ORIGINAL POST:  9:40 AM

Watching to see whether the falling wedge on the dollar will break out or re-test the upper bound…

Meanwhile, SPX continues to respect the lower bound of the megaphone pattern we’ve been following the past few days.  But, 24 hours of hugging 1402 is getting a little tiresome.

If you haven’t yet weighed in on the Disqus/SSL issue, please see last night’s post and leave a comment.

I’ll be back with more charts if/when we get any movement. (more…)

Many of us have been very frustrated with the Disqus commenting system affiliated with pebblewriter.com.  It’s difficult to attach charts to comments, and it’s impossible to edit comments once they’re made.

I’ve been going back and forth with the folks from Disqus for months, and finally got a clear answer.  It’s not the answer I was hoping for, but at least it’s an answer.

Hi Michael,

Rest assured your follow-up emails did not get lost; we actually have received a much higher-than-normal number of inquiries recently and are working to respond to everyone as quickly as possible.

These issues are system-wide in Disqus right now. Similar to uninstalling and reinstalling, upgrading would not yield any benefits. To clarify on what’s happening here, there are two issues:
– editing comments via SSL does not work;
– posting image attachments via SSL does not work.

As you can see, both issues are related to the fact that the actions are being performed over an SSL connection (i.e., HTTPS) rather than a standard HTTP connection. Other sites on which you are able to edit comments and attach images are using HTTP connections. Adding additional SSL support is something on our radar.

Let us know if you have questions on any other Disqus-related issues.

I originally made the decision to run pebblewriter.com as an SSL site due to the enhanced security it provides.  As Wikipedia explains:

HTTPS provides authentication of the web site and associated web server that one is communicating with, which protects against Man-in-the-middle attacks. Additionally, it provides bidirectional encryption of communications between a client and server, which protects against eavesdropping and tampering with and/or forging the contents of the communication.  In practice, this provides a reasonable guarantee that one is communicating with precisely the web site that one intended to communicate with (as opposed to an impostor), as well as ensuring that the contents of communications between the user and site cannot be read or forged by any third party.

It seemed important to me to provide a secure connection, especially since members pay for their memberships through PayPal by entering their information on the site.  I didn’t want folks to have to worry about their credit card numbers being intercepted by anyone.

It seems there are two possible solutions here.  One is to wait for Disqus to get their act together and leave the site more secure (although “on our radar” is way too nebulous for my taste.)

The other solution is to switch to a system where payment is made on the PayPal website and convert pebblewriter.com to a standard http site.  Members would click on a PayPal button on this site, then be referred to PayPal’s website for actual payment.  Either way, PayPal processes the payments in a secure manner.

There are some other comment management systems out there, but I’ve no experience with any of them.  So, I’m leery to adopt one without a very strong endorsement.  Please chime in if you have experience with LiveFyre, Echo, etc.

It doesn’t make a whole lot of difference to me — although, it would be really nice to be able to include charts in comments.  I don’t have the developer chops to suggest one solution over the other.  Some of you do, though.  So, please weigh in.  It affects everyone, so let’s get some dialogue going.  I look forward to your comments.

Thanks.

 

p.s.  for those of you willing to jump through a few hoops, I’ve found that posting a chart to a comment won’t seem to work at first; but, if you refresh the page after attempting the attachment, the chart will appear more often than not.

ORIGINAL POST:

The McClellan Oscillator has a nice track record of alerting us to impending swoons.  A system of fan lines drawn from its May 18 low have been especially helpful.

Note how each rebound off a fan line led to bottom and/or higher prices, while breaks through the fan lines led to substantially lower prices.  Yesterday’s close represents a back test of the last fan line.  If the pattern holds, it lends credence to our current short position.

Be cautious, though, as NYA and COMP need another .50% of additional upside to complete their Gartley Patterns.  And, SPX would benefit greatly from a tag of its 2007 fan line from 1576 — currently at 1411 or so.

continued… (more…)

With all the discussion of Gartley’s lately, I’m republishing a popular post from last February…

* * * * * * * * * * *

The Gartley Pattern offers early warning of potentially significant reversals in price trends.  Like all Harmonic patterns, it is formed by a series of specific Fibonacci reversals of price moves.  It is thought to be successful about 70% of the time — much better than house odds.  Combined with sound trade management technique, it can provide significant returns with limited risk.

It’s a rare week that I can’t find a decent looking Gartley Pattern set up.  On November 7, 2011, I saw one forming on SPX and posted about it here.  With SPX at 1261, the Gartley indicated prices would rise to 1276.13 and reverse.  Here’s the chart I posted that afternoon; the purple line shows the forecast move.

The following morning, SPX opened at 1261.12, raced up to 1277.55 and closed at 1275.92.  The next day saw a 50-point reversal.  Each $1 invested in at-the-money SPY puts on the afternoon of the 8th was worth $3 the next day on the 9th.  Pretty cool, huh?

Let’s take a look at how Gartley Patterns work, using the actual prices from October 27 – November 9, 2011.  I’ll use the daily chart from that period to illustrate.

A Gartley begins with a significant directional move.  The origin is labelled X, and the terminus is labelled A.  The size and timing of the original move isn’t crucial; I’ve played some Gartley’s that spanned years and others that spanned an hour.

The reversal at Point A establishes the low of the pattern and our first leg, known as XA.  Next comes a move back towards the origin price — aka a retracement.  In a Gartley Pattern, a retracement always occurs at the Fibonacci 61.8% of the XA leg — meaning simply that we have recovered 61.8% of the initial price drop.

Note, Point B can be off a little, but a very big miss means it’s probably going to be some other kind of pattern — or none at all.   Here, our Point B came in very, very close to the .618 level: 1263.21 versus the ideal 1263.15.  At this point, we start to wonder if we have a potential Gartley on our hands.

The ideal BC leg will typically range from 23.6 to 88.6% of the AB leg — although this is the least critical measurement of the entire pattern.  I’ve seen Gartley’s successfully play out with tiny little BC legs, and others that retraced almost the entire AB leg.  Here, we saw a 31.5% retracement.  It’s not a Fibonacci number but, again, it’s just not that important as long as it looks like a significant reversal.

The next phase of the pattern — the CD leg — is the most thrilling.  We know, as we pass our previous Point B at the 61.8% level, that the 78.6% level waits up above.  Knowing a reversal is coming, especially when everyone else is getting more and more bullish, is both scary and exciting.

In this case, the ideal Point D was 1276.13.  Again, this represents a 78.6% retracement of the initial price drop from X to A.  We surpassed it just a little, hitting 1277.55.   A little overrun isn’t unusual, especially — as happened here after a 16-point gain — the market has a head of steam on it.

The next phase is the fun part.  After reaching Point D, a typical Harmonic Pattern reversal is 61.8% of the AD distance.  In this case, that would have been a 39-point drop.  Instead, we had a 81.9% drop the next day for a whopping 50-points (3.9%).   At times, reversals can go beyond Point A for a 1.272, 1.618, etc. extension of the AD distance.  In fact, over the following 11 sessions, SPX fell an additional 64 points for a nearly 200% extension — a remarkable 5:1 return for those at-the-money puts.

As mentioned earlier, Gartley’s don’t always work.  So, it’s prudent to plan your trades carefully.  Many traders, for instance, will jump in just before a target is hit and place a stop just on the other side of their target.  I have several rules that I typically follow to limit my risk when putting on such a trade. I also look for corroboration from other chart pattern and technical analysis.

The Gartley is just one of several Harmonic patterns I watch for.  Some, such as the Butterfly and the Crab, often result in much larger reversals.

On the new pebblewriter.com, I discuss a variety of harmonic patterns.  For a few dollars a day, members are alerted to patterns I see setting up on various indices; often, they are able to position themselves for profitable trades by anticipating reversals.

Today, I posted about SPX — which just completed a Bat Pattern at 1404.64.  Several other indices are very close to completing Gartleys.   The following require only a very small move:

• RUT:         0.27%
• COMP:     0.61%
• NYA:         0.52%
• DX:           0.07%

The eminis are just 4 points away from completing a well-formed Bat Pattern at 1401.77.

SPX closed only 5 points away from its own Bat Pattern target at 1404.64.   This is one of the key price targets we’ve been watching for weeks.

As we’ve been discussing for some time, a reversal here could be significant.   (more…)

 

With this morning’s push, I’m abandoning my shorts at 1395, with the plan of re-establishing them at 1404.   But, I’m not excited about going long at this level.  So, I’ll return to cash and await a sell signal, ideally at 1400-1404.

UPDATE:  9:50 AM

Just tagged the neckline from the last H&S pattern (solid yellow) which I think will provide some overhead resistance.  I’m trying another short here at 1399, with a stop at 1406.

Here’s a better look.

And, the same chart closer up.

 

There is still a lot of ambiguity in the charts.  Much of it stems from the sloppy channel formation on the upside.  This sort of thing can happen with low-volume rallies that are manufactured on an unstable foundation.

I’ll strip away some of the clutter to better show what I mean.  The chart below shows two distinctly viable channels.

(more…)

Impressive ramp on the better-than-expected NFP numbers, but there’s still the matter of strong overhead resistance — reinforced by a RSI chart that looks rather daunting.  We’re back in the very dangerous territory of two days ago.

If we can push through, the land of milk and honey lies ahead.  Otherwise, things could get very ugly, very fast.

We’ll review the options in the charts below.

(more…)

This is not the fix the market was hoping for.  This is not a fix at all.  This is Draghi encouraging fellow central bankers to step up to the plate, and telling the world that he still hasn’t managed to persuade a majority of them to do so.

“In order to create the fundamental conditions for such risk premia to disappear, policy makers in the eruo area need to push ahead with fiscal consolidation structural reform and European institution-building with great determination  As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines.

The adherence of governments to their commitments and the fulfillment by the EFSF/ESM of their role are necessary conditions.  The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective.  In this context, the concerns of private investors about seniority will be addressed.  Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measure according to what is required to repair monetary policy transmission.  Over the coming weeks we will design the appropriate modalities for such policy measures.”

This could get ugly.  We remain short since 1387, and very happily so at the moment.

More in a few.

 

UPDATE:  9:40 AM

Playing the expected bounce here with some longs at the channel midline/Fib .618 @ 1362.  I suspect the trend is still down, but there should be at least a few points to scalp intra-day.

More in a few.

 

UPDATE:  10:00 AM

Daily RSI has reached a level of strong support.  It must decide whether it’s following the purple channels up or the less steeply sloped yellow channels up.  It’s also testing TL # 4.

I suspect SPX is going back to test the TL it just broke down from.  The 5 and 15-min RSI look like they’re also heading for a target in the 1371 range.  I’ll consider going short again if we get there.

 

UPDATE:  10:30 AM

RSI just about quite there on 5-min chart, will wait to see if there’s a reaction before closing longs.

 

UPDATE:  10:33 AM

That looks like the full move.  Will resume shorts here at 1373 with a stop at 1375.  There appears to be a channel setting up on the 5-min chart that coincides with the RSI channel tag on the upper bound.

Note how each of the previous RSI TL breaks has led to a drop.

Here’s a little clearer picture of what I’m watching.  BTW, the high of just a few minutes ago of 1373.80 is a .618 retracement of drop from yesterday’s last significant high of 1381.58 to this morning’s low of 1361.26.

UPDATE:  11:30 AM

If SPX can break 1361, it should have plenty of downside to cover.  There’s a little channel of sorts on the chart below that might be providing some support here.  And, of course, the bulls are anxious to portray an arrest of this morning’s plunge — along with a higher low to boot.

 

UPDATE:  12:00 PM

Still holding short from 1373 as sell-off continues.  There is the possibility of a little falling wedge setting up on the 5-min RSI, though it could also broaden into a continuation of the little channel to the downside.

A break out of the little RSI channel and I’ll likely switch sides again intra-day for another bounce.  I’ll also look to see if SPX can retake its previous low at 1361.21.

UPDATE:  12:12 PM

If we can’t retake 1361.21, I’ll set my sights on 1353 — the .618 of the 1329 to 1391 run and well within the bounds of today’s declining channel.

 

The four previous patterns have all played by the harmonic rules fairly well.  Referring to the chart below, Pattern A put in a reversal at the .382 – indicating a probably Bat.  And, in fact, we got a decent bounce at the .886.  before prices dropped another 26 points to retest the previous low.  This pattern was the hinkiest, as there were multiple Point X’s that could qualify, but none which presented a better fit to a standard pattern.

Pattern B saw a reversal near the .500 – again indicating a Bat Pattern.  But, then we saw another significant bounce at the .618 — indicating a possible Gartley too.  As it turned out, the Gartley was the correct call as the decline wrapped up right at the .786.

Pattern C was one of those funky Bats that breaks the rules but works out anyways.  The first real reversal we got was the .786, indicating a probably Butterfly Pattern.  However, the pattern wrapped up at the .886 for an unorthodox Bat.

Pattern D is the current one of course.  The .618 is getting close at 1353.12.  I’ll watch for a bounce there, though as the previous patterns have shown there is no guarantee.

The current value of the lower bound I’m using is 1349.

More in a few.

UPDATE:  9:47 AM

Trying to be patient as things unfold.  We’ve reached another important TL (yellow #3 below) of support on the daily RSI.  This tells me we’re very likely to see at least a bounce at the .618.

Weird factoid of the day?  In the face of a 160-pt DJIA decline and a 20-pt SPX delince, VIX is down .05.  Go figure.

UPDATE:  1:12 PM

The 5-min RSI is nearing a solid TL of resistance.  Should the TL hold (and 1361.21 mentioned above) we should be able to make a final push for 1353.

 

UPDATE:  1:30 PM

Another way of viewing things — channels in channels.  Looks like a little rising wedge setting up at the moment.  Only another 10 minutes left before 1361 passes out of reach without breaching the channel.  That is, any sideways motion within the little wedge (or a break down) gets us to the far right/upper bound without exceeding 1361 and enable further downside.

 

UPDATE:  2:20 PM

I’m lowering my mental stop to 1360, the level at which we’d break out of the downward sloping channel.  I would be likely to go long again should we break out.  The current stasis can’t last, as we’ll hit the channel wall within the next 10 minutes at this pace.

Note that we’re hanging just below the RSI trend line, and just above the price channel line (the smallest one, which was previously a rising wedge.)  The most likely outcome is a breakdown of the channel and return to the lower bound of the RSI triangle to set up additional positive divergence.

UPDATE:  3:05 PM

Just broke out of the channel, but not by much yet.  This has the feel of a back-alley job.   So, though I’m now long at 1360, I’ll be watching carefully for any signs of a turn — likely using 1360 as a stop.

 

UPDATE:  3:50 PM

We’re coming up on a channel midline, the .382 of the rebound and the intersection of what looks like a good new channel with a TL — all in the 1365-1368 range.  Would make a nice place for a turn.

I’ll probably cash out for the day and try to figure out the next stage.  NFP in the morning, and that might make a difference.

 

UPDATE:  EOD

If I’m not mistaken, we made 54 points today.  I missed a few by not pulling the trigger at 1354 (in pursuit of a 1353 target) but I can live with that.  To me, the hardest thing about investing has always been letting profits run; but, we got all but 6 of the drop since going short Monday — and made a bunch more through intra-day trading.

Thanks, everyone, for the nice notes during the day.  And, welcome to today’s new members.   It’s not always this hectic!   We often go days at a time without trading, let alone multiple position changes during the day.  I certainly hadn’t planned on it; it’s what the market threw our direction.

A few of you report that the SAVE37 coupon (annual membership for $500) is still working.  There’s some kind of hitch over at PayPal, so if you can get it to work, go for it.  Annual memberships will be $800 as soon as PayPal gets it together.

I’ll post more tonight after I’ve had a chance to catch my breath.

The 6-pt ramp we’ve seen overnight has left the eminis right at a point of resistance with respect to two .786 Fibonacci levels, a trend/channel line off the Mar 27 and May 1 highs, and an RSI trend line.

UPDATE: 10 AM

The overnight ramp fizzled almost from the opening bell.  On a basketball court, someone would have yelled “get that weak $#@% out of here!”

Nothing has changed since yesterday afternoon.  This morning’s better than expected ADP survey was appropriately greeted with a yawn.  ADP has consistently been at odds with the Fed’s NFP data — to the point where someone finally graphed what we all know.

There is still just as good an upside case as downside, depending on whether the Fed decides to make the market’s day or not.  My best guess is still “not” but I have no inside info or special powers of discernment.  I continue to believe that they’ll whip out the QE when they have to, and not a minute sooner.

At <1300, with the market about to break some key technical levels and the euro going down the tubes, it was a different story.  120 points later and “positive” housing, employment, PMI data to chew on, it’s just not worth it — especially when you consider that it’s their last, best tool to goose the markets.

If the market should react very badly to today’s news, it again opens the door.  Here’s a few charts to chew on:

continued… (more…)