If you’re a chartist, there are two distinct markets to deal with.  Both are predictable, but only one is enjoyable.   Friday, when SPX nailed our 2090 downside target, closely following the path we laid hours earlier, was fun.

Then…there’s the market’s evil twin.  It’s driven by algorithms that respond to manipulation in CL and USDJPY prices — a clear case of the tail wagging the dog.  Consider the night of June 5, when CL futures, after having struggled to push past a key Fibonacci level for several weeks, departed from a falling channel to push up and out of a rising channel.Never mind that CL is back below the rising white channel top and is even contemplating reentering the falling purple channel.  Never mind that it burned bears by driving ES 22 points higher over the next three sessions.  And, never mind that it’s back below the white .618 Fib level at 48.63.

The point is, it established new highs for ES and SPX — meaning that all those nifty bearish harmonic patterns that reinforced the bearish chart patterns got busted.  It’s a common occurrence, and one that makes charting a lot tougher than it was a few years ago.

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It looks like we’re going to get that yellow neckline backtest after all.  That poor white dot has been hanging out down there at 2086 for a week, looking less and less likely to ever get tagged.  Now, not so much.continued for members... (more…)

Last month was challenging, to say the least.  After a deep retracement of the drop from 2134 to 1810, SPX began a well-formed, falling channel that lasted from Apr 20 to May 19, at which point SPX had completed two large Head & Shoulders patterns. Beginning on May 24, though, things got very “interesting.”  SPX broke back above the H&S necklines and out of the falling channel on a series of algo-driving rallies in oil futures (CL.)

After three straight days of nearly 1% gap openings (yellow arrows above) with very little retracements, the downtrend was broken.  Ironically, CL advanced very little during this period.  The gains came almost exclusively during market hours, after which CL reset for the following day.Most sessions during the month were gap openings, and most of the rebounds featured meltups — my least favorite “market” to chart or trade.  Nevertheless, we managed to generate decent results for the month at 9.49%.

This was a little lower than earlier in the year when we saw more volatility.   But, Isuspected as much when we entered the dangerous period between the previous all-time high of 2134 and the .886 retracement of the drop from it to 1810.

FWIW, June is shaping up to be every bit as “interesting.”

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This will be the last call for our membership promotion.  This evening, Annual Memberships revert to $1,800-2,000.  For those who signed up for regular Annual Memberships who wish to upgrade to Charter Annual Memberships (locks in your rate), you may pay the $250 difference by clicking on the “consulting” button.  Contact me with any questions.

To sign up now, CLICK HERE.

Yesterday, CL and USDJPY ran into significant resistance.  But, of course, they weren’t permitted to decline until after the market had closed for the day.  So, we’re left with yet another gap down overnight.

CL is finally backtesting the rising channel it broke out of yesterday.

And, USDJPY very nearly nailed our downside target overnight.

Our downside target for SPX remains unchanged — but, again, we had to hold short overnight to enjoy it.

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As we discussed yesterday, the key to new highs was CL breaking out of the rising channel it’s been in since May 18.  Yesterday, it did.  And, SPX had no difficulty in reaching our next upside target.

As expected, however, USDJPY’s rising channel broke down (a much more legitimate occurrence, I might add.)Can stocks maintain their upward momentum with the pair on the decline?

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Yellen said all the right things yesterday to keep the algos on track, taking out the previous highs and seemingly on track toward new all-time highs.

USDJPY continues to inch higher. But, CL has run into resistance once again — in the same manner that delayed new highs last week.  Which to believe?

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Friday was one of the more interesting days we’ve had for a long time.  It wasn’t that we experienced a snapback rally — we’ve had plenty of those.  Rather, the plunge across the board aptly illustrated l the dilemma the Fed and other central banks face with respect to propping up markets.

With an imminent rate increase likely off the table — at least in June — the US dollar will have a hard time maintaining its strength.  If DX continues falling, then the yen carry trade will continue to falter.  Even though oil futures have become more powerful in driving stock algos, USDJPY still matters (as we saw on Friday.)

They can continue to drive CL higher, but that will simply increase inflationary pressures — which will make the continuation of ZIRP/NIRP that much more alarming.  To be clear, I don’t see any way they get out of this conundrum without stocks taking a hit or consumers taking a hit.  I guess we know which way that usually plays out…

This morning, CL is again demonstrating its ability and willingness to prop up stocks.continued for members… (more…)

With such weak employment figures this morning, the odds of a rate increase in June just plunged.  However, that information just killed the US dollar’s rally… …which, of course, killed the USDJPY.  Recall we were looking for a drop to 108.25 or even 107.79.  It’s currently on its way to 106.80.Needless to say, CL will have to rally a lot in order to prevent stocks from giving back this week’s gains.

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For several years, buying the dip was the obvious thing to do. It even had its own YouTube video. But, lately, big meltups into the close have been a trap — at least until the next one comes along.  Yesterday’s action in oil futures (CL) was a classic.

A 4.7% plunge turned on a dime as stocks opened, and rallied 3.1% all the way until the moment they closed.  It was enough to erase a nice loss on the day and drive ES 16 points higher off its morning lows. It’s plunging again this morning.  Rinse and repeat?  Or, are folks waking up to the disastrous Japanese fiscal developments (another downgrade on the way) and the continuing meltdown in OPEC and wondering “why buy this particular dip?”

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We’ve added quite a few new members over the past two weeks.  I thought it would be a good idea to review a few odds and ends.

First, if you signed up for a Charter Annual Membership, congratulations.  Your rate will never increase above $750.  If you signed up for a regular Annual Membership at the sale price of $500, that rate is good for the first year only.

The annual rate will be reverting to $1,800-2,000 after the membership promotion concludes.  If you’d like to upgrade, no problem.  Just PayPal the $250 difference and we’ll adjust your membership type.  You can also use the Consulting button on the sign-up page [CLICK HERE] if that’s easier for you.  I’ll leave the promotion up through Friday night.

If you haven’t already, take a moment to follow @pebblewriter, and, if you’re an active trader, @pebbletrades.  @pebblewriter is a general Twitter account to which I post a random assortment of stuff on a random basis.  @pebbletrades, for members only, will notify you of intraday changes in position.  If it’s not obvious from your Twitter handle who you really are, drop me an email so I can approve your follow request.

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Now, on to investment matters.  For those of you who haven’t figured it out, I am slightly bearish by nature.  I set up this website back on May 2, 2011 because I was concerned that stocks were about to take a big dump.  They did.  May 2 was the high.  The S&P 500 tumbled 22% by October — most of it in a rather nasty 18% plunge over a period of two weeks.In that case, an analog that was replicating the 2007 top was at work.  It predicted the day and exact price at which the decline would begin.  I was over the top ecstatic, and my readers were too.

But, on October 27, a pattern which might have taken stocks well below the 2009 lows was busted by the ECB.  Thus began my quest to figure out just how central banks and their proxies were directly and indirectly moving markets, and more importantly, how to anticipate such activities.The Fed has always had the ability to goose markets via monetary policy.  But, this was something new: deliberately busting bearish patterns via currencies, futures, derivatives, etc.  Five years ago, most folks laughed at the idea.  Since then, it has become common knowledge, and is openly admitted by the BoJ and SNB.  Others, perhaps more shy about it, are no doubt doing the same.

I’m not an insider.  I have no friends at the FOMC, the ECB, the SNB, BoJ or even at Citadel.  I’m just an intensely curious guy, some would say slightly “Aspergery”, who sees patterns everywhere.  It’s no exaggeration to say I even dream about patterns.  I keep a notebook on my bedside table for those times when I wake up at 3am with a particular pattern in mind.

The downside — aside from making me perhaps the world’s least interesting person to invite to your home for dinner — is that I often find myself jumping at shadows.  I’m not really paranoid, but it sometimes seems that way because I pay particularly close attention to downside risks.If something bad is about to happen to your portfolio, I’ll be among the first to realize it and let you know.  This means that if you have a long-term taxable portfolio with an extremely low cost basis, you should take my intraday rants with a grain of salt.  Sometimes they work out, and sometimes they don’t.  It often depends on whether the MIT grad sitting in a windowless room on Dearborn St. in Chicago mashes the “sell VIX” or “ramp CL” button.

This assertion will rub some of you who do excellent fundamental research the wrong way.  Believe me, I understand.  Like you, I was raised to believe that the secret to forecasting stock prices was in analyzing a company’s cash flow, earnings statement, balance sheet, competitive position, management talent, etc.  I believed it as much as anyone.  And, at times, I believe these things still matter.

But, did it matter last August or January, when stocks were dropping like rocks, whether you owned the highest quality stock in its sector?  Did it matter in the summer of 2010 or 2008? How about the countless times, like today, when a 3% intraday rally in oil futures — on no news — produces a V-shaped rally that spikes up to new highs?The reality is that stocks are heavily manipulated.  And, I’m not just talking about the big picture — though that should be obvious.  I’m talking about oil futures, USDJPY, NKD or VIX making sure that SPX gets a little boost when it bumps up against resistance.  It happens multiple times per day, almost every day.

Though once in a while it doesn’t happen, or they try but it doesn’t work.  Maybe the selling volume is too high, or they actually want to flesh out a ridiculously lopsided channel with an occasional pullback.

Lately, we’ve seen what appeared to many to be minor pullbacks turn into 10% corrections.  Love those, as they provide those willing to short stocks an opportunity to pile on positive returns while the indices are dropping.  They almost make up for the days when the algos deliver a melt up that completely ignores resistance.  I still find those days tough to trade — though it’s probably psychological.

Speaking of trading…I don’t consider myself particularly good at it.  I used to be, back in the days when good news was good and bad news bad, when real live people traded markets, when borrowers paid you interest instead of the other way around (what’s the PV of something using a negative rate!?)

These days, it’s increasingly difficult to trade without thinking to myself “what are they trying to accomplish, here?” or, “what would be the best way for them to screw over traders who are playing an obvious pattern?”  Witness the prevalence of busted Head and Shoulder patterns, not to mention the number of hedge funds that are closing their doors.

Fortunately, I’m pretty decent at charting patterns and forecasting markets. So, that’s what I do every, while also attempting to identify turning points intraday.  You’re welcome to follow along in the instrument of your choice, as I post these turning points.  Or, simply use the information to inform other purchase/sale decisions.

And, if you have a specific stock, currency pair or commodity that you’d like an in-depth or customized look at, just let me know.  I consult by the hour or, if it’s an ongoing need, on a monthly retainer basis.

Lastly, I encourage you to share.  Most of you are professional money managers or traders, and I know you like to keep your secrets to yourself.  But, we all have unique perspectives, and none of us has a lock on good ideas.  Share something that helps another fellow trader today, and tomorrow karma might smile on you.

 

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p.s.  I’m going to try very hard to get May’s results posted on Thursday.  I’ll POST THEM HERE as soon as they’re available.