pebblewriter

Author: pebblewriter

  • Without a Net

    The toughest moments for those of us who chart publicly are those right after calling a significant top or bottom.  There are some instances when pretty much everyone and their mother can see a turn coming.  Other times, it feels like you’re sailing through the air, frantically searching for the catcher and hoping he hasn’t chosen this moment to take an unannounced coffee break.

    The first wave down after any significant top is just plain fun.  It worked!  Sit back, bask in the glory, etc.  Then comes the corrective wave.  Heart-in-throat time.  You know it’s going to retrace some of that first wave down, but how much?  Most chartists develop sweaty palms around 61.8%.  Your stomach starts churning at 78.6%.  At 88.6%, time for your favorite vice.  And, God help us if it’s a double top.

    Following an analog is generally the worst.  Virtually no one else sees it coming, and there is a long list of reasons you’re probably wrong.  Taking a tour around the net last night, that certainly seems to be the case now.  The euro is soaring, the dollar is tanking, and the market has spurted 80 points in two weeks — only 50 points from a five-year high.

    It’s made even worse if the first wave down didn’t break out/down of whatever chart pattern it was in.  Yesterday’s reversal was impressive — going from up almost 8 points to down 8.But, we never quite reached my 1424.41 target — coming up .68 short — not to mention the Inverted H&S target.

    And, we haven’t yet broken down from the rising wedge. A re-test of the high is officially on the table until that happens — hence the importance of using stops.

    Once the wedge is broken, the next support is usually either an important Fib level or a morphing of the wedge into a channel.  In this case, we have strong horizontal and Fib support at 1400.  If we convert the wedge to a channel, it has a mid-line currently around 1402 and a channel bottom around 1390.

    A rising channel would be bullish, of course.  And, I haven’t a bullish bone in my body right now.  We draw it, though, because we have to try to get inside the head of all the bulls out there and figure out where they’re likely to jump in and buy.  Channel mid-lines and bottoms, as well as important Fib levels, definitely qualify.

    UPDATE:  11:35 AM

    Nice reversal off this morning’s highs again, turning a 4-pt gain into a 4.5-pt loss where SPX bounced off the 10-day SMA (in red below, currently 1405.37.)  The SMA 20 (white) is down around 1392 and, like the 50 (blue, 1419), is due to continue falling. Fifty sessions ago was Sep 20, two sessions post the Sep 14 high of 1474.  So, all else being equal, the SMA 50 should start coming down as those higher components to the moving average roll off.

    The 200-day moving average (thicker red) is down at 1385, so it’ll be a while before the 50/200 cross.  And, we are officially back below the 100-day (thicker yellow) at 1410.59.  Look for the 50/100 cross in the next few days.

    The next battles involving moving averages will likely come at 1380, involving the SMA 200 and the SMA 20 at the intersection of the bottom of the rising white channel and the top of the falling red channel.  The 50% retracement of the 1343 to 1423 rally is at 1383.54, which intersects with both channels on Thursday.

    So, we’ll keep an eye out for a significant bounce Thursday at 1383ish.  Remember, the .786 of the 1576 – 666 crash is right there at 1381.50.  And, bulls will want to limit this “correction’s” downside to the next Fib level lower — on the way to new highs, of course.

    The EURUSD, in the meantime, has reached Sunday’s upside target of the .886 at 1.3084 and has completed a fairly decent looking rising wedge of its own.

    UPDATE:  12:10 PM

    The dollar has reached the bottom of the white channel we charted Sunday [see: DX Update], just beyond a .618 retrace of the move up from 78.725.  It appears to be basing for a move higher.

    I’m expecting a 5% move by around the end of the year.   What does that mean for stocks?

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  • At Last

    Nothing has changed since our last post Friday.  We have nearly reached 1424.41 — the lower end of the target range established on Oct 31 [see: A New Old Analog.]

    If the analog remains on track, today should be the start of a large correction — perhaps in conjunction with the ISM report due out at 10 EST.

    I’m shorting here, with stops around 1430.

    UPDATE:  10:05 AM

    One of the uglier ISM reports we’ve seen in a while. From growing to contracting overall, with every category either contracting or slowing except for production — which (oops) is ramping up as demand contracts.

    Looks like the reversal has begun.

    UPDATE:  12:00 PM

    The reversal has begun in earnest now.  I’ll spend the new hour or so reviewing the downside targets.  First, a little treat appropriate to the day.

    I had the great pleasure of seeing the incredible Etta James at the Hollywood Bowl in 2008 and the Monterey Jazz Festival in 2002.  Her voice somehow conveyed both her troubled past and her elation at being on stage, sharing her amazing gifts with an appreciative audience.

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  • EURUSD Update: Dec 2, 2012

    The overall trend since 2008 remains down, with EURUSD likely on its way to the .618 retracement (largest white pattern) of the rally from 2000 to 2008 at 1.12 in either January or (more likely) May 2013.

    This lines up roughly with a 1.272 extension of the Jun 2010 to May 2011 rally (purple) and the 1.618 extension of the rally beginning in July 2012.

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  • DX Update: Dec 2, 2012

    The US dollar remains in a rising channel within long-term channels that point to very different outcomes.

    The rising white channel intersects just ahead with the larger falling white channel upper bound, the rising red channel mid-line and the 75% bound of the falling purple channel.

    Whether the red or purple channel carries the day will depend largely on whether the ECB or the Fed can deflate its currency the fastest.

    But, the intermediate-term picture is clear:  if DX can hold the white channel, the next move should be much higher.

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  • Zweig Breadth Thrust

    Came close Friday, but didn’t happen.  A ZBT requires a move from .40 to .60 in 10 sessions or less.  Here’s a successful signal from Sep 2011:

    And, here’s where we ended up Friday — the 10th session from the .40 cross:

    Ditto for NYSE & DJIA too, BTW.

  • Stay Groovy

    “It was an expression used by small recon units and sniper teams in hostile terrain in Vietnam. They would tell one another to stay groovy when the danger level was so insanely high they popped amphetamines to stay awake and ready to rock twenty-four/ seven, because anything less would get them all killed. Stay groovy; take your pill. Stay groovy; safety off, finger on. Stay groovy; welcome to hell.”

     The Watchman, Robert Crais

    Those who have been following this blog or its predecessor for any length of time know I’m a big fan of analogs.  I was asked just yesterday why I thought they worked, and found myself fumbling for an answer.

    Like harmonics, I know that they do, because they’ve enabled us to make some nice calls that were accurate as to price and time such as the big downturn in April and the subsequent 1474 top in September.

    The big Kahuna, of course, was the July/August plunge in 2011 that mirrored that of Dec 07-Jan 08.  It’s just plain scary how well that turned out.

    I think analogs work mostly because of channels and harmonics.  In the simplest terms, channels keep prices pointed in a general direction for a noticeable period of time.  They can last for decades…

    a few years…

    or a few days.

    Regardless, I’ve found that most significant moves occur within or interact with channels.  Very often, as in the above chart, they’re channels within channels.  Even big channels that seem to generate their own atmosphere are usually aligned with other big channels.

     

    So, it’s not terribly surprising when moves that bring the market to the brink of disaster or reach ridiculously overbought levels react “just like it did last time!”

    Harmonics, likewise, are usually related.  The easiest example is the 2007-2009 plunge from 1576 to 666 which, when followed by an intial reversal at its .618 Fibonacci level, signaled both a Gartley Pattern reversal at its .786 retracement (the May 2011 high) and a Bat Pattern reversal at its .886 (Sep 2012 1474 high.)

    Combining the two, and tossing in some other chart patterns and traditional technical analysis, it’s easy to see why the market has done what it has most of the time.  If markets move in somewhat predictable and repeatable ways, then analogs can be viewed as a predictable aggregation of those predictable moves.

    Of course, its not always as simple as that sounds.  Even great analogs usually present alternatives. Over the past couple of months, the one we’re following now has hit our primary target at times and our secondary targets other times.

    And, some can be tough to get a handle on.  The one from this past April [see: New Analog I’m Watching] that very capably guided us from 1422 to 1266 and back up to 1474 (the top chart above) worked beautifully from a price standpoint, but was way off in terms of timing (since licked, I think.)

    And, last, there’s one truism that’s the bane of every analyst who charts analogs:

    Every analog works forever…until it doesn’t.

    Even as we’re counting down the last few points to the 10% downturn we charted all those months ago, a well-timed Bernanke comment or Hilsenrath article (is there really a difference?) could nudge the markets just enough to complete a Zweig Breadth Thrust event that ushers in a new high.

    If that happens, never mind.  End of the road.  It’s been a nice ride for the past nine months, but it’s time to change partners.  If it doesn’t, however, and we reverse in the next 10-15 points, it’s just about time for the song.

     

     

    UPDATE: 1:20 PM

    I’ve had several messages asking whether we’ve reached the target or not.  Frankly, I’m surprised.  The answer should be perfectly obvious to everyone:  maybe.

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  • Charts I’m Watching: Nov 29, 2012

    SPX seems destined to go up and tag the .786 Fib at 1414.81.  I’m closing my shorts on the opening and will possibly take another crack at shorting there if SPX shows any weakness.  Apparently yesterday’s dip is all the B-wave we’re going to get.  Swing traders will do well to remain long, but be careful around that Fib level.  Consider trailing stops.

    EURUSD bumping up against the May 2011 channel again — negative divergence up through 4 hours, but not on daily.

    UPDATE:  9:35 AM

    For traders, 1417.92 is a decent place to try a short — the .618 of the drop from 1464.02.  I’ll try one with tight stops.  Leaving my core long position in place, raising trailing stops to around 1410.  1424 is just above.

    UPDATE:  11:33 AM

    Got a nice reaction just above the .618 at 1419.  There are two channels that could bring things to a screeching halt right here — seen below in yellow and purple.  So, 1419 should get some respect, with a pullback to the previous high of 1409 /channel line likely.

    Our forecast remains on track, with the current leg up due to complete any time now.  We’ll take a look at the forecast, the analog, and any potential bumps in the road.

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  • Charts I’m Watching: Nov 28, 2012

    It’s pouring down rain on the normally sunny central California coast.  Even on days like this, it’s heaven on earth — unless you’re a line man for PG&E.  The high winds that accompany toad chokers around here are notorious for downing power and telephone lines — as just happened at my house.  I am now posting from my favorite coffee shop.  [correction: a Starbucks several miles away, as the two wonderful coffee shops near to my house have also lost their internet service.]

    Speaking of storms…  This experience (and last week’s frantic search for bandwidth in SF) have left me woefully behind in charting. I need to invest some serious coin in backup power and communications.  So, I am leaving the Hurricane Sandy membership promotion up through December 1.

    I’ve had a few questions about how this works.  Basically, a $100 contribution to the relief effort gets you a $200 discount off the price of an $800 annual membership or $100 off the price of a $475 six month membership. Just choose the charity, email me a copy of the receipt with your request, and I’ll send you an invoice for discounted subscription price.

    If you already have a membership, I’ll extend it by the new period.  If you are one of the lucky initial Charter Members whose fixed rate is already lower than that, I’ll knock $100 off your rate for the next year.  Tempus fugits, folks.  Rates go up next week.

    Also, thanks! for the many notes of support these past couple of days.  Thankfully, my wife and daughter are on the mend.  Things got a little hinky yesterday when their vision blurred and they were too dizzy to stand.  It wasn’t just the stomach flu I brought home from a business trip last week, but food poisoning from some broccoli that was a little past its prime.  Daughter #2 and I turned up our noses at it and, thus, remain unaffected (knocking furiously on the nearest wood with one hand, rubbing rabbit’s foot with the other.)

    Last,a reminder that I will be tweeting any important intra-day updates (an email will still go out with each morning’s initial post.)  Sign up at https://twitter.com/pebblewriter.  Any charts I post there are for public consumption, so feel free to share.

    ORIGINAL POST:

    After some tense moments yesterday, we’re finally seeing the reversal we were expecting.  Having broken down from its rising wedge, SPX is well on its way to our downside target.  The first level of any real support is approaching at 1380-1384.

    AAPL, the subject of a detailed analysis yesterday, has likewise broken down from its rising wedge, gapping down on the opening.

    Note that SPX’s reversal came a couple of days later and a few points higher than we expected.  We remain short from 1404 on the 23rd.

    UPDATE:  10:40 AM

    We got a bounce off that white channel mid-line mentioned above, and have retraced about half the losses since the Nov 26 1409 high — back-testing the purple channel mid-line in the process. Corrective waves often retrace .500 — .886 of the previous move, so don’t be surprised if we push a little higher.

    Just thinking out loud, but a reversal around 1400 would make for a pretty nice H&S pattern, which would likely target around 1357 — the .786 Fib of the 1343 to 1409 rally.

    UPDATE:  2:45 PM

    SPX has retraced almost 88.6% of its initial plunge (1406.32.)

    The 60-min RSI we examined this morning has completed a back test of the recently broken purple channel and is bumping up against the mid-line of the longer-term yellow channel.  Next move should be to the bottom of the yellow channel (or even white.)

    My lead scenario has this occurring around 2pm EST on Friday.  But, as we discussed yesterday, this move down is not a certainty. It’ll be important to see how the market reacts if/when it hits 1406.50 or so.

    We saw today how the proper jawboning can snap markets out of a short-term funk (won’t solve any long-term problems.  But, since when do our elected officials concern themselves with the big picture?)

    While I’m feeling feisty, remember that any “solution” TPTB comes up with will not fix America’s — let alone the world’s — balance sheet problems.  Too much debt = too much debt burden (interest) = too much money diverted from existing services = raising taxes and/or lowering services.

    That’s right.  They can rearrange the chairs all they like, but none of the possible (let alone acceptable) solutions being discussed will make even a dime of existing debt go away.  At best, they might theoretically slow the rate at which debt accumulation is accelerating.

    All the press conferences press releases disguised as WSJ analysis in the world won’t change that.  Yes, today’s double top was brought to you by Jonathon [Plunge Protection R Us] Hilsenrath.

    UPDATE:  3:55 PM

    Well, there’s a new interim high — on negative divergence from 5- 60-minutes and the daily charts (up to 53.346.)

    Negative divergence is certainly no guaranty of a downturn.  Like yesterday, the risk remains that we don’t get a bigger downturn.  But, I still like the odds.  Watch your stops and trade safe.

     

  • Update on AAPL: Nov 27, 2012

    When we last examined AAPL [see: Harmonics are Your Friend] it had fallen 167 points (23.6%) in less than two months and appeared to be nearing an interim bottom — meaning it was due for a bounce on its way to lower prices.

    It stabilized for a few days, but joined in when the overall market sold off the following week — shedding another 4.8% when the S&P 500 dropped down to tag our 1344 target [see: Charts I’m Watching Nov 15.]

    Since then, AAPL has climbed back nearly to our primary target of 600 — adding 19 points  to reach 590 yesterday.  It was the single biggest daily gain since last May, and has many Mac enthusiasts reaching for the buy button.  Is the worst over, or was this just a bounce on the way to lower prices?

    Like the broader market, AAPL has reached a do or die moment.  There are channels going back to the early days (1983) that look like they maxed out at the 705 high on September 21.  The two largest channels, shown below in red and white, have each controlled prices pretty effectively long-term.

    But, it’s the small purple channel that dates back to 1999 that has really guided prices most effectively since AAPL traded in single digits.

    Regardless of which long-term channel ultimately proves superior, smaller parallels of each of them have been very influential over the past several years.  And, if we layer in smaller scale channels, the stakes are pretty clear.

    Here’s a close-up:

    Several things strike me about this chart.  First, we are clearly back-testing the 25% line on the purple channel.  It’s been 3 1/2 years since we last tagged the bottom of the purple channel. Every back test is a moment of truth, as prices which recently fell below a key point attempt to retake the high ground.

    AAPL spent Oct 04 through Sep 08 in the upper half of the purple channel, and ever since has been mired in the bottom half.  It last tried to retake the mid-line on April 10, after a furious 77% run in 4 months — an attempt which failed.

    Though prices have moved higher since, it’s been at the expense of standing within the (albeit rapidly rising) channel.  Prices recently fell below the 25% line on Nov 7, gapping down that morning.

    We’re now approaching the channel line from below.  The previous support is now resistance.  A reversal here could quite likely spell a return to the channel bottom — which will be around 434 at the end of the year when the S&P 500 is nearing its next low.

    The other standout feature is a battle setting up between the falling white channel and the completion of a bearish H&S pattern. If prices stay in the channel another couple of months, they will reach the bottom rung of the yellow channel and thus complete a H&S pattern targeting around 300.

    The shorter-term channels I’ve inserted each have their own pros and cons.  The next couple of weeks should provide some clues as to which can be counted on.  In the meantime, the harmonic picture helps a bit.

    In 2011, the picture was quite simple: a Crab Pattern (in yellow) followed by a Butterfly Pattern (in purple.)  Each produced a strong reversal within a few points of their completion and adhered to pretty well-established channels.  The only real surprise was that the SPX high (the asterisk below) didn’t at all line up with AAPL’s.This time, the picture is somewhat similar.  AAPL easily overshot the 1.272 of the 644 to 522 decline (Apr 10 – May 18) at 677 before reversing to around the .500 Fib level.  It came within 14 points of completing a Butterfly Pattern at 719.17.

    The subsequent sell-off to 505.75 accomplished essentially the same thing in the opposite direction — coming within 19 points of the 1.618 extension of the 570 to 705 rise at 486.53.

    Note that 486 is spitting distance from the purple pattern’s 1.272, the white pattern’s .786 and the yellow .618.  Intersecting patterns like that increase the odds of reaching a target.  Reversing at 472-493 would signal new lows.

    It would set up a Bat in the yellow pattern targeting 402 and/or a Butterfly pattern in the yellow pattern targeting 472 or 409.  Reaching 486, of course, would also complete that nasty H&S pattern targeting 300ish.  So, the Bat and Butterfly patterns might be the least of investors’ worries.

    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.)

    Breaking through current prices to 628.93 however, would set up a potential Bat Pattern to  682.35 — a price level that, if reached in March 3013, would flesh out several channels.

    The rise from 522 has been rapid and without much wave form.  We’re overdue for a correction.  If it can remain north of the yellow neckline, we should see prices up into the 660-670 range by March.  But, it’s more likely that AAPL breaks down below that line, followed by a more serious plunge that reaches the low 400s.

    GLTA.

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  • Charts I’m Watching: Nov 26, 2012

    MEMBERSHIP NOTE:  I have set up a Twitter Account (@pebblewriter). I will endeavor to tweet important intra-day alerts within a few minutes of posting them in these pages.  I believe you can arrange to be notified of any updates by text or email.  Alerts will contain a link that directs followers to the pertinent post.  I’m new to this, so bear with me as I get the hang of it.

    Also, last call to take advantage of the Hurricane Sandy membership promotion [details HERE.]  Donations of $100 or more to the relief effort  will earn you $200 off the cost of an annual membership.  It’s a great chance to do well by doing good.

    Last, as posted a few days ago, monthly memberships have been discontinued.  Monthly members who convert to Annual Membership are eligible for a rebate of their most recent monthly payment.  New pricing for all membership categories goes into effect at the end of the month.

     

    ORIGINAL POST:  9:20 AM

    Here’s where we left off Friday.  I’m not thrilled with the idea of adjusting channel lines to fit with an overshoot of a target.  Looks a bit hinky on the 60-min chart…

    …even if it fits fine on the daily.

    But, here’s the chart that really convinced me to stay short (from 1404, 10:30 EST in members’ section) over the weekend, even though SPX slightly exceeded my original stop of 1407.  Remember, this is a short-term trade only.  Our core position remains long.

    The RSI ran into the upper bound of a well-formed channel (yellow) at the end of the day.  So, it’s either break-out or break-down time – regardless of what price was saying.

    And, in the 60-min time frame…

    Meanwhile, the dollar was breaking out of a week-old 60-min RSI channel and appears to be setting up for a back-test of the broken channel and recently broken moving averages (10-day = 80.88, 20 = 80.78, 200 = 80.9).

    UPDATE:  11:30 AM

    SPX broke down through the important 1400 price level, and is likely on its way to completing a proper B-wave for this corrective wave on its way higher.  Friday, I updated the primary forecast to reflect a significant sell-off into the middle of the week, followed by a strong recovery.

    This scenario is in play if we reach the low 1380s in the next day or two — something that seemed unlikely on Friday, but would seem less so if we traded down through the SMA 200.

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