pebblewriter

Author: pebblewriter

  • Forecast Update: Dec 17, 2012

    April 11 seems like a long time ago.  It was then that I laid out my forecast for the top we’ve formed [see: New Analog I’m Watching.]  As regular readers know, it was based on a combination of channels, harmonic patterns in price and time, a huge rising wedge, and a promising-looking analog.

    I made several adjustments along the way — revising the 1314 downside target to 1295, for instance.  However, on June 1, when the SPX surprised me by dipping below 1292, I posted that the bottom was at hand — but that the analog was probably broken [see: Why I’m Buying.]

    SPX did indeed bottom the next day, but the chop over the remainder of June convinced me I was probably right about the analog being broken.  We saw no such chop in the comparison period of Mar-Apr 2011, which was a fairly orthodox A-B-C pattern higher to an unorthodox 1.272 extension of the previous decline.

    But, as SPX approached the key 1472 Fib level (88.6% of the 1576-666 2007-2009 decline), it occurred to me that:

    1. SPX would naturally reverse at this Bat Pattern completion [World According to Ben]
    2. This reversal would intersect with the 1.272 extension of the previous decline.

    Despite the huge differences in form between the Spring of 2011 and Summer of 2012, the ultimate price movement was shaping up to be the same.  And, it was happening without a Point B reversal at the .786, which is required of an ordinary Butterfly Pattern.

    This was enough to get me wondering if I’d given up on the forecast too soon.  Sure enough, we nailed the 1474 high on Sep 14 which, after nailing the Apr 1422 high and nearly so the June 4 1266 low, boosted performance to over 60% in less than six months.  The move down after 1474 played out very much according to plan.

    So, by the time I posted A New Old Analog on October 26, I had discovered why the forecast seemed off track in the first place.  It was a great help in forecasting the remainder of the year.  Here’s the forecast from that Oct 26 post, with alternative prices at each turn:

    And, here’s the actual price action overlaid on that same forecast.  We’ve tagged Point A of the first turn, Point B of the second, and overshot Point B by 10 points on the third.

    Does last week’s overshoot of the most recent target spell trouble for the forecast?

    continued for members… (more…)

  • Charts I’m Watching: Dec 14, 2012

    We’ve had a decent push down so far, coming pretty close to the .618 mentioned yesterday (1413.65) for the first bounce.  Bulls will see this as the formation of another potential IHS right shoulder.  Personally, I prefer the glass-half-cracked view — another traditional H&S (purple neckline) as we discussed yesterday (3:45 update.)

    I spoke with my local congressman last night, and apparently most of D.C. has already cleared out for the holidays (great gig, right?)  Some of that is posturing, of course, but clearly we are slipping closer to the point where a budget deal can’t/won’t be done — assuming the dem’s were ever willing in the first place.

    Given the current political climate, going over the cliff might be the only way possible to reduce spending and raise taxes.  There are many in both parties who openly support the idea, and probably many more who secretly support it.

    It makes sense.  Politicians know we need to balance the budget.  But, they also know their careers will be damaged if they vote for tax increases or spending cuts.  Could be that all the negotiating back and forth is for show, so neither party can be blamed for the hit to the economy that a balanced budget will necessitate (or both will be blamed, depending on your POV.)

    I’m not advocating one side or the other, mind you.  Our fearless leaders (in both parties) threw us all under the bus years ago, spending much more than we could afford in order to curry favor with those who could ensure their continued employment (lobbyists, special interests, etc.)

    Social Security, for instance, has been on an unsustainable path for decades.  When was the last time you saw a mainstream politician filibuster for a benefit cut or a tax increase?  Don’t hold your breath.

    I merely point out the obvious — any potential debt reduction requires that revenues go up and/or spending come down.  Theoretically, the economy could grow its way into higher revenues as business conditions improve.  Some advocate lower taxes as a means of stimulating growth, the “trickle-down economics” advocated by Reagan in the 1980s.

    But, it’s hard to discuss such things without the discussion devolving into politics — a subject I never touch on this blog.  There’s a decent, relatively non-partisan discussion on trickle-down economics on Wikipedia.  Suffice it to say that our system ain’t working so well, and something’s gotta give.

    UPDATE:  12:00 PM

    We just got the tag of the .618 mentioned above.  Normally, I’d look for a substantial bounce here.  But, the latest H&S pattern argues otherwise.  Bit of a quandary for traders.  To play the bounce, I’d be cautious and wait for a push through 1420, potential target up to 1429-1435, tight stops.

    The bullish argument is an adjustment to the channel rather than a breakdown (yellow vs white).  It’s the same very steep slope as that formed from Nov 2011 to Feb 2012.

    As discussed above, we’ve formed half the right shoulder of a slightly different IH&S pattern (above in purple) that targets 1544ish.  Could it play out?

    continued for members… (more…)

  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Charts I’m Watching: Dec 12, 2012

    In widespread anticipation of the Fed broadening its accommodative stance, the dollar poked down through its proposed (white) channel overnight.

    While the EURUSD is back-testing its recently broken rising channel.

    With expectations high that the Fed and Congress (some of you might have heard recent talk about the so-called “fiscal cliff”) will deliver, the cost of any disappointment could be very high indeed.

    The Fed is expected to replace the upcoming expiration of Operation Twist with new bond purchases, bringing the monthly total to $85 billion (including MBS.)  Whether QE was worthwhile or not is a question for future history books.

    But, there’s no question that each round has resulted in diminishing returns for the market — witness QE3’s paltry 40-pt gain on SPX.  Unfortunately for the Fed, they were up against a worthy foe — a well-established Bat Pattern that snuffed out the rally as we expected [see: The World According to Ben.]

    After the subsequent 130-pt decline, SPX is almost back to its pre-QE3 price level. I find it interesting that, yesterday, 60-min RSI tagged the top of the channel line formed from that brief rally.  It’s all the more interesting that it did so in the form of a back test of the channel that contained the rally from 1343 — and failed to break the previous (Nov 2) high of 1434.27.

    continued for members… (more…)

  • Charts I’m Watching: Dec 11, 2012

    Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.

    The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target.  Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time.  With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)

    The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched.  I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.

    The slope of the white channel could potentially be shifted, as illustrated by the above chart.  But, it would take a break out to reach the next higher Fib levels.

    A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)  In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher.  If it can hold the channel, the next move up should be explosive.

    continued for members… (more…)

  • Charts I’m Watching: Dec 10, 2012

    The market continues to walk a tightrope between another leg up and a very significant tumble.  We’ve been here many times before in the past year, and it isn’t getting any more fun.  To recap…

    We remain short from 1423 on Dec 3 [see: Without a Net].  This was target A established in our Oct 26 forecast [see: A New Old Analog] and can be seen in the original chart below.

    Note that 1423 was very close to the .618 retracement (1424.41 on the white grid below) of the 1474 – 1343 decline.  Prices reversed there as we expected, shedding 25 points to 1398 in its first wave down (in line with our forecast of 1400.)

    That .618 retracement of the 1474-1343 wave down portends one of three outcomes:

    1. the bearish case:  a corrective wave 2 which sets up a more powerful wave 3 down
    2. the bullish case:  the first of a series of impulsive waves to new highs
    3. the middle case: the “A” subwave in an A-B-C corrective wave that points higher before wave 3 down.

    The first case is pretty clear cut, and has been detailed in prior posts.

    The third is also pretty clear, as the .618 retracement to 1423 could be merely a Point B in a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)

    If SPX blows through 1425, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    The big imponderable is case #2.  The top question I’ve received over the past week is whether a fiscal cliff deal would result in such a move.  It’s pretty easy to imagine that sort of a market reaction, even though — like last year’s debt ceiling compromise — it would hardly be justified.

    One thing is indisputable:  deal or no deal, we’ll get higher taxes and lower government spending.  Any combination of the two will negatively impact GDP.   By the same token, though, any deal would almost certainly mean a bump in prices.

    UPDATE:  11:50 AM

    Last Friday, SPX came within 48 cents of retracing .886 (1420.82) of its 1423.73-1398.23 decline.  This morning, it sealed the deal, reaching 1421.64 and completing the Bat Pattern.

    In the process, though, it tagged the neckline of the potential Inverted Head & Shoulder pattern we discussed Friday.   The pattern, if it plays out, targets 1507ish.  For the pattern to play out, we’d (at least) want to see a close above the shoulder line at 1420.80.

    But, it’s important to point out that not every IH&S pattern plays out.   Sometimes, it’s just market makers trying to shake things up a little bit.  Here’s one that didn’t play out last year, for example.

    Suppose we went up and tagged the actual .618 at 1424.41 for instance.  It’d be easy to see it as the bullish case playing out, what with a higher high and all.

    continued for members… (more…)

  • Update on Financials: Dec 7, 2012

    The last time I devoted an entire post to financials [June 5: So Crazy, it Just Might Work] XLF was down nearly 19% from its March highs.  I held my breath and made some ridiculously bullish predictions.

    But, all good things must come to an end, and I think the tide is turning for financials.  Don’t get me wrong…I still think they’re dead meat in the longer term.  I just think we’re looking at a sizable bounce here and now if — and let me be clear, it’s a very important IF — the rumors are true and Kumbaya Banking and Quantitative Whatever are back.

    If not, this entire exercise isn’t worth the bytes it’s written with.  The financials, along with just about everything else Bloomberg quotes, will roll over and die.  OK, with that huge caveat out of the way — and before you laugh me out of cyberspace — here are my targets:

    JPM:  today’s close = 31.99, price target = 38.69 (+21%)
    C:       today’s close = 25.75; price target = 34.79 (+35%)
    BAC:    today’s close = 7.10; price target = 11.34 (+60%)

    Turns out that was the low for both JPM and C.  JPM reached our target on Sep 6 and tagged on an additional 5 points by October 17.  Citi reached its target on Sep 14 (same day SPX peaked) promptly dropped 10%, then rallied another 3.5 points to form a nifty little double-top on October 18.

    BAC was my one disappointment.  It had achieved a nice 38% return when it peaked at 9.79 on Sep 14, but had fallen short of my price target — a Fibonacci 61.8% retrace of its 68% 2011 plunge.  Apparently I had been too optimistic.  Or, so I thought…

    Don’t look now, but in the past couple of days BAC has shaken off its laggard status and is once again spiking higher — trading within 66 cents of my June forecast.  As has been widely reported, call option buying is going through the roof.

    Sadly for those speculators, though, it’s going to take lots of unicorns farting rainbows for those calls to pay off very big.  Why?

    Reason #1:  Yep.  Two Crab Patterns pointing to the same conclusion — a reversal near current prices.

    Reason #2:  Uh-huh.  Rising wedge, plain as the note on your place.

    Reason #3:    Bad channel karma everywhere.  Maybe those call buyers don’t look at charts much?  Yikes!

    Reason #4:  How about a Fib .382 reversal?  It’s not usually the end of the world, but it is a Fib. And, it’s surrounded by a bunch of little channels that are about as cute as a pack of Dilophosaurus.

    I’m not going go all negative and start talking about the massive fundamental problems BAC faces — as do most other banks.  But if BAC hasn’t done its thing by the time the market does its mama bear crash here over the next few weeks, it’ll be a couple of months before it gets another shot.

    If it’s lucky, the sell-off will only be to 9.12.  But, it the white channel mid-line doesn’t hold, you could through another point or so on the fire.

    What does this mean for the rest of the financials?  Think in terms of a downdraft on Monday.   XLF needs 8 cents to reach its .786 (or .21 for the .886), which ought to get the party started to the downside.

    JPM needs .47-.61 to reach a prime target for reversal — either 43 or 43.14.

    And, C has about 44 cents of life left in it;  38.19 oughta do it.

     

    When it comes to significant moves, financials often lead the broader markets.  Fortunately for our forecast, they are only one good pop away from being ready for a slide.  Having them on board in the next session or two should get us where we want.

  • Last Call: Dec 07, 2012

    Feeling pretty jazzed, as things should finally get underway today.  Today’s theme music from the late jazz great Dave Brubeck, the last of his kind.  This track features Brubeck, Paul Desmond, Eugene Wright and Joe Morello doing what they did best — laying down some hot licks.

     

    ORIGINAL POST:   9:15 AM

    Though the jobs numbers will give a boost to the market this morning, it shouldn’t be enough to break to new highs.  SPX should come within a few points of completing an inverted H&S pattern, but ultimately fail near the .786 or, more likely, a little Bat Pattern at the .886 (1420.82)

    For anyone who missed the opportunity to go short when SPX nailed our upside target [see: At Last] on Monday, this could be your last chance.

    The rally from 1343 has felt strong, but it’s no more than a back test of a broken channel. The next major move should be much lower.

    As always, stops are advised in the event the pattern completes.  Though this analog has worked beautifully since last April, they all fail eventually.

    BTW, the jobs numbers from BLS weren’t quite as fab as they would have us think (I know — I’m shocked, too.)  In the last four years, those over 55 have scored decent job growth.  Younger workers and those in their earnings prime — not so much.  From Zerohedge:

    UPDATE:  11:45 AM

    The dollar has been a veritable billboard for harmonics lately.  It completed a Bat Pattern back on Sep 14 (red pattern), retracing .886 of its rally from February to July.  Since then, it’s retraced 50% of the drop (not shown, but a Bat Pattern from Aug 28 channel mid-line break.)

    It then proceeded to complete a Crab Pattern (in yellow), reversing at just beyond the 1.618 of 81.138 in mid-November.  Since then, DX formed a nice falling wedge that saw it complete a Gartley Pattern on the 5th (in white.)

    Some might see the purple and red patterns as having further downside potential.  The red Bat could go on to form a Crab down at 74.335 (which would line up nicely with the purple .886 at 74.158.  If our analog/forecast busts, I’d say that’s a good possibility.

    But, it’s hard to ignore the recently broken channel for EURUSD.

    UPDATE:  1:20 PM

    Stocks reversed nicely from this morning’s high, which came within  48 cents of our 1420.82 target — good enough for government work.

    Lots of excitement about financials the past couple of days.  It was certainly one of the hot sectors today, offsetting generally poor results from services and, of course, AAPL.  When it comes to significant moves, financials often lead the broader markets.

    So, in a period when we’re looking for a sizable sell-off, it would be helpful to have the financials on board.  Fortunately for our forecast, they are only one good pop away from being ready.

    For more, check out today’s Update on Financials.

  • Charts I’m Watching: Dec 6, 2012

    ORIGINAL POST:

    We can’t call the corrective wave over just yet.  There’s still potential to one of those fibs or channels we discussed yesterday before the 3rd wave down gets going.

    But, RSI is still showing no breakout potential on any time frame.

    A 50 – 88.6% retracement is considered “normal” for 2nd waves.  This one had a little reversal at a little over .618 on the largest white scale, which opens up the possibility of a Gartley (which completes at the .786) or a Bat Pattern (completes at the .886.)

    As the chart shows, the .786 is at 1418.27 and the .886 is at 1420.82.  Each of them looks possible, and one of them is very likely if SPX edges up past 1415.56.  If it does, my leading candidate is the .786 at 1418.27 — especially if we get a little reversal at 1413.50 — the .786 of the smallest red pattern.

    That would set up a Butterfly Pattern on the little red pattern which completes at its 1.272 at 1418.27 — intersecting nicely with the white pattern’s .786 at 1418.27.  Such a price point intersects with the channel lines (as drawn, but not yet firmly settled) at the end of the day or very early in tomorrow’s session.

    If SPX can’t get past 1415.56, then the downside harmonics (represented by the small purple grid) are in play, and the initial target is back to the 1398 level (previous low, and a Bat Pattern .886.)  Once prices move past 1398, the decline should accelerate.

    UPDATE:  12:30 PM

    If the analog were to play out exactly as before, with no deviation from the past pattern, we’d not see any higher prices at all.  In fact, we’d be back below 1343 in the next day or so — starting this afternoon.  But, that’s a bit much to expect, given the big deviations we’ve already seen within each wave.

    UPDATE:  3:15 PM

    Lots of excitement around AAPL the past couple of days.   A couple of weeks ago, after AAPL soared 90 points in 7 sessions and was approaching 600, I was a little skeptical [see: AAPL update.]  I posted the chart below, and nervously took a stand.

    Combining all the above, it’s easy to imagine a scenario where prices drop to 500 into the end of the year, but can’t quite seal the deal on the H&S pattern.  A nice bounce there and rally into February would fit nicely with my general equities forecast (see below.)

    AAPL gained 4 more points over the next couple of sessions, then took a swan dive that has seen it lose nearly 75 points in less than a week.  Here’s the same chart, updated for the actual price action.

    Aside from the fact that AAPL did what we expected, nothing’s really changed.  There’s a H&S pattern that would complete at about 504.  Given the number of hedgies and mutual funds rushing for the exits, who could be surprised if AAPL went ahead and completed it?

    But, I’m not beating the table for that scenario, only because a bounce just shy of completing the pattern better fits with my general equity forecast.  AAPL came within 3 points of a .886 retracement of the bounce from 505 today (and 14 pts shy of the H&S completion) so there’s ample reason for a bounce.

    It could easily stay in the little white channel, forming a falling wedge into the year end as the rest of the market melts down a bit.  Personally, I wouldn’t have anything to do with it in my portfolio unless it was an iron condor or the like.  The volatility is too great and I don’t like the odds in either direction.

    More later…

  • On Our Way

    For anyone experiencing a slow response from the site this morning, it’s not you.  GoDaddy is on the case, and I hope to have some resolution soon.  I sent out the first update via email rather than wait forever for page loads.  Please take this opportunity to subscribe to twitter — another back up available to us:  https://twitter.com/pebblewriter .

    Also, a quick shout-out to a member of this site who, without knowing, has made life more bearable for me of late.  Only 100 feet from where I sit overlooking the beautiful Pacific, someone has been preparing a lot for their new house.  For the past three weeks straight, a 20-ton excavator has been jack-hammering solid granite from 8am to 4pm.

    While slowly going (even more) nuts, I discovered the music of David Parkhurst Crane [website].  It’s both uplifting and serene, and gently guides me back to a saner place.  An added bonus: it’s instrumental.  So, I don’t get distracted (or add to the excavator’s din) by trying to sing along.  Thanks, David, and I hope I haven’t embarrassed you too much.

    ORIGINAL POST:

    This morning, everything is still on track.  We’re getting the bounce at 1400 we anticipated in yesterday’s post [see: Without a Net.]  We haven’t had a significant bounce yet since shorting Monday at 1423 [see: At Last.]

    The key to any additional upside will be if SPX leaves the little white channel established since the top.  The top of the channel is currently around 1408-1409.  A bounce should be limited to 1420.82 or so, the .886 of the move down thus far, and the top of the purple channel that’s guiding the downside in the big picture.

    If it ramps up but reverses at 1409, then obviously the downside will accelerate.

    The 60-min RSI supports the idea of a decent bounce here.  Note we’ve reached the bottom of the yellow channel.

    UPDATE:  12:05 PM

    We broke out of the white channel and are working our way back up.  A typical .618 retrace would stop at 1413.99.  But, there’s a potential channel widening (small red channel) to be had at the .786 at 1418.27 (it would have to hurry) or the .707 at 1416.26 late in the session.

    At some point during every sell-off, the falling channel has to widen or morph into something else.  We won’t know exactly which until this bounce completes and we resume the downside.

    For those looking to capture the larger move, no reason to chase the bounce; it’s likely nothing more than a blip on the way much lower.

    UPDATE:  2:55 PM

    The site seems to humming along again.  The bump got as high as 1415.56 and, since then, has been furiously — well, pretty much nothing.  The two possibilities I ventured this morning are still on the table.  A tag of the purple channel would mean about 1420 as of 3:00PM (the .886 is at 1420.86.)  The red channel I drew is presently up around the .707 at 1416.26.

    SPX has formed a pennant-looking pattern which hints at 1428ish.  While I definitely don’t expect it to play out, this is why we use stops.

    The 30-min RSI is mashed up against a channel line, so it could break either way.

    But, the longer-term picture is still negative — and should remain so as our forecast continues to play out.

    continued for members… (more…)