GC soared over $1200/oz since losing 30% in sympathy to the global market meltdown in 2008. Most of that rise took place in an acceleration channel.
In the past year, however, the most prominent pattern has been the descending triangle (purple, dashed.)
Continued…
ORIGINAL POST: 10:30 AM
Back on June 1, I drew the following forecast, but was so uncertain about it I didn’t post it until June 11 [see: Mixed Signals.]
On the 11th, I adjusted the timing a bit, but then basically set it aside. Other than helping me forecast a dip to 1303-1308 (which occurred a few hours later) I expected it was just a little too “cute.” In other words, it seemed a bit too obvious for it to play out.
Well, here we are — just a couple of points away. Despite my best efforts to disown it, the forecast is proving correct…and, right on schedule.
I don’t recall making any deals with an otherworldly spirit or otherwise pledging my soul in exchange for eerily accurate forecasts. No, I think there’s something much more sinister at work here.
continued…
ORIGINAL POST: 10:30 AM
With tomorrow being OPEX Friday and the important Greek vote this weekend, the market is in wait and see mode already. But, we’re on Head & Shoulder watch, meaning the little games that market makers play just prior to options expiration might be a little more predictable. If you’ll indulge me, we’ll try a little real-time experiment this morning.
We have a small scale H&S setting up in the right shoulder of a larger scale Inverse H&S. The smaller pattern targets 1280 while the larger one targets 1403. With those kinds of moves at stake, speculators will jump on board any seemingly significant trend.
Market makers, who rake in a lot of their money writing calls and puts to said speculators, have a vested interest (read: house in the Hamptons) in seeing the market go nowhere (unless they’re sadly underwater.) But, with no volatility at all, speculators would look elsewhere for action.
So, MM’s engineer moves that look like a break out or break down and write options to suckers speculators who — seeing the move they’ve been hoping for — jump on board. They’ll let it run a little while, just to make sure they have everyone on board, then let the air out and run the game in the other direction.
It’s been going on for the past week, and yesterday it indicated further downside when the latest RSI fan line was broken. Having been long since the last turn at 1307, I played along and went short at 1317.
I was no doubt one of many who believed the little H&S might either complete or come close to it around the 1304 level. Personally, I was hoping for a quick 20+ point round trip (10+ each way.)
This morning’s opening was mixed, but what initially looked like a back test to a perfectly good decline quickly developed into something more when the back test turned into a fan line violation to the upside.
I took two points of lumps and got long again. Sure enough, SPX has started a nice little run to the upside.
Now, as we approach the purple channel line on RSI and the previous high on the price chart, the upside target becomes a little more clear — probably a little over 1325. A 10-pt gain should be enough to get bulls salivating over the H&S (the one with the 1403 target) completing.
The way this usually works, the move should fizzle and prices slowly settle back. Call buyers won’t know what to make of it, but many will hang on — maybe even double down as the excitement fades and bears begin to wake up.
It’s not unusual to see several false breakouts and breakdowns during this period — just so everyone has the opportunity to contribute to the Hamptons summer house fund. For nimble traders, lots of opportunities to scalp a few points on the churn.
Stay tuned.
UPDATE: 12:55 PM
One of the no-so-fun quirks of WordPress versus the old site’s Blogger is that I’m occasionally logged off for no good reason, without warning. I might have been logged in all night, with no activity whatever. But, right in the middle of writing a new post WordPress can kick me off.
It means, say, if I hit the “publish” button and run off to get my daughter to camp on time, I might come back to a page asking me to log in. Fortunately, the post wasn’t lost. But, it also didn’t get posted when intended. My apologies.
SPX slightly exceed our 1325 target, hitting 1326.66 just a few minutes ago. I’m going to go ahead and take profits here and see if we don’t get a return trip back down. If we break through the red dashed TL, I’ll jump back in for a trip to 1335 — but with tight trailing stops.
If you’re wondering where this is all going, my inclination at this point is to go into the weekend in cash. While the outcome of the Greek election is fairly predictable, I don’t like the idea of twisting in the wind while the investing public decides whether it’s good news or bad.
UPDATE: 3:08 PM
No interest in playing these whisper rumors. I’d be really surprised if it holds. Staying in cash — probably through the weekend at this point.
ORIGINAL POST: 10:00 AM
As Reeodd pointed out yesterday, there is a potential H&S setting up on the 60-min chart. I’ve been a little leery of it, as its completion would certainly alter the timing of the forecast currently in place. It’s highlighted below, and it targets somewhere around 1280.
As we saw with the last major H&S top at 1422, when H&S patterns don’t complete, it’s sometimes with a bounce just above the neckline, rather than going through the neckline and playing out. Here, a bounce at the neckline is what would keep us on track with our current forecast. But, it’s not at all assured.
continued…
ORIGINAL POST: 3:40 PM
Today’s shaping up as planned. We’ve had a nice 10-pt move after tagging our downside target range of 1303-1308 yesterday and again this morning [see: Mixed Signals.] After fading yesterday’s opening at 1335, that represented a nice daily gain of 2.1%.
SPX has pushed up against its 60-min RSI channel and is showing signs of wanting to push through. Recall that our upside target for the next few days is 1342-1343. The ideal timing would be OPEX Friday, but don’t be surprised if we bounce around a bit and don’t arrive till Monday.
continued…
ORIGINAL POST: 11:00 AM
With all the volatility these past few days, VIX has put on a spectacular show — gaining 3.69 yesterday alone (18.6%). The weeks ahead promise to be just as exciting, but not for the reasons most expect.
As discussed back on June 2 [see: Channeling VIX] the “fear index” was on track to complete a Crab Pattern (in purple below) and fulfill its Inverse Head & Shoulder pattern target. These were targets originally set back on April 18 [see: VIX at a Crossroads.] With VIX at 18.70, we forecast a high of 27.13.
It topped out at a nearly perfect 27.73 on the 4th and has been sliding ever since — with yesterday being the notable exception. Now, as many investors are wondering which way is up anymore, we’ll plot out what appears to be a very clear path forward.
continued…
This morning’s hunch to fade the futures’ ramp was a good one [see: Mixed Signals.]
“There’s a channel line just overhead at 1337.30 or so that should limit the current rally. Given the way the futures behaved overnight in equities, the dollar and the euro, I’m going to fade this ramped up opening and see if it settles back down.”
The market not only reversed within minutes of the open, but it got all the way back down to our target range of 1303.47-1308.88, putting in a low of 1307.73 and closing at 1308.93. Mind you, I hadn’t expected it to happen only six hours later, but I’ll take it thank-you-very-much.
Although we got to the right trade in time, it was the result of a great deal of brain-racking and teeth-gnashing. Had I bothered to look at the emini’s, the decision would have taken all of five seconds.
All-together, SPX reversed over 28 points. But, that was dwarfed by the e-minis reversal from +19 points to -23 points — a daily range of 42.25 points. This was the single biggest red candle since 2011’s crash.
As noted in last night’s update on the dollar [The Dollar: Currents, See?]:
“I suspect the euphoria over the Spanish bailout will be relatively short-lived. Putting the rest of the eurozone in harm’s way seems like a better way to get them downgraded than it does Spain upgraded.”
Sure enough, there was plenty of talk about downgrades today — as doomers got the upper hand for a change. The argument — a good one — is that there simply isn’t enough firepower in the ES, ESFS and IMF to bolster the creditworthiness of all the countries currently circling the drain — let alone those that aren’t yet in the headlines (Italy and France are on deck.)
In the end, it will be up to Germany, the US and China to decide how much to contribute — a matter for another post. Returning to the markets, there are several important take-aways from the ES chart above.
continued…
ORIGINAL POST: 9:30 AM
It concerns me that SPX has broken out of its RSI channel, but nearly every other index has not. It’s entirely possible SPX is merely showing leadership and the rest will tag along, but I rather suspect that SPX is getting ahead of itself.
There’s a channel line just overhead at 1337.30 or so that should limit the current rally. Given the way the futures behaved over night, in equities, the dollar and the euro, I’m going to fade this ramped up opening and see if it settles back down.
More shortly.
UPDATE: 10:00 AM
Here’s where we left off last week. I’ve eliminated all the fan lines except those which recently came into play.
This chart paints a reasonably clear picture of a medium-term bullish scenario. The latest dip looks to have much more in common with the .236 time ratio action than the 0.00, .146 or .386. That is to say, we should be out of the woods for the time being (though there’s technically a window of another week or two before we can be completely sure.)
Turning to the shorter-term picture… If I overlay one of the systems of channels that have done well in guiding the past several years, the channel line I mentioned in the 9:30 post is visible just overhead.
I should mention there’s potential fractal of sorts at play. I’ve been burned by these as often as helped, but a mirror image of the past six months is one potential scenario. It would look something like this:
But, I think it’s more likely that some of our fan lines will continue to play an important role in preventing new lows prices in the immediate future. I think we’re probably going to go back and back test the RSI channel — meaning a drop in SPX, possibly as low as1303-1308.
UPDATE: 1:30 PM
The dollar has remained in a very well-defined channel since it peaked on June 1.
I expect it to remain in this channel until it fulfills the H&S target of 81ish. The channel ranges from 80.75 to 81.04 on June 15, which history tells us should represent an interim high for stocks. I’m looking for a bounce there, pretty much along the lines of our June 1 forecast (the yellow line.)
Such a channel doesn’t leave much room for stocks to appreciate, though. It’s an additional argument for a volatile and choppy rest of the week.
Here’s the forecast I initially drew back on June 1.
I was obviously early by a couple of days leading up to June 1. But, the market beat me to the tag of the intersection of the two red channels with the white channel line at 1338 that I expected to not occur until June 13th. I’m going to fine tune the timing and prices a bit and go with this forecast for the moment.
Don’t take the next leg down as gospel. I think it’ll be choppier than that, testing as low as 1303.47-1308.88 over the next few days leading into OPEX — where I imagine we’ll finish around 1340. I’ll be looking for more opportunities to short anytime we near that white line, and get long every time we get near the lower white line. Buy and hold folks would probably do well just to ignore the volatility, but traders can do well in markets like this.
If prices break above that upper white line, it’s a whole new ball game. It will likely correlate with the RSI back test and establishment of a new channel heading up. But, I don’t expect that to happen until another test of the white channel line, and preferably the midline of the new, red upward sloping channel as well.
I’m short now, and will continue to play the swings until we show signs of a broad-based break out — including the other indices — upon approaching 1335. If we get a nice decline between now and then, we’ll set up a potential Inverse H&S pattern targeting 1400 — which just so happens to be my July 25 target.
Stay tuned.
June 10, 2012
DX flirted with breaking the big purple channel dating back to 1999, but in the end backed off as we expected.
It’s clear from even a casual glance that DX has to choose between the big purple channel and the smaller one (yellow, dashed) cutting across its mid-section.
Since reversing as expected on June 1 [see: Why I’m Buying] DX has done a great job of following our forecast very precisely. Recall that we were watching for a H&S top at the .618, followed by a series of additional H&S patterns in a cascading effect.
continued…
ORIGINAL POST: 10:55 AM
It’s tempting to consider this morning’s drop to 1307.77 “close enough” to our 1303.47 target, but I’m not completely convinced. We have a nice buffer in, having shorted at 1325 yesterday [see: Moment of Truth], but the short-term RSI charts haven’t given a clear signal yet.
