pebblewriter

Category: Charts I’m Watching

  • Still Groovy: Dec 19, 2012

    A quick plug: for anyone doing any last minute holiday shopping, I recently found a wonderful online shop that carries very cool shabby chic, french country and vintage decorative goodies.  After looking everywhere, I snagged some vintage champagne flutes at a very reasonable price.  I also understand the proprietor lost a loved one in the Sandy Hook shooting. Take a peek: here.

    *  *  *  *  *  *  *  *

    This Just In!!!

    The Orange One delivers a 60-second pep-talk on his cordial and highly productive talks with President Obama.

    ORIGINAL POST:  3:00 AM

    I have a confession to make.  Two weeks ago, I plagiarized the title and intro of the post: Stay Groovy.  Okay, so technically I plagiarized myself.  I originally used it the morning of June 1, 2011 on the old Blogger site to describe a situation that seemed pretty dicey.

    On May 31, after 3 straight daily gains, SPX had tacked on an additional 1.1% and appeared to break out of a well-formed channel.  Rumor was the Greece debt crisis was nearly resolved (glad we don’t have to worry about that anymore) and financials partied like it was 1999.  From the CNBC daily recap:

      

    Most everyone, it seemed, was suddenly bullish.  Truth be told, even I still had one foot in the bullish camp, wondering if SPX still might go up and tag the .786 of the 1576-666 crash at 1381.50.

    I posted the following commentary:

    There are plenty of tripwires ahead in the economic data due out this week.  Will they blow up the market, or simply result in another QE airstrike?   May as well call your bookie and bet on whether QE3 is coming….While I think there’s some upside potentially to the 1380 level, I wouldn’t bet the farm — especially from these levels.  I remain much more concerned about the downside.  Stay groovy.

    Here are the vitals from the end of the day, May 31, 2011:

    • SPX nearing the Fib 61.8% retracement from the 1370 top, still down 1.9%
    • every bank stock shown above gapped up on the day
    • an established channel had been broken in a way that surprised vis-à-vis 2007

    Turns out that the channel in question could be interpreted two different ways.  The red channel was indeed broken, but the purple one was still intact, thank you very much…

     

    …which meant that the channel break-out everyone expected was quickly and painfully reversed.

    “Okay” you say, “lots of nice information.  But, why do I care?”  Let’s examine yesterday’s vitals:

    • SPX reached the Fib 78.6% retracement from the 1474 top, still down 1.8%
    • every bank stock shown above (except HBC) gapped up on the day
    • an established channel was broken in a way that surprised vis-à-vis 2011

    Reaching the 78.6% Fib retracement yesterday wasn’t a huge surprise — after all, S&P upgraded Greece (at least we don’t have to worry about that anymore.)

    Like May 31, 2011, every bank stock (except HBC) gapped up on the day.  But, although SPX is up over 100 points (nearly 7.5%), most of the banks are still sitting at or below their May 31, 2011 price levels.

    BAC and WFC are the exceptions, but they are rapidly running out of real estate.  Most of the other charts look something like the following:

    How about the broken channnel?  Until last week, the red channel was apparently in control.  SPX pushed up through it, then back-tested and took off.

    But, suppose it’s the white channel that really matters?  Suppose the fiscal cliff solution (that seemingly everyone expects) never materializes, or housing starts are horrid, or the euro zone suddenly lands back on our collective radar?  Suppose DX and EURUSD both complete their Bat Patterns tonight or tomorrow?  Suppose the recent break-out…wasn’t?

    When I start asking rhetorical questions in the middle of the night, it’s probably time to turn in.  I’ll leave readers with one last chart that anyone who’s been following our analog might find interesting.

    continued for members… (more…)

  • Charts I’m Watching: Dec 18, 2012

    SPX is only about 2 points from completing a Gartley Pattern at the .786 retracement of the move down from 1438 to 1411 — smack in the middle of the upside target range I charted yesterday.  There is still potential to the .886 at 1436, so set stops accordingly.

    The EURUSD and DX remain positioned for sizable moves.

    continued for members…

    UPDATE:  9:45 AM

    We got the .786 tag at 1432.87.  I’ve closed Friday’s short-term long at 1433. But, as discussed yesterday, the .618 reversal at 1428.23 yesterday morning leaves open the possibility of a Bat Pattern completion at the .886 Fib at 1435.55.

    Note, also, that this is a smaller pattern among larger, potentially more important ones.

    For instance, we never quite tagged the 1.618 (red pattern) at 1439.49 on the 12th — not to mention the .786 or .886 of the 1474-1343 drop itself (larger, white pattern) at 1446 and 1459 respectively.  While not necessary, a tag of either would tie things up in a nice neat bow.

    UPDATE:  10:15 AM

    The EURUSD continues to inch higher, though it’s well past a point of any support and is showing negative divergence on every time frame.

    The tangle of channels drawn between May and December is a little difficult to follow, but suffice it to say that every possible alternative shows channel resistance at current levels.

    If, for whatever reason, the pair pushes through key resistance, the next higher Fib level is an .886 at 1.3320.

    UPDATE:  10:50 AM

    SPX is showing more strength than I expected.  I believe the .786 at 1446.44 is in play, so will ride along on the upside with any sustained push through 1440 — likely just an intra-day trade.  Watch out for the double top as we’re seeing on the EURUSD.

    There is a channel coming into play (below in red) that I haven’t talked about much before.  Along with the yellow channel SPX just poked above, I believe it will probably put an end to this 2nd wave up — though we could still get that intra-day push to the .786.

    UPDATE:  1:10 PM

    SPX just tagged the .786 mentioned above, pushing just beyond 1446.44.  I’m closing my intra-day longs (again) here at 1447 and will see what kind of reaction we get here.  Charts in a few.

    UPDATE:  1:20 PM

    SPX just tagged the apex of the rising wedge (in purple) that broke down on the 13th.

    Bottom line, it’s quite normal for a wave 2 to retrace 78.6% or even 88.6% of the wave 1 decline — especially when there is so much at stake, as is currently the case — from a political and economic standpoint.  Though I’m hedging my shorts, I’d rather be racking up gains here.  So, if the analog breaks, I’m just as happy to switch sides.

    Just remember that this analog has had its peculiarities, such as the .618 drop to 1343 verus 2011’s .500.  So, a .786 wave 2 (versus .618) doesn’t particularly concern me.  What does concern me is a low-volume ramp job by the Plunge Protection Team.

    The downside case is so apparent, and justified by the macro picture (not to mention the impossibility of a “good” outcome in the fiscal cliff mess) that the PPT surely understands the importance of taking a stand here.

    If today’s gains can be held and added to, even slightly, we might be seeing a break-out.   But, I have some more charting to do first.  The dollar continues to weaken.  The white channel is in danger of breaking down unless we get a reversal soon.  More asap.

    UPDATE:  3:30 PM

    Despite the apparent strength of today’s rally, I believe the downside case is still intact.  Consider the following charts (I’m using SPY to present a less cluttered view.)

    Try as I might, it’s difficult to see the latest rally as anything other than a back-test of the recently broken white channel.  As a bonus, we’ve tagged the 75% channel line within the purple channel.  We’ve also retraced .786 of the drop, which is perfectly normal for a corrective second wave.

    The daily RSI channels are also very compelling.  RSI should see resistance from a falling red channel line as well as two rising white channel lines — one major and one minor.  They both parallel prior channel lines, which adds credibility.

    The larger white channel line, in particular, is typical of those that signal downturns.  Having been broken in early October, it is being back-tested.  Many other such back-tests have produced significant downturns, especially when they occur at the intersection of a significant channel line.

    BTW, this works for bottoms, too. And, it further legitimizes the channel lines selected.

    The dollar is the one chart that has me wondering a bit.  DX has retraced 78.6% of the September 14 low (as opposed to EURUSD, which has retraced over 100% of its high.)  Again, a .786 2nd wave is not unusual.

    But, there was no appreciable .618 Point B on the yellow grid, so a Gartley isn’t specifically indicated — leading me to believe a Bat at the .886 (79.043) is still on the table.

    With EURUSD so overbought, though, I wouldn’t be surprised to see a move to the .886 occur overnight or intra-day tomorrow morning.

    Several other fast movers are also hitting channel resistance and/or completing back-tests. Hmm…

     

     

     

  • Update on USDJPY: Dec 18, 2012

    UPDATED:  Dec 18, 2012

    The two most dominant features of the pair are the falling wedge (purple) since 2000 and the falling white channel since 2001.

    USDJPYbroke out of the wedge in February, retracing a Fib .886 of the Apr – Oct 2011 plunge to complete a Bat Pattern.  Since then, the pair back-tested the wedge (and a minor channel, in red) and is approaching a serious test at the mid-line of the white channel.

    A breakthrough at the channel mid-line would likely lead to the first of two target areas: Point 1 in the first shaded rectangle.  Note the intersection of several key Fib levels on three different grids in the vicinity.

  • AUDUSD Update: Dec 18, 2012

    The chief elements of the AUDUSD long-term chart are its channels.

    Over the past several years, AUDUSD has been a pretty good reflection of equity market performance.

    continued for members… (more…)

  • Charts I’m Watching: Dec 17, 2012

    We got the bounce we talked about Friday afternoon, coming at the .618 of the last move up (the Crab completed Wednesday, in red) as well as the last wave down (in white, below.)

    We discussed not playing this bounce until SPX has cleared 1420, which it did this morning.  Even so, I would be cautious in chasing after it.  While the potential is to 1429-1435, as detailed Friday, this is almost certainly just a bounce — nothing more.  And, the next wave down will be swift and severe — particularly if AAPL continues to show weakness this morning.

    For those who opened a small protective position as we discussed Friday, the two most likely upside targets are a yellow channel line or a significant Fib retracement of the last wave down.

    The tightest version of the yellow channel is shown below.  This version ignores the last 10 points of the mid-November plunge.  A stop at the 25% channel line would mean a bounce to only around 1423 — not much of a back-test for the just broken white channel or rising wedge (in purple, below.)

    But a better fit, IMO, would mean including all of the mid-November bottom.  Under this scenario, the yellow channel midline at around 1428 (the purple .618) would be the more likely lower end of the range for the bounce — with a full .786 or .886 (1432-1435) retracement representing the upper end of the range.

    If AAPL gets a bounce at 500 this morning, look for this scenario to play out — with SPX’s bounce forming a nice A-B-C wave into the shaded area below.  A stop in the shaded target area would get the downside going, with the next stop around the white .886 around 1402.

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  • Forecast Update: Dec 17, 2012

    April 11 seems like a long time ago.  It was then that I laid out my forecast for the top we’ve formed [see: New Analog I’m Watching.]  As regular readers know, it was based on a combination of channels, harmonic patterns in price and time, a huge rising wedge, and a promising-looking analog.

    I made several adjustments along the way — revising the 1314 downside target to 1295, for instance.  However, on June 1, when the SPX surprised me by dipping below 1292, I posted that the bottom was at hand — but that the analog was probably broken [see: Why I’m Buying.]

    SPX did indeed bottom the next day, but the chop over the remainder of June convinced me I was probably right about the analog being broken.  We saw no such chop in the comparison period of Mar-Apr 2011, which was a fairly orthodox A-B-C pattern higher to an unorthodox 1.272 extension of the previous decline.

    But, as SPX approached the key 1472 Fib level (88.6% of the 1576-666 2007-2009 decline), it occurred to me that:

    1. SPX would naturally reverse at this Bat Pattern completion [World According to Ben]
    2. This reversal would intersect with the 1.272 extension of the previous decline.

    Despite the huge differences in form between the Spring of 2011 and Summer of 2012, the ultimate price movement was shaping up to be the same.  And, it was happening without a Point B reversal at the .786, which is required of an ordinary Butterfly Pattern.

    This was enough to get me wondering if I’d given up on the forecast too soon.  Sure enough, we nailed the 1474 high on Sep 14 which, after nailing the Apr 1422 high and nearly so the June 4 1266 low, boosted performance to over 60% in less than six months.  The move down after 1474 played out very much according to plan.

    So, by the time I posted A New Old Analog on October 26, I had discovered why the forecast seemed off track in the first place.  It was a great help in forecasting the remainder of the year.  Here’s the forecast from that Oct 26 post, with alternative prices at each turn:

    And, here’s the actual price action overlaid on that same forecast.  We’ve tagged Point A of the first turn, Point B of the second, and overshot Point B by 10 points on the third.

    Does last week’s overshoot of the most recent target spell trouble for the forecast?

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  • Charts I’m Watching: Dec 14, 2012

    We’ve had a decent push down so far, coming pretty close to the .618 mentioned yesterday (1413.65) for the first bounce.  Bulls will see this as the formation of another potential IHS right shoulder.  Personally, I prefer the glass-half-cracked view — another traditional H&S (purple neckline) as we discussed yesterday (3:45 update.)

    I spoke with my local congressman last night, and apparently most of D.C. has already cleared out for the holidays (great gig, right?)  Some of that is posturing, of course, but clearly we are slipping closer to the point where a budget deal can’t/won’t be done — assuming the dem’s were ever willing in the first place.

    Given the current political climate, going over the cliff might be the only way possible to reduce spending and raise taxes.  There are many in both parties who openly support the idea, and probably many more who secretly support it.

    It makes sense.  Politicians know we need to balance the budget.  But, they also know their careers will be damaged if they vote for tax increases or spending cuts.  Could be that all the negotiating back and forth is for show, so neither party can be blamed for the hit to the economy that a balanced budget will necessitate (or both will be blamed, depending on your POV.)

    I’m not advocating one side or the other, mind you.  Our fearless leaders (in both parties) threw us all under the bus years ago, spending much more than we could afford in order to curry favor with those who could ensure their continued employment (lobbyists, special interests, etc.)

    Social Security, for instance, has been on an unsustainable path for decades.  When was the last time you saw a mainstream politician filibuster for a benefit cut or a tax increase?  Don’t hold your breath.

    I merely point out the obvious — any potential debt reduction requires that revenues go up and/or spending come down.  Theoretically, the economy could grow its way into higher revenues as business conditions improve.  Some advocate lower taxes as a means of stimulating growth, the “trickle-down economics” advocated by Reagan in the 1980s.

    But, it’s hard to discuss such things without the discussion devolving into politics — a subject I never touch on this blog.  There’s a decent, relatively non-partisan discussion on trickle-down economics on Wikipedia.  Suffice it to say that our system ain’t working so well, and something’s gotta give.

    UPDATE:  12:00 PM

    We just got the tag of the .618 mentioned above.  Normally, I’d look for a substantial bounce here.  But, the latest H&S pattern argues otherwise.  Bit of a quandary for traders.  To play the bounce, I’d be cautious and wait for a push through 1420, potential target up to 1429-1435, tight stops.

    The bullish argument is an adjustment to the channel rather than a breakdown (yellow vs white).  It’s the same very steep slope as that formed from Nov 2011 to Feb 2012.

    As discussed above, we’ve formed half the right shoulder of a slightly different IH&S pattern (above in purple) that targets 1544ish.  Could it play out?

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  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Charts I’m Watching: Dec 12, 2012

    In widespread anticipation of the Fed broadening its accommodative stance, the dollar poked down through its proposed (white) channel overnight.

    While the EURUSD is back-testing its recently broken rising channel.

    With expectations high that the Fed and Congress (some of you might have heard recent talk about the so-called “fiscal cliff”) will deliver, the cost of any disappointment could be very high indeed.

    The Fed is expected to replace the upcoming expiration of Operation Twist with new bond purchases, bringing the monthly total to $85 billion (including MBS.)  Whether QE was worthwhile or not is a question for future history books.

    But, there’s no question that each round has resulted in diminishing returns for the market — witness QE3’s paltry 40-pt gain on SPX.  Unfortunately for the Fed, they were up against a worthy foe — a well-established Bat Pattern that snuffed out the rally as we expected [see: The World According to Ben.]

    After the subsequent 130-pt decline, SPX is almost back to its pre-QE3 price level. I find it interesting that, yesterday, 60-min RSI tagged the top of the channel line formed from that brief rally.  It’s all the more interesting that it did so in the form of a back test of the channel that contained the rally from 1343 — and failed to break the previous (Nov 2) high of 1434.27.

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  • Charts I’m Watching: Dec 11, 2012

    Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.

    The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target.  Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time.  With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)

    The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched.  I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.

    The slope of the white channel could potentially be shifted, as illustrated by the above chart.  But, it would take a break out to reach the next higher Fib levels.

    A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)  In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher.  If it can hold the channel, the next move up should be explosive.

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