pebblewriter

Author: pebblewriter

  • Harmony

    Harmony and me…we’re pretty good company.  From the moment I first heard about Fibonacci, I was l hooked.  A numerical sequence that produces mysterious and magical ratios that show up in everything from the design of pine cones and nautilus shells to the layout of pyramids of Giza and dimensions of the Parthenon?  Sign me up.

    When I heard these ratios could be applied to investing, it was music to this math geek’s ears.  Most of my early efforts were focused on prices, but I’ve spent the past few months studying the application of Fibonacci ratios to time levels, as well.

    Fibonacci time ratios are a trickier than price ratios.  It’s pretty simple to eyeball a stock’s move from 10 to 20 and calculate a .618 retracement of the 10 points.  Just make sure the starting and end points are significant, and check to make sure you’re considering all the alternatives, and Bob’s your uncle.  Okay, so it’s a little more work than that, but not terribly complex.

    Time series, on the other hand, deal with periods that can extend well beyond the standard computer monitor.  It can be really, really tricky to find start and end points that provide a good fit for a set of ratios,  not to mention a reliable long-term stream of market data.

    I’ve tried hundreds of combinations over the past few months, trying to find a set that fit the actual market results well, i.e. it captured the major moves with the primary Fibonacci ratios.  And, I’ve found one that’s very interesting in that it fits the two market crashes in the past 10 years.

    October 8, 1998 represented the bottom of a 22% decline — the first 20%+ decline the market had seen since Black Friday in October of 1987.  It’s been largely forgotten since the arrival of its two more dramatic siblings in 2002 and 2009.

    Setting October 8 as the starting point, the October 10, 2002 bottom falls about a week from the .146 Fib level, and the March 6, 2009 bottom falls only a few days away from the .382 level.

    And, as you might have noticed, the last Fib level of .500 occurred a week ago on June 1.  Like the .236 level, it hasn’t been (so far) accompanied by a 50% drop in the markets.  Does that mean we’re out of the woods?

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  • Quick Housekeeping Note

    I hope everyone is enjoying the new site.  We’ve had a pretty good run, and I’m happy to report administrative issues have not been too overwhelming.

    The one exception is that several users have been locked out of their accounts once or twice.  An automated message is sent out by Digital Access Pass (DAP) — the application that runs the “back office” while I try to come up with something intelligent to say.  The message informs a member that there have been too many login attempts from their email address from multiple IP addresses.

    After you email me in a panic and I reset it for you, you get another automated message informing you that your account is again in good standing, but that sharing is strictly prohibited and may result in your account being shut down.  It’s written rather tersely, implying that you are a thieving scumbag (I’ll see what I can do about the wording.)  But, I’d like to avoid these issues in the first place.

    DAP seems to have a pretty good memory.  So, if you logged in from your girlfriend’s computer last month, then again from your iPhone, iPad, laptop, and your mom’s desktop, this evening, it will probably shut you down.   Don’t take it personally; it’s a machine.

    Likewise, if you lent a friend, co-worker or stockbroker your password so they can see for themselves why you’re doing well with your investing, the system will take note of that, too.  Again, computers have a very long memory.

    If it happens to you for whatever reason, email me and I’ll reset it as quickly as possible.  If it happens multiple times due to some mysterious glitch, I’ll reset your membership and get you a clean slate.  If, on the other hand, you’ve already “shared” with friends or colleagues, just know that DAP will send you that threatening email sooner or later.

    One solution would be for your friend to get their own membership.  Rates have gone up, but our “performance” has been pretty strong.  We’re up about 26% as of today’s close — in only 11 weeks.  Anyone who hasn’t made their membership fee back many times over hasn’t been paying very close attention.

    Current members who refer a new annual member get an additional 3 free months tacked on to their own membership.  So, refer 4 friends and get another whole free year.  Not bad for sending an email or making a phone call (does anyone do that anymore?)

    The other solution is a group membership.  Two annual members are just $500 each, a savings of $200 off a single membership.  There are other breaks at 10, 25, etc. — great for investment clubs, brokerage offices, etc.  If, like me, you have no friends, introduce yourself to that guy you always see cursing his eTrade screen at Starbucks.  And, if you don’t see a deal that works for your situation, let me know and we’ll work something out.

    I’m putting in some very long hours to make this site successful.  The more members we have, the more time I can put in on the blog.  I don’t know what it is yet, but there is a magic number out there that will allow me to spend full time on the blog.  So, help me help you.

    Last, and on a completely unrelated note, I occasionally get emails from folks looking for a a quick opinion on something or another.  Just so you know, I rarely look at my email during trading hours unless it’s one of those “your account has been locked” emails or it’s a day when absolutely nothing is happening in the markets.  The better chance of getting a quick response is to post it in the comments section of a post.

    I know Disqus is a pain, and I’m working on finding a good alternative.  But, it’s all we have.  If I can break away to answer a quick question right away, I will.  But, if I’m in the middle of writing a time-sensitive post, my obligation is to the membership at large.  I’m putting in 18 hour days lately just trying to stay on top of what the market’s going to do next.  So, if I don’t get back to you quickly, please be patient.

    I happen to know there are some pretty smart members on the site, some of whom might have an better opinion than I’d have offered in the first place.  So, talk amongst yourselves; it’s a good thing.

    Thanks to all of you who have joined in these past 11 weeks.  We’re off to a great start, and I hope everyone’s having fun and learning a lot.  Once the dust settles, I’d like to explore conference calls or online educational sessions.  And, once there are more of us concentrated in various places around the world, we can look into get-togethers.

    I’m putting the finishing touches on a really cool post that’s been in the works for a couple of months.  I hope to have it up tonight, but it’ll probably be early tomorrow.  Have a great evening.

     

     

     

  • Moment of Truth

    As Ben Bernanke scolds Congress for how pitiful a job they’ve done on fiscal policy, SPX has staged an important break out.

    Daily RSI broke out of the channel that goes back to January.  It has done a phenomenal job of providing guidance, and a clean break out is unlikely to occur without at least a back test.  If fact, don’t be surprised if RSI closes back within the channel, given that we’ve just reached the .382 Fib level.

    Of course, it’s ALL up for grabs in the event Bernanke actually tips his hand — beyond “we have lots of options” and “all options are on the table.”  Let’s see if we can make some sense of the path forward.

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  • Draghi’s Press Conference

    Streaming live now on the ECB website.

    Press conference over.  Introductory statement available here.

    Bottom line:  no interest rate change, but ECB will continue LTRO and MRO through at least the end of 2012.

    Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. While inflation rates are likely to stay above 2% for the remainder of 2012, over the policy-relevant horizon we expect price developments to remain in line with price stability. Consistent with this picture, the underlying pace of monetary expansion remains subdued. Inflation expectations for the euro area economy continue to be firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, economic growth in the euro area remains weak, with heightened uncertainty weighing on confidence and sentiment, giving rise to increased downside risks to the economic outlook.

    In previous months we have implemented both standard and non-standard monetary policy measures. This combination of measures has supported the transmission of our monetary policy. Today, we have decided to continue conducting our main refinancing operations (MROs) as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the 12th maintenance period of 2012 on 15 January 2013. This procedure will also remain in use for the Eurosystem’s special-term refinancing operations with a maturity of one maintenance period, which will continue to be conducted for as long as needed. The fixed rate in these special-term refinancing operations will be the same as the MRO rate prevailing at the time. Furthermore, the Governing Council has decided to conduct the three-month longer-term refinancing operations (LTROs) to be allotted until the end of 2012 as fixed rate tender procedures with full allotment. The rates in these three-month operations will be fixed at the average rate of the MROs over the life of the respective LTRO. Keeping in mind that all our non-standard monetary policy measures are temporary in nature, we will monitor further developments closely and ensure medium-term price stability for the euro area by acting in a firm and timely manner.

     

    Lower rates were hoped for, but not expected.  LTRO was necessary and delivered right on schedule — sparking a nice rally.

  • So Crazy It Just Might Work

    As a member correctly pointed out in his comment on XLF Update, a ramp in XLF would mean some big returns for important components such as BAC, C, JPM, etc.  This is very true.  Though it pains me to say it, I think banks are ready for a bounce.

    I sold all my remaining JPM, GS and MS puts today.  I jumped on the downside March 27 when JPM was 46 [see: End of the Line], GS was 127, and MS was 20 [see: Lots More Where That Came From.]

    I bought puts, but even straight-up short positions would have made some decent returns over the past nine weeks:

    JPM:       46 – 32 = 31%
    GS:       127 – 92 = 28%
    MS:    20 – 12.50 = 38%

    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’s what I’m looking at.

    My targets are as follows…

    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%)

    JPM:

    CITI:

    BAC:

    My favorite.  It starts with this little H&S pattern back in the 2007 market top.  Keep an eye on those ascending trend lines.

    Here they are again, on the bigger picture, along with some descending ones, and a nice little channel (red) that works pretty well since early 2009.  Couple of nice channels on the RSI, too.

    This one’s a bit of a long-shot, because it means breaking the red fan/channel coming down from the right shoulder up there, but the RSI channel makes me wonder if we might just make it up to that 61.8/1.618 Fib level.  If not, I think 8.89 is a safe bet.

    So, there you go.  Earlier today, XLF July 15 calls sold for .09 and the August 14’s went for .49.  If I’m wrong, they’ll probably go to negative eleventy-hundred.  Then again, it’s so crazy it just might work!

     

     

    Right about here, my attorney would want me to remind you this is not an investment recommendation — nor is anything on pebblewriter.com.  Investing is risky, and options are a particularly effective way to end up living in a van down by the river.  For full risk advisory and other legal disclosures, read this.

  • XLF Update – June 5, 2012

    Financials play a pivotal role in the markets.  They led the way as they enabled the previous run-ups and bubbles, and they led the way down when the house of cards was revealed for what it was.  The survival of nearly all markets is hanging by a QE thread, so we’ll take a fresh look at XLF to see what the charts are saying.

    We’ll start with the weekly chart going back to inception in December 1998 — lot of water under the bridge with this ETF.

    Fortunately, for us analyst types, it’s been very amenable to chart patterns and Fibonacci analysis.  Consider this chart, that helped me call a top in banking stocks in late March [see: End of the Line and Lots More Where That Came From.]  Note the well-defined channel and the Gartley Pattern reaction at the .786 Fibonacci level.

    I’ve put together a series of charts that, I think tell a pretty compelling story regarding XLF’s future.

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  • Oil’s Balancing Act

    Many readers have been asking about oil.  It’s not that I haven’t been interested, it’s just been a real bear to analyze.  Here, after a dozen hours of racking my brain, is where I see it.

    Like many stock indices and currencies, Crude Light (CL) is at a critical stage.  It reached 114.83 after breaking out of a diamond pattern in April 2011, only to back test the diamond six months later at 74.95.  It then retraced .886 of that plunge, setting a lower high of 110.55 in February before plummeting once again as low as this morning’s 81.21 (the .886 is just below at 79.01.)

    CL now balances on a precipice, where a move in either direction is likely to be huge.  We’ll examine why, and which course is more likely.

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  • NYA Update – June 3, 2012

    The May 8 forecast for NYA was for the index to plunge from 7815 to 7340.  The forecast worked out well, as Friday’s low was 7286 (a quick 7% return, yay!)  As noted in that update, 7340 doesn’t really match up with any particular Fibonacci levels.  And, it doesn’t intersect with the rising wedge until early August (the highlighted oval.)

    I didn’t really see it taking that long to play out, and the market obliged for a change.  It also obliged by precisely tagging the fan line I had drawn off the Oct 2007 top (yellow, dashed) and one of the parallel horizontal channel lines (redrawn as red, dashed line E for emphasis.)

    We still haven’t landed exactly on a Fib level, so we either just overshot the .500 or haven’t yet reached the .618 target of  7145.  Deciding which it is presents some interesting questions.

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  • Channeling VIX

    VIX has very nearly reached the channel mid-line, Inverse H&S and Crab pattern targets I posted back on April 18  [see: VIX at a Crossroads], though we’re 2 days behind schedule.

    Our IHS target was 28.10 and the Crab pattern target was 27.12, expected to occur on May 30.)  Friday’s high was a very close 26.71.  It’s close enough to be considered complete, but a little follow through Monday morning would tie things up in a nice neat bow.

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  • The End Game

    Although the attached is a presentation on the current status of our wounded economy — limping onto the field one last time, hoping against hope that the steroids will last another 15 minutes, it also describes the turn your relationship with friends and family will take when sharing with them your scary new world view after reading this presentation.

    Best read it when you’re not going to be around civilians for a while.  From hedge fund manager Raoul Pal of Global Macro Investors: The End Game.