You’re golden.  Your annual pebblewriter.com rate is locked in for the life of the site and you’re already eligible for all the perks for the proposed fund.  The only thing left to do is forward membership information to every investor in your address book.

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ORIGINAL POST:

In the words of that prescient market technician from the 60’s…

You know the day destroys the night
Night divides the day
Tried to run,
Tried to hide
Break on through to the other side
Break on through to the other side
Break on through to the other side, yeah…

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We started yesterday’s session wondering whether the reversal at the red .786 would lead to a downturn or was Point B in a Butterfly Pattern. From the initial post:

As we discussed last week, the reversal at the red .786 could be the full extent of a corrective wave on the way lower (the B wave in an A-B-C)  that is meant to test the bottom of the white or purple channels.  But, it could also be the Point B in a Butterfly Pattern targeting 1531 or 1540.

We spent the day harvesting several 7-pt moves, waiting for some kind of breakout or breakdown. With a few minutes to go before the close, the markets approached the neckline of the Inverted Head & Shoulders Pattern we’ve been watching for the past week (dashed yellow line below.)

The technical picture was mixed, but we went with the IH&S and went full long at 1525 as was our plan [After the Funding’s Gone – 1:45PM update.]    Thirteen points later and from this side of 1530, it was obviously the right move.  But, it wasn’t quite so obvious at the time.

Now that we’ve broken on through to the other side, the question is “what’s next?”

continued for members…

UPDATE: 10:30 AM

First, an overview of the IH&S and important harmonics targets.

SPX is closing in on the red 1.618 of 1540.09.  And, the white 1.272 is just above at 1543.43.  The 1.272 hasn’t been properly set up by the previous action, but it intersects nicely with the white channel top.  So, I’m inclined to expect SPX to reach it instead of 1540.09 before taking a breather.

The safe way to play it is with tight stops if/when we break 1540.  Once it tops out, I’m looking for a back test of the broken purple midline around 1532, but it could even reach the neckline at 1525.

After a backtest, we have to select an upside target.  There are a number of possibilities from which to choose:

• the white 1.618 at 1559.32
• the IH&S target of 1565
• the small red 2.24 at 1554.93
• the small red 2.618 at 1563.95
• the red 1.618 at 1553.93
• the yellow 1.618 at 1555.57

The last two have been my favored  upside targets for quite some time (in the event we broke 1530.)  They are of greater importance since they’re longer-term patterns drawn from more significant turning points.

The red 1.618 is the Crab Pattern extension of the drop from 1370 in May 2011 to 1074 in October 2011.  And, the yellow 1.618 is the Crab Pattern extension of the drop from 1474 to 1343 from September to November 2012.

UPDATE:  10:50 AM

SPX just tagged the channel top at 1542.  I’ll close my longs here and play the downside for a backtest as discussed above.  I might be a little early, but I’m inclined to respect the channel boundary more than that 1.272 at this point and would rather not be late on this one.  Stops around 1544.10 ought to do it.

REMINDER:  For those who want to keep up with the intra-day goings on, I try to tweet each time I log a direction change or important update.  Follow @pebblewriter to receive these updates.My current best guess for the backtest is 1530-1531.  It preserves the Feb 19 high (1530.84) for the EW crowd, and lines up with the red 1.272.

But, the midlines of the white and purple channels intersect around 1534 around 3-3:30 today.  That would also make for a nice pattern.

UPDATE:  12:30 PM

So far, 1542.54 has held as the high for the day.  Though until 1540 is broken, I’d have to consider 1543.43 still on the table.  Manage your stops accordingly.

The 60-min RSI has come off of this morning’s high, falling below the .75 channel line.  A price backtest such as we’re expecting would probably involve a backtest of the RSI channel midline.

The daily RSI is also interesting.  Note the strong negative divergence over the past two months.  Compare it to the total absence of negative divergence in late 2012, when the SPX high of 1474 matched up perfectly with an RSI high and subsequent RSI peaks corresponded to lower prices.

As with the decline from 1474, I see the current falling white RSI channel as interim.  That is, I fully expect it to morph into the red channel superimposed on it.  The bottom of the red channel is an excellent fit, as it lines up perfectly with a high and two lows, one of which intersected with the midline of the rising yellow channel.

The top looks pretty good, as it produces internal lines that correspond well with several of the turns since Jan 25 (the RSI high when SPX was 1509.)  Note, in particular, the sudden about face at the midline on Feb 28.  RSI had reached and just reacted off the channel midline as SPX completed a nicely formed Bat Pattern at 1525.70.  It produced a 24-pt decline (which obviously didn’t hold very long.)

Obviously, if RSI moves to the top of the red RSI channel, we might expect it to line up with one of the higher price levels mentioned above (1553-1555.)

I suspect the timing is imminent.  Why?  Check out the timing of the previous highs and lows as they relate to time Fibs stretched between the two most important recent lows — 1266 and 1343.

Several of the Fib levels line up with important tops or bottoms, including the important .618 level which correlated perfectly with last September’s 1474 high.  The 1.618 extension of the pattern fell on yesterday, so we shouldn’t have to wait long for the next significant peak.

UPDATE:  1:40 PM

SPX just tagged 1543.47, so it has my express written permission to begin that backtest now.  Initial target range, again: 1525 – 1534.

I suspect the higher end of that range — if there is a bounce followed by higher prices.  I say “if” because that solid yellow trend line running horizontally through the chart at 1533 is the TL from the Jul 23 2011 and Sep 14 2012 highs.

SPX poked up through it this morning, and should be expected to hold above it if higher prices are on the way.  A failure to hold it as occurred on Feb 20 (producing a 45-pt decline) would be much more damaging to the upside case.

Other worrisome signs? Check out the Dow.  As anyone within 100 feet of a CNBC broadcast knows, it hit a new high today — poking above the 1.618 extension at 14,201.84 (its version of the Jul – Oct 2011 crash) and the previous high of 14,198.10.

It’s also poking out above a very well-defined channel (in purple below) that dates back to April 2010.

Now, it’s hard to know exactly where to place the purple channel — what with tails and shadows on many of the candles.  But, I’d consider it quite bearish if the Dow were unable to hold above: (1) that channel, (2) the previous high, and (3) the 1.618 Fib.

The Dow, like SPX, has one more higher Fib level to consider in play – the 1.618 (red) of the Oct 5 – Nov 15, 2012 plunge (on the Dow, Oct 5 was slightly higher than Sep 14.)  Like SPX, this Fib target is higher than the one generated by the May – Oct 2011 correction.

We’ll keep an eye on both as we head into the final hour of the session.  But, be prepared for all hell to break loose if the Dow can’t close above 14,198.10.

We’ll also keep an eye on the dollar, which found support overnight at the .25 line of the small purple channel.  It has since moved up, which is generally contrary to the notion of higher stock prices.

A drop back to the bottom of the purple channel and/or backtest of the large white channel top would make sense if SPX were to make a new high.  Such a move would probably correlate with a backtest by EURUSD of the recently broken white or light blue channel lines.

UPDATE:  3:20 PM

Taking a fresh look at VIX, which was way off yesterday and appears to be bottoming around 12.90 — the .886 (red) of the 12.08 – 19.28 rally last month.

Note that VIX put in a pretty precise .618 tag of the 23.23 – 12.08 decline when it peaked on Feb 25.  So, a Gartley or Bat Pattern to the .786 (20.84) or .886 (21.96) respectively would be in order when the market sells off.

Note also that we’re coming up on a .886 time Fib in the next month or so.  Over the long term, these time Fib tags have been associated with several of the biggest moves ever in VIX.

If the pattern holds, VIX should be back to 22ish in the next several weeks.  Based on the current options premiums for Apr 20 calls (.70), I’d say this view is a real outlier.  But, I like the risk/reward enough that I might have to pick up a few.

And, last, consider RUT — which earlier today completed a Bat Pattern after completing two long-term Crab Patterns at a long-term 1.272 Fib level, a big rising wedge and an IH&S.  It’s an extremely bearish pattern that screams “short me, now!”

UPDATE:  3:35 PM

Weave all the above together and I’d say the market is ready to crack wide open.  It could be as soon as the next 24 hours with an intra-day tag of 1555 or even from today’s 1543.  Or, it could be later on in the month, following some consolidation in the 1525-1535 range.

But, I’m much more comfortable being short and making the market prove its strength than being long and hoping it can “keep it together” just a few more days.  I’ll keep an eye on all these charts over the next day or two, when I’m fairly sure things will resolve one way or the other.

I have to run out for a couple of hours right after the close, but should have a chance to catch up around 7PM EST.  GLTA.