These are the toughest times in investing — calling a top or bottom, then watching an opening that threatens to undo it. I mentioned in yesterday’s first post I was expecting a choppy next few days. Talk about understatements…
After scalping a quick 36 points (going long Friday at 1292, selling at yesterday’s high of 1328.49) I got a little cocky and went long again at yesterday’s low of 1310 — even though it didn’t quite reach my 1309 target.
A quick glance at the 15-min chart would have convinced me to wait. I got stopped out on the opening and am looking for a good re-entry point — probably just above 1300 from the looks of this chart.
UPDATE: 10:40 AM
This kind of choppy price action is the price the market pays for getting off to such a strong start Monday. We just tagged the .786 retracement of the rise from the past couple of sessions — the 1300 target from above — but there’s plenty of momentum on this decline so I’ll take another look as we approach the .886 at 1296.14.
There is a potential Bat pattern under construction, though I much prefer a better-defined Point B than yesterday’s low. From that low to the subsequent high was contained in one 15-minute bar. Ideally, there’s more separation than that.
UPDATE: 10:55 AM
Going to take another swipe at it here at 1298 with a 1292 stop.
Our forecast remains on track. Since calling the 1422 top, we’re up a little over 20% on a cash basis (versus -6.5% for SPX) in a little over seven weeks. We’re likely to pause around 1330, as this represents a key TL on RSI as well as the neckline of one of our recent H&S patterns. The chart below shows several key price levels coming up.
Today’s rise continues our successful run — now up 18.5% in the 5-6 weeks since the new pebblewriter.com came online (knocking on wood…) As expected, we got a sizable reversal off the Crab, Butterfly and H&S patterns.
As discussed in today’s earlier post, the 60-min channel is again being tested – – to the upside, now. A study of the RSI picture indicates that SPX will likely (more…)
The analog I posted on April 9 [see: New Analog I’m Watching] accurately forecast the move from 1422 to 1357, back up to 1415, then down to 1292. As detailed in the last post [see: Why Bother], merely selling short SPX at the tops and buying in at the bottoms we forecast would have earned investors over 17% versus negative 9.4% for a buy and hold strategy. That’s a differential of 26% that gets the new pebblewriter.com off to a great start. Now, will it continue?
When I first floated the idea of going pro with pebblewriter.blogspot.com, one reader’s response really struck a chord:
In getting the economy apparently going again, a serious stock fall would not help…so it won’t happen until every card is played… So it’s up and up… with perhaps a brief pause for technical patterns…a few plateaus to get the attention of the manipulators to get the machine running again.
Sure enough, following the old pebblewriter’s phenomenal first few months, I found myself stopped out multiple times as normally reliable chart and harmonic patterns were overwhelmed by the money printers’ manipulative efforts. Was the reader right? Was it time to throw in the towel and buy an index fund?
2011 v 2007 Analog
Instead, I buckled down and worked harder. I augmented my techniques with additional indicators. I learned how to apply harmonics to both price and time. And, I began a search for more analogs — the type of pattern that enabled me to score a 28X in July-August 2011. The new pebblewriter.com reflects those efforts and IMHO is off to a phenomenal start.
How phenomenal, exactly? Suppose you began following the new site when it went live in late March and did nothing but buy the S&P 500 when I called the bottoms and sold short when I called the tops. You would have earned over 17% in the past 33 days (4.6% from 1422 down to 1357, 4.2% back up to 1415, 8.7% down to 1292) versus -9.4% if you just held on for dear life. Yes, really.
Current Analog
Now, a 26.4% outperformance ain’t too shabby. Of course, leveraged ETF, futures and options traders did much better — as did those who shorted JPM or GS when I called their tops on March 27th. But, please, don’t join pebblewriter to earn 17% every 33 days. There’s no guarantee it’ll happen again.
Do join, on the other hand, because over the course of the next year, you’ll become adept at the exact same techniques I used to forecast this 130-point decline almost to the penny or forecast the July 2011 crash to the very day. You can dump your WSJ and turn off CNBC, because you’ll be able to identify and trade on effective fractals, analogs, harmonic and chart patterns that the main stream financial world doesn’t even understand.
If you’re a buy-and-hold investor — pebblewriter.com is for you, too. Who wants to sit around, worrying about the next 20% plunge? Wouldn’t it be nice to see it coming? Wouldn’t it be cool to avoid it, or even profit from it? I thought so.
The new pebblewriter.com is dedicated to helping members learn — from me and from each other. We’ll explore new ideas and new concepts in a safe and supportive environment. No black boxes here — every forecast I make explains why I’m expecting a particular move. And, when I screw up (and, I will) we’ll talk about it and try to learn from that too.
Still not sure? Since starting the premium pebblewriter.com on March 22, I’ve posted the following forecasts. Could your investment portfolio have benefited from these calls?
If you’re one of the 1,000 — 2,000 people who read pebblewriter for free every day, I have good news and bad news. The good news is that I extended the introductory pricing through the weekend. Those of you with quarterly or semi-annual membership can upgrade to an annual membership to lock in savings before prices go up on Monday, and I’ll even refund the amount paid for the initial subscription.
The bad news is that starting this weekend, all posts related to the current markets (what’s going to happen now that we’ve fulfilled my forecast) will be available to members only. Tomorrow’s post that discusses whether the analog is still in play (and why) will be password protected. When the markets start moving again, will you be ready or will you be kicking yourself for not signing up at the cheaper rate?
I know, it’s the ugly side of capitalism. But, a lot of effort goes into explaining stuff, versus trading my own account. It takes away from other personal and business interests, and it eats into my own investment returns. I spend quite a few hours every day racking my brain to help my readers make more money. A little quid pro quo is fair, right?
Recent comments from readers:
You and your analog/bat/crab/butterfly tools are dazzling me! Thank you for all you are doing to help me learn to use these beautiful new tools!
Wow, great call! We closed right at 1295!
You are one of the few that have it right per my friend. Your TA has been extremely close to the market trends, and only a few other sites can claim this.
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That’s my goal, folks. I want each and every one of you to be confident enough to dump me this time next year (but don’t; I have feelings too.)
To me, a drop to 1305-1317 seems fairly plausible. The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high.
Truth be told, I was really writing this note to myself — a time capsule that would hopefully provide a little backbone. I had a feeling I would begin to doubt the analog in the face of news bleak enough to produce that large a decline.
Now, as we approach the 120-point drop (patience, grasshoppers) within two days of the original target, am I still as confident?
So far, SPX has obliged us by tagging every one of our targets. The 1310 Fibonacci .707 retrace [see below] of the 2007-2009 collapse is our current intra-day low, and we’re presently sitting at the 1.272 target of the Butterfly incorporated into the analog I first posted on April 9 [see: New Analog I’m Watching.]
As I mentioned yesterday, I think there’s a very good chance we get down to 1289-1295 (depending on whether they can defend the very important 1292.) As oversold as things are getting, I wouldn’t even think about going long except, perhaps, to play a bounce — unless we’re able to break out of the acceleration channel on the 60-min chart.
It’s the dashed red channel that’s guided prices since 1415 (ignore the solid purple line, that’s just our forecast from April 10.)
UPDATE: 10:05 AM
Philly Fed numbers aren’t pretty, with a 5.8% drop versus last month’s 8.5% increase. Especially troublesome is the 6-month outlook, which has plunged from 33.8 to 15.0.
A negative 5.8% is bad enough in and of itself, but it looks especially ugly compared to consensus: +8.8-10.0%.
The Conference Board Leading Economic Index also missed, showing a 0.1% decline versus expectations of a 0.2% gain. This is the first drop since last September.
If it looks like the leading economic indicator line hooked down over the past few months, that’s because it has. Note the monthly rates of change — trending down from +0.7% in Feb to +0.3% in March and now -0.1% in April (not the sort of behavior you want to see in a recovering economy.) Here’s the official explanation from the Conference Board:
ORIGINAL POST: 9:39 AM
I’m watching the RSI for clues as to which of our targets SPX will settle on. Remember, the range is 1295-1323, though the number of unfolding events that could overwhelm our forecast is growing.
The daily chart shows several parallel trend lines that might provide the final stop. But, of course, lower stock prices often occur on a higher low in RSI — a phenomenon known as positive divergence, and a sign of a potential bottom.
Here’s a little better detail on RSI:
The white dashed trend line (7) is next up. It stopped moderate declines in April, September and November of last year and probably corresponds with our 1317-1323 target. Remember, 1323 is the small (yellow) Crab Pattern’s 1.618 and 1317 is the larger (purple) Butterfly’s 1.272.
The purple dashed line (8) is associated with the declines in November of 2010 and a secondary dip in August 2011 and probably corresponds with either 1300 or 1317 on SPX.
The yellow dashed line (9) stopped the plunges in March and June in 2011, and provided the higher low for the actual August 2011 1101 bottom. March 2011 is the analogous point in the analog we’re watching.
Surfing these RSI channel lines is an inexact science, because turns rarely occur exactly in line with previous highs/lows. There’s a relatively high margin of error, say 5-8%. So, it’s possible that yesterday’s RSI low could be considered to have tagged the white line. If we get a strong rally off the Philly Fed survey or Conference Board numbers at 10am, we’ll call it that way.
There is one other Fib level we haven’t talked about much — the .707 from the 2007-2009 decline is just ahead at 1309.67. Many investors aren’t even aware of the .707, so it’s often completely left off charts. But, this is a long-term pattern, so it could easily come into play.
Last, the 60-min RSI shows a pretty good possibility of a bounce in the 1317 range. Between 1323 and 1317, 1317 belongs to the larger and more important pattern — the Butterfly. So, unless the Philly Fed survey is atrocious, we should get some kind of bounce there.
Some of you might remember this post from May 4. I was struck by the Fibonacci relationships in both time and price between the last two major H&S patterns, and thought it confirmed my view that the H&S top was ready to play out.
We all know what’s happened since then, of course.
The reason I bring it up again is that horizontal purple trend line cutting across the chart from the October high (which helped drive prices higher for months.) I don’t think it’s a coincidence that it’s at the same price as our H&S target — any more than it’s a coincidence that the latest pattern is:
1.618 the time of the previous pattern; and,
.618 of the target price range of the previous pattern.
These Fibonacci relationships don’t tell us exactly what’s going to happen. But, they’re practically screaming “pay attention! This could be important!”
The obvious implication is that SPX will find its way down to 1289, the lowest of our targets initially presented over a month ago [see: Analog Details] — though I continue to believe TPTB won’t allow a dip below 1292 (too many bearish implications.)
Last night’s call on the dollar was timely. Check out the candle on the daily chart — the completion of both a Bat and Butterfly pattern.
EURUSD also seems to have put in a bottom, though as mentioned earlier it’s going to take ein Akt des Bundestages (literally) to save the euro now.
ORIGINAL POST: 2:00 AM
Back on April 30, I held my nose and plunged head-long into the dollar, also shorting the euro. I’m pretty sure I invoked that age-old expression of confidence: “here goes nothing.” Hopefully, lots of pebblewriter members went along for the ride.
I immediately regretted sketching out the forecast in such detail; and, in fact, I caught a lot of guff from a few readers for so recklessly calling the bottom (you know who you are, wretched givers of guff!)
I didn’t look at the chart for a few days, but knew things were going my way. I just didn’t realize how well things were going my way… Here’s the same exact chart two weeks later.
It deserves a close up…if only to show how spooky a forecast it turned out to be.
Throwing caution to the wind, I also posted the EURUSD chart below and wrote:
Meanwhile, the EURUSD shows signs of finally breaking down. Both the pair and the RSI action show a rising wedge that’s bumping up against a well-established channel.
Note Point D — the completion of a Bat pattern — sitting down there all by its lonesome.
It now looks like this:
Yikes! Harmonics don’t always work as well as they have this past month. But, when they do, man is it fun!
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As far as the road ahead, EURUSD crossed a incredibly important fan line today. It’s either fallen off a cliff, or it’s doing that roadrunner-running-in-mid-air thing. On the other hand, it has completed a Bat pattern (as has DX) that should mean a reversal. The next 24 hours are critical.
If I had to guess, the RSI leads me to believe we’re going to see a big bounce. But, I’m taking my profits and sitting this one out. If it plunges below the fan line, there’s plenty more downside where that came from.
If it doesn’t, it’ll be because Merkel and Hollande are caught on video, breathlessly moaning “long live the troika” while mending post-election relations.
Seriously, though, a stick save would almost certainly entail a commitment to all things Greek, Portugese, Spanish, Italian, etc. and more LTRO — lots and lots more LTRO.
Stay tuned.
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For the last several weeks I’ve been double-posting pebblewriter.com stuff on the original blog and holding this open for former followers. This website has been up for nearly a month now, and it’s time to start winding the other one down. [why?]
If this blog is helpful to you, jump on the introductory prices while they last. I’ve extended the 10% off discount for all new members through this Friday, the 18th.
We’re getting dangerously close to our downside target range of 1295-1323, first discussed back in April.
1349.42 — .886 of the purple Butterfly (tagged)
1343.41 — 1.272 of the yellow Crab pattern (tagged)
1340.03 — horizontal support, prev. Point X (tagged)
1323.85 — 1.618 of yellow Crab (next)
1317.63 — 1.272 of purple Butterfly
1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)
I have been viewing the downside as consisting of three basic scenarios:
(1) stick save: Fed freaks over Europe, QEish leak limits downside to 1349 (fail)
(2) top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289)
(3) panic sets in: crash and test bottom or large red rising wedge around 1200
The daily RSI has reached an important trend line of support (solid, purple) and, unlike FTSE, has yet to exhibit positive divergence — meaning it could go lower and tag the dashed purple line.
I suspect the solid line represents 1323 and the lower, dashed line 1289-1295, but that’s pure speculation on my part. As we approach 100-pts off the 1422 top, look for lots of investors to throw in the towel. It’s this capitulation that we need if we’re to see a meaningful rebound.
To me, a drop to 1305-1317 seems fairly plausible. The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high. The timing looks to be early May.
Will the Fed and ECB come to the market’s rescue yet again? I think so. I think they understand as well as the rest of us how close to the precipice we are. It’s stupid economic policy that will make things worse in the long run, but since when did that matter?
On the other hand, I have no doubt that the looming derivatives disaster [see: There is Nothing Wrong] I’ve been writing about — handily verified by JPM — could be beyond their ability to control (hint: 2008 all over again.)
UPDATE: 10:40 AM
