Retail Sales
As usual, the economic headlines from MSM are wrong — focusing on the 0.4% seasonally adjusted increase rather than the actual 21% decrease from $459.8 in December to $361.4 billion in January. Wait, you say, you can’t compare January and December, with all that holiday shopping included! That’s true, an adjustment is appropriate — just not the adjustment Census packed in there.
UPDATE: 1:25 PM
VIX is coming to life, again. We had a breakout of the small falling wedge inside the large falling wedge, then a breakout of the large falling wedge itself. It was followed by a successful back test.
A rise to 21.13 or so will complete an Inverse Head & Shoulder pattern that targets 25+.
A corresponding drop in SPX to 1339 will complete the bearish (for stocks) H&S; pattern there.
UPDATE: 12:40 PM
For anyone following the USDJPY, we’ve seen a pretty strong move today – rising above the SMA 200. But, a genuine break out will take some doing. On a log scale, the purple TL/channel guiding prices since 2007 is still intact. Most troubling for the bullish case is the RSI, which looks to be tagging a TL that’s not been very accommodative.
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| USDJPY Weekly |
Look for a rise through the purple TL, currently 78.54. A rise above the Oct 31 high of 79.52 would constitute a more bullish wave form.
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| USDJPY Daily |
And, just for grins…
UPDATE: 10:15 AM
AAPL taking a pause right at the 2.24 Fib level we talked about over the weekend. Note that 2.24 is an acceptable Crab target (1.618, 2.24, 2.618, etc.) This also intersects with the trend line from 1994 we discussed over the weekend [see: More Crabapples].
Anyone playing the downside from here, however, would be well advised to place prudent stops; the next significant Fib level is way up at 529.
UPDATE: 9:15 AM
Eminis flashing -5 at this time. SPX will need to trade below 1339 (10 SMA) to confirm the change in momentum and complete the first Head & Shoulders pattern, while 1343 would take prices below the rising wedge.
ORIGINAL POST: 8:45 AM
EURUSD has broken down from the rising wedge it’s been tracing out (since the first of the year) and completed a successful back test. It bounced off the SMA 20 last night, having broken through the SMA 10 yesterday. Further, the EMA 3 crossed below the SMA 10 with the rising wedge break.
I always label my moving averages the same — just to make it easier to keep track of them on busy charts:
3 EMA: yellow
10 SMA: red
20 SMA: white
50 SMA: blue
200 SMA: thicker red
More later.
UPDATE: 9:30 PM
In the 12:15 post earlier, I discussed the two possible harmonic paths for EURUSD. The path higher has been all but eliminated thanks to a dip below the presumed Point A.
This dip is a break down from the rising wedge and, on its own, would target the wedge base of 1.2623. But, I’ve got my sights set on bigger prizes — namely 1.2464 on the way to 1.1597.
Here’s a medium close up of the jumbled mess surrounding today’s action:
UPDATE: 2:00 PM
We’re on the brink of either a break-out or break-down, with the market refusing to show its cards. The 5-min chart perfectly illustrates:
The purple Bat pattern reversed this morning at its .886, as it should. Since then, it’s traced out a smaller (red) Bat pattern that’s stalled at its .886 — which is right back to where the first pattern’s .886 was!
If we can hold here, it’s a 1-2-1-2 with the next move down sharply. Otherwise, there’s a pretty obvious 5 waves up being traced out, starting at Friday’s 1337 low. Since we’re so close to the presumed top of 1354.32, it’s a pretty simple matter to set stops for those inclined to take a bearish position.
Likewise, anyone playing the upside breakout would do well to set stops around 1346ish.
UPDATE: 12:15 PM
Euro rally still muted, with the daily charts pointing to a decline…
…though, in the short run, a slightly higher alternative is a possibility. Since Gartley’s complete at a .786 Fib retracement, I’m always on the lookout for that Point D to become a Point B in a larger Butterfly pattern (purple).
The pattern that points to the downside and fulfills the break down from the rising wedge is a Crab (in red.) We’ll want to keep an eye on 1.3027 on the downside and 1.3320 on the upside.
UPDATE: 11:00 AM
VIX is back testing its recent break out of a falling wedge.
UPDATE: 10:20 AM
I believe this is my first ever copper chart. If, as many believe, it’s a valid indicator for the stock market, the implications are bearish.
UPDATE: 9:40 AM
The 1354.32 high is still intact, as SPX slightly exceeded our .886 target of 1352.39 at 1352.63. If all we get is this bearish Bat pattern inside the recently completed bearish Crab pattern, we should see downside momentum pick up throughout the day.
ORIGINAL POST: 9:00 AM
Since the Greek parliament voted to throw their citizenry (almost goofed and called them constituents!) under the bus yesterday afternoon, the euro has rallied predictably. But, what an incredibly anemic rally… from Friday’s close at 1.3195 to a high of 1.3283 overnight to complete a bearish Gartley pattern on the 60-min chart. This represents a 78.6% retrace of the recent high. EURUSD is currently trading at 1.3273, up 0.3%.
This, in itself, has to be pretty underwhelming for the bullish case. The AUDUSD saw a similarly apathetic response — currently up 0.66% to 1.0746 after reaching 1.0777 overnight. Given that it just broke down from a rising wedge, this .618 retrace smacks of a backtest — as in “the last thing you see before a rising wedge produces a decent decline.”
All this would be interesting enough, but look at what’s happening to the eminis. They reached 1352.25 last night — a mere .50 from making a new high. If the the euro itself can’t manage at least a 1% rally and 88.6% retrace, why the heck did US stocks go hog wild with a 97% retracement?
I’m glad I asked. Among its failings, the ECB hasn’t quite mastered the art of turning a sow’s ear into a silk purse. Perhaps Madison Avenue is too far away, I don’t know. But, TPTB here in the good ol’ US of A are very adept at turning any event with even a hint of eau de taureau into a full blown, quantitavish second coming.
BTW, that larger rising wedge you see is the absolute end of the road for wave 2 without a breakout or breakdown. The key will be whether 1354.32 can hold this morning. The ideal turning point would be 1352.39, to complete a bearish Bat pattern on the 60-min chart and set up the H&S; pattern we discussed last week.
More later.
ORIGINAL POST:
Back on Feb 1, I made a case for 465 as an interim top for AAPL and SPX topping at 1333 [see: Butterflies and Crabapples]. AAPL obliged me by tagging my target on Feb 6, then — probably to spite me — tacked on another 28 points, closing at 493.42 Friday. During that same time, SPX has tacked on another 1.6% which, compared to AAPL’s 6%, strikes me as a little “divergency”.
Now, inches away from the psychologically important $500/share, is it time to throw in the towel? Jumping in front of a runaway freight train like AAPL is always a little dicey, but a very precise tag of a 17-year old trend line — part of an obvious rising wedge — makes a good argument for an imminent reversal.
Way up in the tip of that rising wedge, we’ve completed a Crab within a Crab pattern — one of my favorite bearish set-ups. We’ve overshot the 1.618 and 2.0 extensions on the smaller (red) pattern and are closing in on the 2.24 at 505.29 and the 2.618 at 529.25.
There are two possible Point X’s the larger (purple) pattern: 192.24 or 202.96. Starting at 192.24 puts a 3.618 extension at 490.81, meaning we’ve already overshot it.
Starting from 202.96, on the other hand, puts the 3.618 at 529.59 — only 34 cents from the above-mentioned 2.618 extension for the smaller pattern.
So, we’re seemingly stuck with ignoring a coincidence (529.59 v 529.25) or ignoring a very precise tag of a 17 year-old trend line. Ugh. It’s a little like the SPX and NDX, with ample reason for a reversal right here, right now — but a decent argument for a little bit higher.
Last time we saw this strong a bearish rising wedge pattern on AAPL was in 2000. Check out the rising wedge and its aftermath — an 88.6% retracement.
In 2000, AAPL had also just completed a Crab pattern — at its 3.618 extension (see below.) It came with head fakes at the 1.618, 2.24 and 2.618 extensions, so it’s not much help in deciphering our current plight. But, that thin red diagonal trend line is the exact same line as the purple TL on the weekly chart up above. I have a pretty good feeling about that line…
If it holds, AAPL should reverse very soon — maybe even Monday. If it breaks, AAPL could tack on another 7.3% to 529 before cratering. And, if AAPL craters in any meaningful way, there goes the neighborhood. Either way, long term holders of this remarkable stock would do well to hedge their downside.
GLTA.
UPDATE: 3:55 PM
The NDX RSI trend line was broken on the daily chart.
VIX to 21.98 intra-day high, up almost 40% this week.
ORIGINAL POST:
VIX has broken out of its falling wedge. We should see some sort of backtest, which will establish a right shoulder in an inverse H&S; pattern, then a run up to 25+. Note that each target which is fulfilled on an IHS completes another, larger IHS — in a reverse waterfall of ever-increasing values.
I wrote about the same pattern last July, just prior to the market imploding [see: Do You Feel Lucky?]
But, an IH&S; pattern on VIX wouldn’t be worth much without a matching H&S; pattern on SPX, though, right? Here’s a little one worth watching:
Of course, little ones can turn into bigger ones…
Which can turn into really, really big ones…
More later.
The trend line from May 19, 2008 through May 2, 2011 and yesterday’s close. Note that it connects the wave 2 top in 2008 to what I believe is the wave 2 top in 2012 — kindred spirits, if you will. Thanks, again, to RS for pointing it out.
AUDUSD charts, relating to discussion below…
UPDATE: 11:30 PM
What a difference the Oct 27 spike made…
Note how perfectly the yellow fan line off the Mar 09 bottom intersected with the fan line off the Oct 07 high — all at the apex of a big, fat rising wedge.
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| 5 Year |
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| 3 Year |
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| 1 Year |
Then October 27 came along, providing a slightly different trajectory for the rising wedge and, as a result, causing the fan line from 2007 to miss. The new fan line from Mar 09 carries pushes the rising wedge apex up and out in time. It’s made a difference of 35 points and two weeks.
UPDATE: 5:00 PM
Gold continuing to show weakness after breaking the RSI trend line. The critical tests will be breaking out of the little purple channel and then taking out Fan Line 3.
If those should both occur, we could see a dramatic drop to complete the Crab pattern at the 1.618 extension of 1203.
UPDATE: 2:30 PM
Keeping a close eye on NDX, which should reverse course at 2571 – 2575, the confluence of three Butterfly patterns — one going back to 2007 and the others three and six months old.
The NDX’s rise is all AAPL today. Like SPX, the leadership is becoming more narrow and volume smaller by the day.
The 2nd biggest component, MSFT (intra-day high = 30.8) faces a flaccid future. It completed a big Bat (purple) at 30.53. It’s also running into a Butterfly completion (yellow) at 31.54 and a second, small Butterfly completion (red) at 30.84.
Two weeks ago, a Butterfly stopped INTC cold. It’s currently clinging from a crumbling cliff, right at the 1.618 extension of 26.93.
Note that it was clobbered at the more common (for Butterflies) 1.272 extension at 25.27, only to recover and climb up to the 1.618. Crabs sometimes go higher, reaching extensions of 2, 2.618, 3. 3.618, etc. But, Butterflies are stuck with 1.272 and 1.618. Bad news for INTC and NDX.
UPDATE: 1:00 PM
VIX, which has been carving out a massive falling wedge for months, showed signs of breaking out today.
The rate of change just turned positive and is threatening to break another TL on the daily chart.
ORIGINAL POST:
A few of the go-go stocks are lending credence to the fact that this rally is simply overdone…
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| SBUX RW – out of room |
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| CMG RW, Massive Divergence |
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| Crab Complete |
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| AAPL Crab going for 200? |
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| GOOG Negative Divergence |
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| WFM RW, Crab and Neg Divergence |
Then, there’s COMP itself.
And, perhaps my favorite chart, the RUT. It sports a touch of the fan line from Mar 09 (dashed), a completed Crab (yellow), a completed Bat (purple), a completed rising wedge (dashed lines) and a tag of the May 2 trend line — all on negative divergence and falling volume.
This is about as bearish as you can get and, as a broad based index, is much less susceptible to overly narrow advances and manipulation than SPX, COMP or DJIA.
More later.
UPDATE: 5:10 PM
NDX came within 3 points of one target and is dangerously close to the other. Recall we have a very complete-looking rising wedge that might have a little upside left, depending on how it’s drawn (whether the Oct spikes are included or not.) The intersecting harmonic patterns include:
If it’s the first pattern that plays out, it could happen any day. The other is only 29 points away — one decent day of +1% or so — and is a cleaner fit for the rising wedge. It’s also practically on top of 2571, the 1.272 extension of the October 07 (2239) to November 08 (1018) Butterfly.
AAPL is a big component of the NDX, of course, so we care how it’s doing in its patterns. It exceeded its Crab pattern target by 11 points today, which is enough to stop out most stocks. I don’t have any positions in Apple itself, but if I did I would tend to allow it slightly more wiggle room.
The USD changed direction as expected, right at the intersection of fan lines we discussed a few days back. We’ll continue to watch closely, as an über-bullish resolution to the Euro situation could easily blow my forecast out of the water.
And, the flip side of the call, the EURUSD respecting the diagonal we’re watching…
ORIGINAL POST: 1:00 PM
Not much going on today. All eyes on Greece, but no news of any substance other than…there’s no news. The Guardian is running a dedicated page, updated by the minute, for those who want to be notified the very instant that nothing happens.
There’s been a bit of talk the past two days about an escrow account being set up to handle the upcoming Greek payment. I just read a pretty good article here.
The gold selloff that began Friday is continuing today. There’s a test coming up at 1700, which besides being psychologically significant, represents a trend line off the August, September and November highs. If gold bounces there, the latest decline from 1766 will look like a back test.
UPDATE: 3:30 PM
Consumer credit for December and Q4 was just released. First, the manipulated adjusted numbers, the ones most financial journalists, the WSJ and CNBC will report:
Looks great, right? Who wouldn’t get excited about a 9.3% increase in credit demand? Think of all the iPad’s that’ll buy. Here are the real numbers:
The nominal 4Q2011 v 4Q2010 increase was 0.1% for non-revolving credit and 5.5% for non-revolving credit. Significantly less when you back out inflation.
The nominal quarterly growth rates (versus prior quarter) are as follows.
Revolving Non-revolving
Q4 2011 4.3% 1.4%
Q3 2011 0.76% 2.24%
Q2 2011 1.00% .88%
Q1 2011 -5.70% .89%
In other words, it took a massive 4.3% increase in the 4th quarter of 2011 for revolving debt (credit cards) to get back to where it was in the 4th quarter of 2010. This increase, BTW, occurred during a period of non-existent income growth.
In the 4th quarter, credit card growth was 3X faster than non-revolving debt — that which typically accompanies larger ticket purchases that drive more sustainable growth in production. Non-revolving debt growth slowed 37.5% from Q3 to Q4 — not the kind of stats recoveries are made from.
UPDATE: 1:45 PM
In light of Apple’s surge this morning, it’s no surprise that NDX is making a move. However, it should be short-lived. It has reached to within 37 points of its 1.272 on the big Butterfly pattern, 11 points on the smaller Butterfly and is very deep into a rising wedge with apex at these levels.
The NYSE Comp is closing in on completing a bearish Gartley pattern at the .786 Fib level of 8225.37 — just 1.8% above current prices. I place much more credence in a broad index like this than the DJIA, which is struggling intraday to stay above its May 2011 high of 12876 — even as it completes a rising wedge and (as long as it stays below 12876) a double top.
UPDATE: 1:00 PM
The USD is poised to rebound strongly. It has back tested an important fan line from June 2010 (bold dashed white) that marked the 10/4 and 11/25 highs, as well as another important line (bold dashed yellow) from July 2008 that has stopped several declines.
There is also ample support in the way of RSI trend lines on the daily chart…
…and a completed bullish Butterfly pattern on the 60-min chart.
UPDATE: 11:50 AM
AAPL just completed its Crab pattern at 465.87 and is due for a decline that, at an initial .618 of the XA distance, would take it to the lower bound of its rising wedge — around 404, for a 65-point swoon. There should be substantial support there, as well as the SMA-200 at 380.
Like most of the rising wedges I’m watching, this one is long in the tooth and very far into the apex. AAPL has actually exceeded its upper bound, is showing exceptional negative divergence, has tagged an RSI trend line going back to Apr 2010 — all of this on falling volume.
I love my Apple computers, but at these prices this market leader is looking downright buggy. It should go without saying, but I’ll say it anyway: Apple has been a runaway freight train. While these patterns indicate a significant downturn, this is one stock to be very cautious of when applying any bearish strategy. Use stops. Oh, and another thing… use stops.
The Euro, in the meantime, just touched an important Fib level on its corrective wave and tagged its daily RSI trend line.
While the Greece situation is anything but settled, this could mark an important turning point. This last run up was so steep, it wouldn’t take much to upset this apple cart.
Note, also, that the diagonal (the dashed white lines) that marked the last step lower is now acting as resistance to the corrective wave up. And, the RSI on the 4-hour chart is bearish in two different directions — as a top and a back test of the last month’s rise.
ORIGINAL POST:
It’s been a little too quiet the past few sessions. Neither bulls nor bears have been able to mount a sustained push. Everyone, it seems, is spellbound by the drama playing out in Greece and the veracity of last week’s employment numbers.
I tend to believe Greece will ultimately fall in line. The establishment’s threats have fallen on deaf ears, so it’s time to pull out the bribes — or maybe just pull out the checkbook and kick this particular can down the δρόμος. It will be distasteful but, with the amount of money at stake, TPTB understand well the relative bargain.
There has been so much written about the employment numbers, it’s been hard to nail down the truth. Many have accused the BLS of manipulating the numbers. I think that goes without question. Just look at the past year. In almost every case, the revisions of previously released numbers have been less rosy — sometimes much less so. The misses are anything but random. On the other hand, the market seems content to accept the “good news” on face value, and sometimes there’s no convincing folks who are enjoying a lovely cruise that a life jacket should be kept close by.
I put much more faith in technical analysis than fundamental, but it’s interesting to note that only 59% of the 184 S&P; 500 companies who’ve reported Q4 2011 earnings have beat expectations — a three year low.
Here’s the big picture in SPX just prior to the opening bell. Note there are two possible fan lines from the Mar 09 bottom — one including the October 27 spike and the other which doesn’t.
The harmonic picture is a bit muddled, since we’ve exceeded both the .886 retrace of the 1370-1074 plunge (1336.86) and 1.272 Butterfly target at 1329.11. My gut is that last week’s spike was a throwover, but we won’t know until it’s over.
The rising wedge has filled out to nearly its most robust potential — taking into account Oct 27. It’s very, very mature and clearly nudging its apex. Keep an eye on the lower bound, as a break of this trend line will likely result in a decent decline.
The key level in a decline is 1292. A breech will damage the most positive wave count.
VIX continues its melt down, touching the lower bounds of its falling wedge within a falling wedge and remaining below a .886 retracement (18.11) of its run from 14 to 48.
Stay tuned.
I recently finished The Great Depression, A Diary, by Benjamin Roth — an Ohio lawyer who chronicled his daily observations of the economy and politics from 1931 – 1941. It’s riveting reading, as the events Roth describes are eerily similar to those of today — a real estate bubble and crash complete with banksters (amongst whom the politically connected are saved by taxpayers), communities falling apart, growing international tension, massive government intervention, the discovery of the printing press, etc.
Roth, an intelligent man and excellent writer, tries desperately to understand the causes for the upheaval and speculates as to the best remedies. To read his entries is to have a front row seat in the theater of investor emotions. He despairs as things get progressively worse, and rejoices when the economy seems to be turning the corner — only to despair again through the endless false starts.
Investors in 2012 are no less confused. Though a third of American homeowners are underwater, a parade of industry and government mouthpieces declare the real estate crash over. Our national debt grows by a trillion dollars annually, but our bonds command historically low yields. And, despite labor force participation rates at 30-year lows, we get huge stock market rallies on “game changing” employment improvement.
One constant, then and now, is the willingness of our elected leaders to say and do whatever it takes to safeguard the power of the real owners of this country. The military-financial complex that owns America will continue in power as long as citizens don’t realize just how tilted are the tables, how rigged the game. When truth accidentally slips out, Congress always investigates. Underlings sometimes even go to jail. But, does the system ever change?
Consider this passage Roth wrote about two of the 4,000 bank failures in 1933:
“In Cleveland the collapse of the Guardian and Union Trust Banks is under investigation and criminal action will probably follow. The investigation shows that the banks were run for the benefit of officers and directors: juggling of figures in financial reports; no examination by State banking board for 8 years; immense loans to officers and directors for speculative purposes without collateral; speculation by the bank in common stocks through subsidiaries formed for the business; hiding of losses on bad loans by methods of accounting.”
Change the names and the dates and the stories are essentially the same as today’s. If anything, Roth’s description of Depression-era banksters’ underhanded dealings seems quaint by today’s standards — where banksters bribe politicians in broad daylight and politicians return the favors by the hundreds of billions.
Just this past weekend, the NY Times broke one story about a man who blew the whistle on the mortgage industry’s foreclosure improprieties in 2003 — years before “robo-signing” had been coined, and another story on a $25 billion settlement between mortgage companies and state attorney’s general to compensate those who lost their homes due to those improprieties. Yes, nine years after being caught screwing people out of their homes, banksters are buying their way out of jail by offering the foreclosed a whopping $2,000 each.
When FDR took office in 1932 he laid blame at the feet of the Depression’s banksters.
“…the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men…. By failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.”
But, FDR bailed out his share of banks (often chosen by political connectedness) and later opposed creation of the FDIC — one of he recognized the importance of reform, establishing the SEC and the FDIC.
UPDATE: 12:30 PM
Okay, lots going on. This will be a long post, but I’ll save as I go.
First, I immediately looked at the DX after the employment figures came out. The dollar quickly dropped to an important fan line at 78.815, then reacted very strongly, shooting up to 79.485 before settling back down to the current 79.245.
I went to the DX because I’d been studying a very bullish fan line pattern on it last night. Here’s the updated longer-term picture. I’ll show it in phases, so you can get my drift. First, fan lines from the 2008 lows. As you can see, there’s good strong support at current levels.
Next, we add in fan lines from the 2009 top. Note, we now have two fan lines of support at the current prices.
Clearly there is resistance above from the lines running through the highs in January — probably around 81.70. But, the trend is still up — with both higher highs and higher lows.
And, the harmonic picture is positive, with the larger Bat pattern (in red) pointing to the .886 at 87.076 and the smaller Crab pattern (in purple) pointing to the 1.618 at 83.872. Interestingly, the 87 level intersects with the fan line running through both the Mar 09 and Jun 10 highs (solid yellow line.)
Unless we’re going to have a stock rally that also sends the dollar up, something’s gotta give. I think the currency markets know it. Gold traders seem to know it, too. The back test we’ve been watching has completed and prices are currently down 16.
Okay, so what about stocks? First, here’s one chart that should really matter.
Here’s the same chart in logarithmic scale. Both exclude shadows and tails.
If we fiddle with the critical line (through current prices) a little, it ranges from 1345 to 1380, as follows:
- arithmetic, no shadows: 1345
- arithmetic, w/ shadows: 1354
- log, no shadows: 1369
- log, w/ shadows: 1380
These values are of today; obviously they increase with each passing day. That’s a pretty wide range, of course, with pretty important implications — since 1370 has been presumed to be the P2 top. Let’s look for some guidance from harmonic patterns.
The price action since Oct 07 makes for a near perfect Gartley pattern. Point B was a 60.8% retracement of the 1576 to 666 drop (61.8% is ideal.) And, 1370 came in at 77.4% — just 11 points shy of the ideal 78.6%. Now, at 1344, only 37 points from 1381, is it possible we’ll make it back there for a precise completion?
The affirmative case is sound. As mentioned just above, the fan line from Mar 09 hits 1380 in a log chart, utilizing shadows on the Oct 27 high. And, we’ve surpassed the fan line from the Oct 07 high, so it no longer provides upside resistance. So, 1381 is a distinct possibility.
Of course, it’d wreak havoc with the Elliott Wave counts most folks have been using. The drop to 1074 a few months ago obviously overlaps with the Apr 10 high, and they tend to frown on Wave 1 and Wave 4 overlaps. We’ll set EW stuff aside for another post.
There’s an equally good case to be made for the other levels. As the chart above shows, the arithmetic fan line comes in at 1345 w/o shadows on the Oct 27 high (add those in, and we’re looking at 1354.) The current level also makes plenty of sense if you toss the Oct 27 spike and take out the other shadows (more on Oct 27 this weekend.)
That way, today’s rise is just a blow off top that pierced the Oct 07 fan line and we’re still reasonably close to a proper turn on the Butterfly pattern (the smaller letters) and we can head back down Monday after the Greece deal blows up. Otherwise, there’s not much to put a cap on the rise until 1367.
Remember, the same chart in log scale without shadows gets us to 1369 — right below the previous high. Obviously 1370 would provide tremendous horizontal resistance. And the inverse head & shoulder pattern target of 1367 is right there. It’s also pretty close to the the 1375 target of the Butterfly pattern (smaller letters) if it should play out at the 1.618 instead of 1.272 extension (as they sometimes do.)
Some other patterns I’m watching: AAPL has reached the channel boundary, but still hasn’t completed the Crab pattern at 465.87. In fact, its failure to participate in the rallies of the past few days has to be a bearish indication.
NDX has broken through the fan line and trend line that aligned the previous three tops with Oct 2007 high. Looking back over the past 5 years, it’s likely heading for the 1.272 Fib level at 2571 (although Point B is sorta in no-man’s land, halfway between the .786 and .886.)
The 2571 price level roughly coincides with the currently Crab/Butterfly (purple) we’ve been tracking and lends credence to the previous pattern (red) being a larger Butterfly itself. The 1.618 extension of the purple pattern is at 2574 and the red 1.272 is at 2548.
On a broader index, the NYSE Composite clearly points to a rise to the 8225 level — a 2.2% increase over current prices. It’s the intersection of the .786 of a very clear Gartley pattern and fan lines from the 2007 high and the 2009 low.
The RUT looks even more out of gas. The fan lines off the highs and the lows intersect right at 831 — where we are now. There’s a perfectly formed Bat pattern with an .886 at 838.15 and a perfectly formed Butterfly with a 1.618 at 835.74. Getting much beyond 838 will be very difficult.
I’ll write more over the weekend, but that’s the technical picture right now. There’s ample justification for a little more upside on SPX — perhaps 1367-1370. Though, I suspect financial and geo-political events over the weekend will have a lot to do with how far this goes. Looking at the pathetic volume, I’d say this is a last gasp, one way or the other. SPX is clearly not being emulated by broader indices, which tells me it’s not going to last.
NYA is just about there — maybe another 2-3% — and RUT should be pretty much done. The dollar looks to rise strongly, but will run into some resistance around 81.6. The Euro put in a spinning top today, which perfectly reflects the binary nature of it’s future. A quick .05 move either way is almost certain. And, check out gold, which closed nearly $40 off its highs.
Last, let me address the question of bias. There are many technical analysts who blithely and consistently offer both bullish and bearish alternatives. While some of these guys offer good alternative viewpoints, I’ve always found it frustrating to read between the lines and discern their real opinion. There are others who throw out forecasts without providing any rationale so that we may judge for ourselves whether or not they’re sound. These are even less useful.
I find it most useful to have an opinion and trade accordingly, using stops in case my opinion turns out to be wrong. I’ve been stopped out of bearish positions four times since SPX 1202. But, each position was the result of forecasts driven by sound technical analysis techniques that, while not always perfect, have a better than 50-50 track record.
I trade aggressively for my own account, using options more often than equities or funds. In July – August, using these very same techniques, I was up 28X. So, I’m very comfortable taking a 1-3% hit here and there. Many of you trade stocks or mutual funds, and so these numbers aren’t going to be comparable. But, if you use stops (which you must, especially in this market) your returns should still be in the 20% + range since I started this blog on May 2, 2011.
If you go out and buy puts or calls every time I say we’re going up or down and let the position ride without stops or adjustments, it will be very difficult to make money. This, in my opinion, would be speculating and not investing or even sound trading.
I am still bearish because the economic indicators and my technical analysis tells me the next major move will be down. But, I fully recognize the possibility that the enormous amount of QE (by whatever name) will drive prices higher. It happened during the Great Depression, in the midst of arguably much worse economic conditions. But, I don’t think it’s sustainable — given the enormous debt we have and the persistent budget deficits that will continue to make it worse.
If something happens to change my point of view, rest assured I will let you know. In the meantime, I will continue to do my best to have an opinion that makes for successful trading. Have a good weekend.
ORIGINAL POST:
Well, obviously 1333 was not the Wave 2 top. On the other hand, this is just as obviously 5 waves up.
That .886 retrace at 1336.86 that we just exceeded is an 88.6% Fib retracement of the whole shooting match — the 1370 to 1074 Wave 1 decline.
BTW, the ISM Services report can be read here. It’s not as amazing as one would think.
