pebblewriter

Category: Charts I’m Watching

  • The Dow: Time to Double Down?

    Many are watching the Dow Transports’ recent all-time highs, wondering if Dow Theory suggests new highs for the DJIA as well.

    Without wading into the debate over which interpretation of the theory holds water and which are all wet, I think it’s important to recognize that the DJIA is one of those indices not making new all-time highs lately.

    Should the Industrials not break above 14,198.10, this would be considered a Dow Theory non-confirmation, at least on a larger scale.  The last time this happened was in July of 2011, when the Transports made a new high of 5627.85 and the DJIA failed to best its May 2 12,876 high.

    We can argue about cause and effect, but there’s no argument about what happened next.

    Eighteen months later, the DJT has again broken out to new all-time highs.  DJIA has not.  Here’s the current visual, which shows the current degree of divergence is much larger than back then.

    The Industrials, in fact, are a great candidate for a double-top.

    Drilling down, we can see DJIA has nearly completed a Crab Pattern at the Fibonacci 161.8% extension (14,201.84) of the July-October 2011 crash (the white pattern.)

    It intersects nearly perfectly with the previous 2007 high of 14,198.10 at the very point where the purple channel top and white 25% channel line also intersect.  But, it need not even reach that level to be considered a double top (within 1%.)

    And, only a few points away we find a Butterfly Pattern target (small red pattern) at 13,985.65 and a Crab Pattern target (in white) of 13,963.50.

    The last leg up in the move since October 2011 has been 1424 points — roughly 87% of the leg 3 rally between June and September of 2012.  A Fibonacci 88.6% of the leg 3 rally would register at 13,912 — well within the margin of error for any of the harmonic patterns mentioned above, and only 16 points above today’s high.

    And, for those who, like me, love to channel stuff, the DJIA’s daily RSI has its own bearish tale to tell.

    Could DJIA blow through 14,200 confirm the Transports’ all-time high and spoil the bears’ party?  Of course.  There are still plenty of earnings reports to sift through, including AMZN, CAT, FB, YHOO, IP, PFE and F in the next few days.  We could get great Durable Goods numbers Monday, Case-Shiller Home Price Index on Tuesday, or a bullish FOMC outcome on Wednesday.

    But, anyone counting on new all-time highs should remember July 2011 and consider protecting their downside.

  • Update on DX: Jan 25, 2013

    Currency markets have been quiet the past few days, with the dollar showing some indecision as investors try to wrap their minds around a potential new high for equities.

    Since we hit our downside target at the white .786 on the 13th, DX has been non-committal.  My best guess is a repeat of the .786/.886 retrace down to the red zone before DX takes off higher, but this is neither assured nor necessary for our equity forecast to play out as expected.

    continued for members… (more…)

  • The Big Sleep

    This market is just like that great scene from the Bogart & Bacall classic directed by Howard Hawks.  Not the steamy love scenes or the chase scene or the tension filled dramatic scenes — but the credit roll at the start of the movie.

    We know something really cool is coming, but there’s a lot of preliminary tripe to suffer through first.  So, we watch the 5-7 point fits and starts, hoping something good happens before we run out of popcorn.

    We had early strength following generally positive earnings reports and despite a mixed December new housing sales number (reported down 7.3% from November but up 8.8% from Dec 2011.)

    The non-annualized, non-seasonalized numbers from the Census Bureau are presented below.  There’s a lot of good historical economic data available on the website that rarely jibes with the MSM versions which are basically re-written press releases.

    The columns represent (from left to right) total, Northeast, Midwest, South and West for 2012 and comparable periods in 2011.  Total sales have obviously picked up versus last December, though primarily in the South and West.

    2012                                                                2011

     

    It might seem to some like I’m a bit of a housing bear, nay saying all the “great news” coming out.  I agree there are pockets of strong sales and price increases such as San Francisco.  But, most of the uptick in construction has been driven by multi-family.  And, most of the uptick in sales has been, IMHO, driven by a steady drumbeat of glowing reports produced by the very people who want you to buy a house.

    While it’s entirely possible this hopium will catch hold and actually instigate a recovery, it’ll be several years at best before the overhang of underwater current homes and bank-owned foreclosed homes works its way through the sales cycle.   If the country dips back into a recession (or remains in one, depending on your POV) or if interest rates begin to tick back up — good luck with a housing recovery.

    I spent a year in the 90’s working for a well-known institutional asset management company specializing in real estate.  While the experience was, on the whole, miserable, I did enjoy a great relationship with the company’s economist.  He and I spent many hours trying to crack the price model nut.  From every angle, it always came back to employment that ultimately drives prices.  Seen any real employment growth lately?

    Some would argue inflation also plays a role.  I would generally agree with that, but housing tends to lag the inflationary cycle, not lead it.  First, you need jobs — especially in an environment where lenders expect borrowers to have an actual income.

    It’ll be interesting to see how NE sales (essentially flat) do once we’re past the Hurricane Sandy sphere of influence.  Right now, it’s too easy an excuse for lagging sales of everything except generators and batteries.

    Currency markets are mostly quiet this morning, with the dollar showing some indecision.

    Since we hit our downside target at the white .786 on the 13th, the index has been non-committal.  My best guess is a repeat of the .786/.886 retrace down to the red zone before DX takes off higher, but this is neither assured nor necessary for our equity forecast to play out as expected.

    continued for members… (more…)

  • New Charts: 10-yr Notes

    First, an important caveat:  I’m not a bond guy.  Never have been, never will be — at least with long bonds under 8%.  I find the idea of sinking even one dollar into a security (on credit watch, mind you) that guarantees less than 2% for 10 years ridiculous.

    But, different strokes and all that.  Plus, bonds can be a good window on equities and currencies, so I don’t mind charting them once in a while.  The 10-yr has obviously been on a tear for several years.  It’s settled back from the 2008-09 spike into the bottom half of a channel that dates back to 2005 (white.)

    The big question is whether the white channel is still in charge, or the less aggressively sloped purple one has taken over.  Making things interesting, there’s a pretty well-formed rising wedge that broke down in August.

    But, the RW is slightly suspect because the July 25 high was slightly exceeded on Nov 16 and Dec 6, meaning there are two higher highs and a higher low in place since the August break (though both highs came on negative divergence relative to the July high.)

    Harmonics have performed pretty well with the 10-yr note.  The chart below shows a big Crab (grey), followed by another Crab (red), a Bat (white) and another Crab (purple.)  Each previous Crab Pattern completion has been followed by a significant retreat, so we should suspect one here with the purple pattern completion.

     

    The only potential hitch is whether the white pattern is still in play.  Bats can and do go on to form Crabs, and the white 1.618 is way up at 138’170 — a 4.5% increase from current levels.

    There is a significant amount of negative divergence on the daily and weekly channels, so I expect prices to fall.  But, obviously, a strong equities sell-off would turn that assumption on its head.

    A return to the top of the red channel, for instance, would take daily RSI to the purple midline.  On negative divergence, that could easily line up with the white 1.618.

    The close-up shows a potential channel since the most recent Crab Pattern reversal and the impact of the white 25% channel line.

    Otherwise, the bottom of the white channel and the middle of the purple channel intersect at the 126-127 area (the purple .886 is 126’267 and the white .886 is 126’285) around the middle of March – about where things were in March 2012.

    Stay tuned.

    *  *  *  *  *  *  *  *  *

    Just got this one in my inbox, an oldie but goodie…

    A successful trader parked his brand new Porsche in front of the office in order to better show it off to his colleagues. As he got out, a delivery truck came along too close to the curb and smashed into the driver’s side.

    The trader immediately grabbed his cell and dialed 9-1-1. Five minutes later a policeman pulled up.  Before he could even ask any questions, the trader started screaming how his car, which he just picked up that day, was completely ruined and would never be the same again.

    After the trader finally finished ranting, the policeman shook his head in disbelief.
    “I can’t believe how materialistic you Wall Street guys are,” he said. “You’re so focused on your possessions you don’t notice anything else.”

    “What the hell are you talking about!?” asked the trader.  The policeman replied, “Didn’t you realize that your left arm is missing from your elbow down? It must have been torn off from when the truck hit you.”

    The trader looked down in absolute horror.  “Holy Shit!” he screamed. “Where’s my Rolex!?”

  • That All Ya’ Got?

    AAPL soars, market soars.  AAPL plunges, market yawns.  Sure, makes sense to me.  One can only guess as to how much effort went into propping up the markets this morning in the wake of the earnings miss.

    Have you ever heard so many laudatory comments about the stock everyone loved to hate only months ago: NFLX?  Gotta love it.

    Regardless, AAPL has gone exploring spelunking lower Fib levels and the rest of the market is up, which presumably means we’re presently on the right side of the market.

    AAPL should firm at 450.85 this morning — the 1.618 of the Crab pattern dating back to Nov 16 at 505.75 (light blue.) Personally, I’m an enthusiastic buyer at these levels (with stops, of course.)  I previously set the large white pattern Point X at 354 on Oct 4, 2011.

    But, moving it to the June 20, 2011 310.50 level (just as legitimate, if not more) means AAPL just tagged the .618 retracement of the 310-705 move.

     

    But, the biggest reason of all to be short-term bullish on AAPL is the purple channel — the bottom of which AAPL just tagged. The stock could certainly fall below it, but this sucker dates back to the year 2000.  I have a hard time believing the channel will fall after what amounts to a minor estimate miss.

    Does the company have problems?  Sure.  I worry about the obvious decline in customer service and a slowing product cycle.  But, it also has the means, the manpower and the motivation to fix what’s ailing the stock price.

    Stay tuned.

    UPDATE: 1:15 PM

    The markets have sold off from their highs, but seem to be finding RSI support.  APPL is, doing the same.  For those who find the bounce idea compelling, here’s another chance.

     

    UPDATE:  1:50 PM

    Watching to make sure the price channel and RSI channel both hold on SPX…

  • Now What?

    First, a quick overview…

    The dollar got clobbered overnight, knocking it temporarily out of the white channel that’s guided it since Jan 11.

    But, interestingly, its RSI channel is doing just fine, thank you.

    The EURUSD continues to levitate, but still hasn’t broken the last important interim top put in on Feb 24.  It is also bumping up against two 25% channel lines, so could very well stall out here at the .886.

    There is still ample negative divergence regardless of which channel ultimately wins out.

     

    With the market exceeding the recent 1474 highs, the analog that did so well for us since last April is officially dead.  This begs the question: “now what?”  I see three big issues hanging over the market right now:

      1. earnings season —  AAPL in particular
      2. the US budget/debt ceiling imbroglio
      3. new highs justified?

    Earnings

    GOOG and IBM both gapped up this morning, but the earnings that can really move the market — AAPL — comes after the close.  We’ll take a fresh look at the AAPL chart later today.

    Budget/Debt-Ceiling

    In a few hours, the House will probably pass a measure to postpone the debt ceiling debate until May.  Reid and Obama have both said they’re on board, so this appears to be a done deal.  If House Republicans don’t fall in line, as occurred with “Plan B,” the market will sell off precipitously.

    New Highs

    The market’s strength has caught many off guard, including yours truly.  Many are calling for new all-time highs for SPX. The 2007 high of 1576 is now only 84 points away, so a few good sessions could do it.

    We’ll take a fresh look, focusing on the harmonic and chart pattern picture as well as the establishment agenda.  “What’s that?” you say.  Say all you want about random walks, CAPM, dividend discount models and Dow Theory.  Like any government-managed enterprise, the market is subject to the policy goals and needs of those who attempt to control it.

    Even to my cynical ears, this sounds a bit like rants from the tin-foil hat crowd.  But, consider the news on Egan-Jones yesterday.  This is one of the biggest stories of the month, yet predictably earned only this from WSJ/Marketwatch:

    CNBC was slightly more generous, yet still presented only the SEC’s side of the story.  It’s a story that deserves to be told because it speaks volumes about the degree to which the market is presently being controlled.  And, I’m not just talking about quantitative easing, though I suppose we’d have to consider QE exhibit #1.

    Last summer the market crashed 22%.  It was an analog (replay) of the 2007 top, so we saw it coming in plenty of time to profit quite handsomely.  But, it was a huge wake-up call for The Powers That Be (TPTB) or Plunge Protection Team, Wall Street Cabal — whatever you want to call it.

    With virtually unlimited power and unlimited resources, why couldn’t they prevent something like that from happening?  More importantly, if the top was a replay of the 2007 top, might the rest of 2011 play out like 2008-2009?

    It didn’t, because they learned from the crash of July-August.  First, they tweaked the markets just enough to bust important chart patterns that were playing out.  Second, they tweaked the rules to provide for more time to contain any damage which might otherwise occur (circuit breakers, etc.)  Third, they attacked those who had “caused” the crash.

    S&P CEO Deven Sharma was one of the first victims.  In the wake of the 2007 financial crisis, S&P was rightly pilloried for having pulled its punches — particularly on mortgage and banking related debt.  This was no surprise to anyone who’s ever worked on Wall Street — which pays for these supposedly unbiased views.

    An infamous exchange between two S&P analysts in April 2007 aptly illustrates:

    “BTW, that deal is ridiculous.”

    “I know, right . . . model def(initely) does not capture half the risk.”

    “We should not be rating it.”

    “We rate every deal. It could be structured by cows and we would rate it.”

    Imagine if Hollywood studios funded the reviews of their movies.  Would you care if they received thumbs up or down?  So, in August 2011 S&P found religion and bravely downgraded US debt.  Seventeen days later, Sharma was fired and replaced with the COO of Citibank, the bank whose existence relies on the absence of any future downgrades.

    Egan-Jones beat S&P to the punch, downgrading US debt on July 16.   Two days later, the SEC’s Office of Compliance Inspections and Examinations called looking for information on the downgrade.

    On October 12, Egan Jones was formally notified of a Wells Notice — they were being investigated.  On April 24, the SEC filed a cease and desist order against Egan-Jones — the only rating firm not on the take — stating the action was “necessary for the protection of investors and in the public interest.”

    The financial establishment’s interests, sure.  But, to frame this obvious smack down as “in the public interest” is laughable alarming.  Egan-Jones was the one rating firm with the balls to point out the country’s crumbling financial condition and stick to their guns.  Now they’ve been branded as deceitful, dangerous.  George Orwell spoke the truth in 1984:

    “In a time of universal deceit, telling the truth is a revolutionary act.”

    That other deep thinker, Jim Morrison, provided a similarly profound observation:

    “Whoever controls the media controls the mind.”

    The extent to which the market has been manipulated is deserving of its own post.  But, this Zerohedge article, forwarded by a member, is a great preview.

    Okay, so I know what you’re thinking: if the market is so heavily manipulated (and, presumably, insulated from downturns) why bother trying to beat it?  Simple.

    1. Chaos theory tells us they won’t have enough fingers to plug every hole in the dike (TPTB have similar “never again” strategy sessions after every crash.)
    2. Even when things do run as programmed, we can still effectively capture enough significant swings in the markets enough of the time to boost returns and, more importantly, try to avoid huge downdrafts.

    Over the very long-term, stocks return 8-10% — depending on the time frame examined.  But, sadly, most of us are limited to 40-60 years of investing.  And, a 60% crash right before starting a business, buying a home or beginning retirement could be devastating.

    So, we’ll keep plugging away, letting the markets tell us where they want to go…while trying to get there first.

    So, the question is “Now What?”  We’ll start by looking at the harmonic picture.  As detailed in our last review of all the previous tops, harmonic patterns are very likely to come into play.  So, we’ll start with the charts, then move on to the agenda question and, last take a look at AAPL.
    Since we’ve exceeded the range at which this rally could be considered a double top, we’re probably going higher still. So, we’ll examine the 1.272 and 1.618 extensions.

    In terms of a trading strategy, I’d be comfortable going long here at 1491.  But, disappointing AAPL earnings could knock the stuffing out of the market.  So, those with weak hearts should probably stay on the sidelines until tomorrow morning.

    The most recent patterns show a few possibilities, some of which are clumped together in fairly narrow ranges.  The largest of the patterns — the yellow grid — shows a 1.272 Butterfly Pattern extension at 1510.19 that intersects with the 2.24 extension of the decline (purple grid) from 1448 – 1343.

    A Butterfly Pattern is a good bet, as the Dec 18 reversal at 1448 pretty much nailed the .786 Fib level Point B (1446.44) which Butterfly Patterns require.

    1510.19 also falls within the confines of the thin red line — the TL connecting the Apr 2 and Sep 14 highs that would probably satisfy the EW requirements of an ending diagonal.  I know you’re out there, my Waver friends.  Please weigh in, as I know only enough EW theory to be dangerous.

    The white pattern is appealing enough, but I would have to consider it secondary in importance to the yellow since it began at a less momentous point X.  Ditto for the grey pattern.

    Although it should be noted that we faced a similar dilemma when choosing between the Point X’s for the Butterfly patterns beginning in 2011 [see: All the Pretty Butterflies.] In the end, it was a point similar to the white pattern 1.0 Fib at 1464.02 that determined the April 2 turn.  It featured a Point B closest to the .786 Fib.

    Zooming out, we can see that the 2011 highs could very well still influence the outcome of the current top.  The chart that includes everything is a little busy…

    …so I’ll clean it up by eliminating the interior retracement levels and switching to weekly.

    The target areas can be more easily seen in this close up.

    Note that the large red pattern, the one whose 1.272 extension helped me accurately forecast the April top, comes into play at its 1.618 extension of 1515 – only a few points away from the 1509-1510 level discussed above.

    This is promising, as patterns that influence markets once (that was an 11% correction, after all!) are more likely to do so again.  And, patterns that the market completely ignores — such as the yellow and white patterns from May and July 2011 — are less likely to suddenly leap into a position of authority.

    And, there’s also a purple 1.618 extension (set up by the 1422 – 1266 decline) at 1518.57.  Again, this is close enough to be considered significant.

    If 1520 is exceeded, then we’ll look at the next higher grouping: 1553-1555.  This “group” is basically the two yellow 1.618’s.  Again, the larger pattern’s 1.272 had no influence on the market.  The smaller pattern’s 1.272 is the one coming up at 1519.

    Summary

    My leading harmonic forecast is for 1509-1515.  I can’t imagine getting this close to 1500 and not snagging it for the trophy case.  And, I like the idea of dancing with the harmonic patterns that brung us.

    My secondary goal is slightly higher at 1553-1555, so there should be opportunities to jump back in and capture most of any upside above 1520 if/when appropriate.  Such a move would likely follow a reversal from 1509-1515 back down to 1474ish and would constitute a fifth wave rather than the ending diagonal suggested above.

    If AAPL’s earnings stink up the joint after the closing bell, going long won’t have looked very smart.  But, judging from the steadily appreciating share values, I’m guessing that a relatively positive result is already being leaked.

    Chart Patterns

    I won’t rehash the stuff already posted in the past couple of weeks.  Just take a look at the rising wedge that would be confirmed by a reversal at 1510 as early as tomorrow.  The target would come at the .886 of the base to apex price range and .618 of the time range (almost too good to be true.)

    We’re currently very close to the .786 of 1498, which tells me there’s a decent chance of a run up to 1500ish into the close.

    UPDATE:  3:45 PM

    AAPL is up almost 9 points at the moment.  A rally past 1426 would take it up out of the falling white channel it’s been in since last August.

    Anything over 515 would take RSI above the white and purple RSI channel midlines.   So, as expected, much is riding on the earnings report and how it’s perceived.

    We’ll watch these RSI channels, though. A return to the top of the yellow (and, especially the white) channel would surely spell a reversal.

    The Agenda

    I think it’s pretty straight-forward — bag an important new high, but without setting the bar so high that expectations can’t be managed.  At 1510, SPX clears 1500 but buys some time before the pressure of “will it exceed 1576?” comes to bear (no pun intended.)

    Then, get through the budget mess (or, more kicking of the can) and see where we are.  If we get a sequester, so be it.  The establishment will be well positioned ahead of time and the correction will be managed.

    After the shock of it wears off and prices have firmed in the 1200-1300’s, time to establish the next leg higher.

    Now, the big question is whether TPTB can engineer such a move without it getting out of hand — as it often does.

    Stay tuned.

  • Race to the Bottom: Jan 22, 2013

    Lots of big earnings announcements today:  JNJ, VZ, DD, TRV, DAL all missed, while GOOG, IBM, TXN, CA and AMD will report after the close.   It’s getting tougher to ignore slowing revenue growth, though the misses were almost universally blamed on Hurricane Sandy.

    But it’s the currencies that are getting most of the attention lately, with the yen making headlines all weekend. The BOJ followed through on expectations, confirming they will continue unlimited QE in 2014 once the current program ends in December.  They also embraced a 2% inflation target though, as many observers have pointed out, they’ve failed to even come close to the current 1% inflation target.

    USDJPY is the pair I watch the closest.   A weakening yen obviously strengthens the dollar index (the yen is 13.6% of DX) but it is easily offset by euro strength (57.6% of DX.)  Nevertheless, the pair’s importance shouldn’t be discounted, as it heavily influences trade.

    The two dominant chart features are the falling channel (purple) since 1998 and the falling wedge (yellow, dashed) since 2001.

    The pair broke out of the falling wedge in January 2012, but recently began reacting with the channel midline at a price level just beyond our target range of 87-89.  If you believe the BOJ, the pair will blow through this resistance and continue up to 95 without a hiccup.

    In fact, the daily RSI over the past six months suggests today’s little 1.2% correction might be all we get.

    But, if we back out just a bit, we can see this isn’t necessarily the case.

    continued for members… (more…)

  • Ay, There’s the Rube

    Oil is often viewed as a proxy for economic health.  In a growing economy, energy consumption increases.  This increased demand generally pressures prices higher.  Likewise, a decline in oil prices often accompanies declining demand.

    That’s a greatly oversimplified view, of course.  It ignores such important issues such as Middle East tensions, weather and refinery anomalies, etc.

    But, the most important of these external factors is the US dollar — the currency by which oil is traded globally (for now.)

    A weakening dollar is great for the many US companies that export overseas.  In general, it makes dollar denominated assets — such as stocks, real estate, etc — more attractive to overseas investors which helps the US attract and retain capital.

    But, it makes foreign-sourced oil much more expensive.  This isn’t an issue if you travel everywhere via America’s world-class public transportation system.  But, it really sucks for the guy with a 3-ton SUV — or anyone who consumes anything made overseas, for that matter.  Imports are about 18% of GDP.

    So, what’s a central banker to do?  Boost stocks and investment in US assets, and there’s a pretty good chance you blow the budget of every American consumer.  (Of course, it only really affects those who eat and drive — hey, buy a Chevy Volt already!)

    Boost the dollar to make gas and food more affordable for the 50 million Americans living in poverty (1 in 5 children, 2 in 5 African American children), and you risk a true disaster — a stock market decline.

    Never fear… Bernanke and his fellow Guardians of the American Dream know whose bread to butter.

    The chart below shows how crude light, the US dollar and the S&P 500 correlated over the past seven years.  In 2006 and 2007, oil and the stock market soared pretty much in sync while the dollar took it on the chin.  When SPX topped in late 2007, oil kept right on soaring — because the dollar was still plunging.  Nationwide, gas hit $4.12/gallon in the summer of 2008.

    We’re all conditioned to think of dollar strength as a function of risk off.  But, as the financial crisis worsened, the dollar couldn’t catch a bid.  Money fled to the euro, the swiss franc, the sterling — anywhere but the dollar. There were several best-sellers on bookstore (remember those? shelves that advised putting every last cent into the euro.

    From October 2007, when SPX peaked, until July 2008, stocks and the dollar moved pretty much in tandem.  But, as euro zone problems became more apparent, the dollar finally bottomed.  In August, as stocks began sliding again, the dollar finally took off.  Now deemed a safe haven, DX soared 27% by March of 2009, while stocks shed another 54% in value (58% in all.)

    Of course, this did a number on oil — already reeling from declining global demand.  CL plunged an astounding 78% in only six months — from 147 to 33.  Fortunately for the stock market — and especially the oil industry — Ben Bernanke came to the rescue.  The first round of QE was a resounding success and both promptly reversed.

    In the first three months alone, CL more than doubled to 73.  SPX added on a respectable 44%.  And the dollar took one for the team, shedding an initial 13% on its way to an 18% loss.

    So, why the history lesson?  By now most of you have noticed a slight discrepancy over the past 3 1/2 years.  Oil and the dollar have formed triangles.  They’ve had their ups and downs, but in general the highs have been getting lower and the lows getting higher.  I use the term “coiling” because eventually prices won’t be able to compress anymore.

    This pent-up energy will eventually be released in the form of sharply higher or lower prices, though it won’t necessarily happen tomorrow.   Both have drawn close to one side of the pattern, but there’s still plenty of room for a reversal.

    Oil, if it doesn’t suddenly shoot higher, will probably bounce back down.  Likewise, the dollar is poised to bounce higher.

    Stocks, on the other hand, have made a series of higher highs and higher lows in what’s known as a rising wedge.  These patterns also can’t last forever, and they almost always resolve to the downside.

    Prices are much closer to the upper bound than the lower, which also suggests the next major move will be lower.  In fact, when rising wedges break down, they typically target their origin. Needless to say, a return to 2009 or even 2010 prices would be a huge blow to the rosy scenario TPTB are crafting.

    Does oil offer any hints as to which way prices are likely to go?   I’m drawn to a few periods in particular.  From June 2009 to May 2010, oil gained 19% compared to SPX’s 27%.  Yet, they both shed roughly 20% in the May – June 2010 correction.

    We had another round of QE, which collapsed the dollar and sent stocks up 36% and oil up 70% through May 2011.  This time, SPX corrected 22% and oil 35% (through Oct 2011.)

    At that point, CL sold off strongly — dropping 23% through the end of June.  SPX, however, lagged.  It lost 8%, then promptly regained 90% of it in the next three weeks (compared to CL’s 40% retracement.)  When the slide continued, however, SPX caught up — in spades.

    It lost 80% of its gains from June 2010, while CL only lost about half that.  SPX then went on to make three new highs in a row, adding 38% through today’s close.

    CL managed an 88% retracement of its May-October losses for a 47% gain through Feb 2012, and has made two lower highs (each a 61.8% retracement of the previous high) since then.  Total gain from Oct 2011: 27%.  And, it’s been a fairly neutral currency market.

    I can’t help wondering what the oil and currency markets know that the stock market doesn’t.  A look at the CL charts indicates more downside.  Will SPX again play catch-up?

    Even ignoring what I suspect about the dollar and equity markets, CL presents a bearish picture.

    Whether it breaks down or out, CL is obviously at a turning point.  We’ll keep an eye on it…


     

     

     

  • Charts I’m Watching: Jan 17, 2013

    This morning’s post started out as an observation from a long-time member (hat tip to Beach Justice) and turned into a meaningful detour.

    PW – Does the candle pattern off of the recent 1400 low look a lot like the candle pattern from Sept 6 to Sept 24 to you?  We have a couple big green ones, one smaller green one on top that hit the high, then a bunch of tiny consolidating candles before it moved lower.  Also, always good to see another Ghostbusters reference, love it [2nd hat tip!]

    I took a look and was impressed by the similarities.  As BJ pointed out, they had very similar form.  But, it went beyond that.

    The September 2012 high was a big Crab Pattern that measured 77.95 from top to bottom and took 17 sessions from inception (the interim high at 1426) to the top.

    The latest high is also shaping up as a Crab Pattern.  It’s been going for 19 sessions and measures 75.85 points (so far.)

    Interestingly, had the first pattern stopped on a dime at the .886 Fib retracement of the 2007-2009 crash (i.e. 1472.43), it would have measured 75.86 points in all.  Hmm….

    Not one to believe in coincidences, I set out to look at other tops over the past few years.  This is where it got really interesting.

    In May of 2011, SPX completed an important top that looked sort of familiar.  That’s the same sized shaded box, BTW, just for comparison purposes.

    This Crab Pattern top also took 17 sessions to complete and ranged 75.88 points. Hmm…

    With all that out of the way, let’s turn our attention 2007 — the really interesting double top.

    These two were slightly smaller in price range (68.96 and 71.72 points) but still lasted 16 and 17 sessions.  The first completed a Butterfly Pattern rather than a Crab.  I attribute this to the horizontal resistance stemming from the 2000 top at 1552.87 (red, dashed line.)

    I find it very interesting that the 2nd top came in the wake of a completed Inverted H&S pattern — much like what happened on Jan 2 of this year.

    There was a fifth pattern that looks somewhat similar: April of 2012.  By transposing the shaded box over this pattern, we can see that this one is slightly larger.  It slightly exceeded the 1.618 extension, completing a Crab Pattern in only 13 sessions, then moved sideways for a few days, reaching its 1422 high near the 2.24 extension in a total of 23 sessions.

    I suspect this was the result of the proximity of two competing harmonic patterns and the lack of a nearby major Fib level.  The closest was the .786 at 1381.50 — which this pattern tagged at the entry point to the topping pattern.

    The dip and subsequent rise to complete the Crab Pattern crossed back over the .786 Fib, and offered two viable alternative targets that likely confused many harmonics watchers [it did me, as detailed in All the Pretty Butterflies.]

    So, what does this all mean when the market is set to establish a new high that breaks the pattern?

    continued for members… (more…)

  • The Excitement Continues

    In retrospect, this might have been a good week to go on vacation, commit the Dewey Decimal system to memory, heck…even schedule a colonoscopy.  Anything would be more exciting than the water torture of watching this market go nowhere and do nothing.

    We all know there’s a fiscal showdown coming.  We know it could get ugly.  We also know the consequences of a failure could be enormous, while the consequences of success…well, is there really any point to discussing it?

    Any outcome that doesn’t involve an actual default (that lasts more than a day), human sacrifice, dogs and cats living together and mass hysteria will be hailed as a great victory for our democrapitalist system.

    The Fed will celebrate by setting the discount rate at -2.5% and buying all remaining government debt.  Lobbyists will be given their own monument on the mall (come to think of it, they already have one called the Capitol Building.)  And, banks will be given a tax credit for every homeowner they evict (delinquent or not) as long as they provide a toaster to each newly homeless family.

    The income tax system will be greatly simplified. The new 1040 will take only seconds to complete, a “giveaway” for individual taxpayers.

    While, large corporations will continue to be burdened by excessive and unnecessary regulations as well as grossly unfair tax rates.  The only exceptions will be a select few which qualify for the Congressionally Recommended Assistance Program (C.R.A.P.), including those which:

    1. are able to evade taxation in other jurisdictions
    2. employ an accountant
    3. have donated to a Congressman
    4. might otherwise owe taxes
    5. believe taxes are for Muppets
    6. don’t really feel like paying taxes

    Healthcare will be free for all, but office visits will require the donation of a body part.  Social Security benefits will be increased, but will require the conscription of one’s offspring in the volunteer military which, by then, will surely have preemptively attacked Iran (in a bid for energy independence, America will annex OPEC.)  And, of course, new SEC regulations will prohibit the selling of stocks.

    Okay, maybe I’m exaggerating.  When was the last time a bank gave away a toaster?

    *  *  *  *  *  *  *  *

    AAPL, the subject of much navel gazing lately, rebounded where we expected it to [see: AAPL: Flirting with Disaster.]

    Yesterday’s question du jour was where the stock would rebound to:

    If AAPL back tests to 501 [the H&S neckline] and continues down, SPX should follow.  If, however, AAPL blows through 501, it increases the odds of new highs for SPX.

    This morning, AAPL did poke up beyond the former neckline, reaching 504.50 just a little while ago.  It’s clearly threatening to go higher, and has plenty of room within the white channel — the upper bound of which is 533.  It remains to be seen whether or not the neckline will hold.

    The RSI chart, besides showing no positive divergence, shows the resistance that must first be overcome.  While the purple and falling white channels show plenty of downside potential, the upside would require a break of the rising white channel bottom.

    UPDATE:  1:35 PM

    Nice comment from Beach Justice below, comparing the price action from last September to that of the past two weeks.  Seeing them side by side on a graph, the similarities are obvious.

    The shaded box from September incorporates the 1426 high leading into the pattern, the interim low at 1396, and the ultimate high at 1474.  The entire pattern took 17 sessions to complete and is a Crab Pattern (white) that coincides with the Bat Pattern completion of the 1576 – 666 crash (purple.)

    The shaded box on the right is the same size, meaning it ranges from 1398.11 to 1476.06 over the course of 17 sessions.  Like the September pattern, it has run out of steam (so far) at the 1472.43 Fib.  But, unlike the September pattern, it’s come up a few points (4.87, to be exact) shy of completing a Crab Pattern.

    Interestingly, both patterns are about the same size from top to bottom.  September’s ranged from 1396.56 to 1474.51 for a total height of 77.95.  The current one has stretched from 1398.11 to 1473.96 (so far) for a total of 75.85.

    Interestingly, if the Sep 14 rally had stopped on a dime at the .886 of 1472.43, its size would have also been 75.85 — exactly the same as the current top (as of a few minutes ago.)

    The current top certainly qualifies as a double-top, with a high 55 cents shy of September’s high.  But, what happens from here?  This is where it gets really interesting.

    continued for members… (more…)