SPX seems destined to go up and tag the .786 Fib at 1414.81.  I’m closing my shorts on the opening and will possibly take another crack at shorting there if SPX shows any weakness.  Apparently yesterday’s dip is all the B-wave we’re going to get.  Swing traders will do well to remain long, but be careful around that Fib level.  Consider trailing stops.

EURUSD bumping up against the May 2011 channel again — negative divergence up through 4 hours, but not on daily.

UPDATE:  9:35 AM

For traders, 1417.92 is a decent place to try a short — the .618 of the drop from 1464.02.  I’ll try one with tight stops.  Leaving my core long position in place, raising trailing stops to around 1410.  1424 is just above.

UPDATE:  11:33 AM

Got a nice reaction just above the .618 at 1419.  There are two channels that could bring things to a screeching halt right here — seen below in yellow and purple.  So, 1419 should get some respect, with a pullback to the previous high of 1409 /channel line likely.

Our forecast remains on track, with the current leg up due to complete any time now.  We’ll take a look at the forecast, the analog, and any potential bumps in the road.

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It’s pouring down rain on the normally sunny central California coast.  Even on days like this, it’s heaven on earth — unless you’re a line man for PG&E.  The high winds that accompany toad chokers around here are notorious for downing power and telephone lines — as just happened at my house.  I am now posting from my favorite coffee shop.  [correction: a Starbucks several miles away, as the two wonderful coffee shops near to my house have also lost their internet service.]

Speaking of storms…  This experience (and last week’s frantic search for bandwidth in SF) have left me woefully behind in charting. I need to invest some serious coin in backup power and communications.  So, I am leaving the Hurricane Sandy membership promotion up through December 1.

I’ve had a few questions about how this works.  Basically, a $100 contribution to the relief effort gets you a $200 discount off the price of an $800 annual membership or $100 off the price of a $475 six month membership. Just choose the charity, email me a copy of the receipt with your request, and I’ll send you an invoice for discounted subscription price.

If you already have a membership, I’ll extend it by the new period.  If you are one of the lucky initial Charter Members whose fixed rate is already lower than that, I’ll knock $100 off your rate for the next year.  Tempus fugits, folks.  Rates go up next week.

Also, thanks! for the many notes of support these past couple of days.  Thankfully, my wife and daughter are on the mend.  Things got a little hinky yesterday when their vision blurred and they were too dizzy to stand.  It wasn’t just the stomach flu I brought home from a business trip last week, but food poisoning from some broccoli that was a little past its prime.  Daughter #2 and I turned up our noses at it and, thus, remain unaffected (knocking furiously on the nearest wood with one hand, rubbing rabbit’s foot with the other.)

Last,a reminder that I will be tweeting any important intra-day updates (an email will still go out with each morning’s initial post.)  Sign up at https://twitter.com/pebblewriter.  Any charts I post there are for public consumption, so feel free to share.

ORIGINAL POST:

After some tense moments yesterday, we’re finally seeing the reversal we were expecting.  Having broken down from its rising wedge, SPX is well on its way to our downside target.  The first level of any real support is approaching at 1380-1384.

AAPL, the subject of a detailed analysis yesterday, has likewise broken down from its rising wedge, gapping down on the opening.

Note that SPX’s reversal came a couple of days later and a few points higher than we expected.  We remain short from 1404 on the 23rd.

UPDATE:  10:40 AM

We got a bounce off that white channel mid-line mentioned above, and have retraced about half the losses since the Nov 26 1409 high — back-testing the purple channel mid-line in the process. Corrective waves often retrace .500 — .886 of the previous move, so don’t be surprised if we push a little higher.

Just thinking out loud, but a reversal around 1400 would make for a pretty nice H&S pattern, which would likely target around 1357 — the .786 Fib of the 1343 to 1409 rally.

UPDATE:  2:45 PM

SPX has retraced almost 88.6% of its initial plunge (1406.32.)

The 60-min RSI we examined this morning has completed a back test of the recently broken purple channel and is bumping up against the mid-line of the longer-term yellow channel.  Next move should be to the bottom of the yellow channel (or even white.)

My lead scenario has this occurring around 2pm EST on Friday.  But, as we discussed yesterday, this move down is not a certainty. It’ll be important to see how the market reacts if/when it hits 1406.50 or so.

We saw today how the proper jawboning can snap markets out of a short-term funk (won’t solve any long-term problems.  But, since when do our elected officials concern themselves with the big picture?)

While I’m feeling feisty, remember that any “solution” TPTB comes up with will not fix America’s — let alone the world’s — balance sheet problems.  Too much debt = too much debt burden (interest) = too much money diverted from existing services = raising taxes and/or lowering services.

That’s right.  They can rearrange the chairs all they like, but none of the possible (let alone acceptable) solutions being discussed will make even a dime of existing debt go away.  At best, they might theoretically slow the rate at which debt accumulation is accelerating.

All the press conferences press releases disguised as WSJ analysis in the world won’t change that.  Yes, today’s double top was brought to you by Jonathon [Plunge Protection R Us] Hilsenrath.

UPDATE:  3:55 PM

Well, there’s a new interim high — on negative divergence from 5- 60-minutes and the daily charts (up to 53.346.)

Negative divergence is certainly no guaranty of a downturn.  Like yesterday, the risk remains that we don’t get a bigger downturn.  But, I still like the odds.  Watch your stops and trade safe.

When we last examined AAPL [see: Harmonics are Your Friend] it had fallen 167 points (23.6%) in less than two months and appeared to be nearing an interim bottom — meaning it was due for a bounce on its way to lower prices.

It stabilized for a few days, but joined in when the overall market sold off the following week — shedding another 4.8% when the S&P 500 dropped down to tag our 1344 target [see: Charts I’m Watching Nov 15.]

Since then, AAPL has climbed back nearly to our primary target of 600 — adding 19 points  to reach 590 yesterday.  It was the single biggest daily gain since last May, and has many Mac enthusiasts reaching for the buy button.  Is the worst over, or was this just a bounce on the way to lower prices?

Like the broader market, AAPL has reached a do or die moment.  There are channels going back to the early days (1983) that look like they maxed out at the 705 high on September 21.  The two largest channels, shown below in red and white, have each controlled prices pretty effectively long-term.

But, it’s the small purple channel that dates back to 1999 that has really guided prices most effectively since AAPL traded in single digits.

Regardless of which long-term channel ultimately proves superior, smaller parallels of each of them have been very influential over the past several years.  And, if we layer in smaller scale channels, the stakes are pretty clear.

Here’s a close-up:

Several things strike me about this chart.  First, we are clearly back-testing the 25% line on the purple channel.  It’s been 3 1/2 years since we last tagged the bottom of the purple channel. Every back test is a moment of truth, as prices which recently fell below a key point attempt to retake the high ground.

AAPL spent Oct 04 through Sep 08 in the upper half of the purple channel, and ever since has been mired in the bottom half.  It last tried to retake the mid-line on April 10, after a furious 77% run in 4 months — an attempt which failed.

Though prices have moved higher since, it’s been at the expense of standing within the (albeit rapidly rising) channel.  Prices recently fell below the 25% line on Nov 7, gapping down that morning.

We’re now approaching the channel line from below.  The previous support is now resistance.  A reversal here could quite likely spell a return to the channel bottom — which will be around 434 at the end of the year when the S&P 500 is nearing its next low.

The other standout feature is a battle setting up between the falling white channel and the completion of a bearish H&S pattern. If prices stay in the channel another couple of months, they will reach the bottom rung of the yellow channel and thus complete a H&S pattern targeting around 300.

The shorter-term channels I’ve inserted each have their own pros and cons.  The next couple of weeks should provide some clues as to which can be counted on.  In the meantime, the harmonic picture helps a bit.

In 2011, the picture was quite simple: a Crab Pattern (in yellow) followed by a Butterfly Pattern (in purple.)  Each produced a strong reversal within a few points of their completion and adhered to pretty well-established channels.  The only real surprise was that the SPX high (the asterisk below) didn’t at all line up with AAPL’s.This time, the picture is somewhat similar.  AAPL easily overshot the 1.272 of the 644 to 522 decline (Apr 10 – May 18) at 677 before reversing to around the .500 Fib level.  It came within 14 points of completing a Butterfly Pattern at 719.17.

The subsequent sell-off to 505.75 accomplished essentially the same thing in the opposite direction — coming within 19 points of the 1.618 extension of the 570 to 705 rise at 486.53.

Note that 486 is spitting distance from the purple pattern’s 1.272, the white pattern’s .786 and the yellow .618.  Intersecting patterns like that increase the odds of reaching a target.  Reversing at 472-493 would signal new lows.

It would set up a Bat in the yellow pattern targeting 402 and/or a Butterfly pattern in the yellow pattern targeting 472 or 409.  Reaching 486, of course, would also complete that nasty H&S pattern targeting 300ish.  So, the Bat and Butterfly patterns might be the least of investors’ worries.

Combining all the above, it’s easy to imagine a scenario where prices drop to 500 into the end of the year, but can’t quite seal the deal on the H&S pattern.  A nice bounce there and rally into February would fit nicely with my general equities forecast (see below.)

Breaking through current prices to 628.93 however, would set up a potential Bat Pattern to  682.35 — a price level that, if reached in March 3013, would flesh out several channels.

The rise from 522 has been rapid and without much wave form.  We’re overdue for a correction.  If it can remain north of the yellow neckline, we should see prices up into the 660-670 range by March.  But, it’s more likely that AAPL breaks down below that line, followed by a more serious plunge that reaches the low 400s.

GLTA.

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Thanks for your patience these past few days. Fortunately, the markets have behaved largely as expected — giving me the time I needed to create a forecast I think is pretty solid.

Here’s the latest version.  Every time I revisit it, it gets modified slightly.  But, this is the closest I’ve come to a scenario that fits with all the channels, harmonics, analog requirements and various other chart patterns I’m aware of.  If our analog holds, this is pretty much what to expect over the next six months.

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We’ve been following a forecast that combines a proven analog, several major price channels and some important harmonic patterns.  One interesting aspect we haven’t looked at for a while are the RSI channels.

Like price movements, I’ve found that the market’s RSI tends to move in channels, which makes it somewhat predictable. Without getting into why it works, it’s pretty obvious that it often does — although I rarely come across other analysts who use it to the extent that I do.  It’s particularly useful in signaling reversals and breakouts/breakdowns.

Consider SPX’s daily RSI.  The nearly flat big white channel is the one channel that’s contained everything for the past two years.  Note how often we had reversals at the interior channel lines — especially the (dashed) midline.

The rising purple channel has guided the action since 1101 in August 2011.  Within it, we’ve had several well-defined channels that made some of my best forecasts possible.  The falling yellow channel between January and May 2012, for instance, helped construct an analog that enabled me to correctly forecast the drop from 1422 to 1292 and return to 1474 [see: New Analog and Analog Update.]

The rising red channel since 1291 in mid-May, kept us on track to our upside target of 1472 in mid-September, and the overlapping rising white channel helped confirm our decision to short the market at 1474 on Sept 14 [see: The World According to Ben.]

So, when RSI channels whisper in my ear, I listen.  Right now, it’s more of a dull roar.

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ORIGINAL POST:  9:15 AM EST

Friday we reversed right on target, tagging our trio of tightly-packed downside targets (1344-1348) before heading up.  This morning, we’re seeing the continuation of the next leg of our forecast.

The dollar, which broke down from its rising wedge earlier in the week, came back and tagged its apex before reversing.  The next move should be to test the channel bottom.

The EURUSD is a little ahead of the game, testing the bounds of the little channel it’s been in for about a month after breaking out of its falling wedge last Wednesday.

Stocks appear well on their way to our first upside target of about 1380.  Look for SPX to at least pause around 1379-1383.   This was the chart Friday morning.

And, here we are today, having reached our IH&S target in the first hour of trading.

UPDATE:  11:00 AM

As we discussed Friday, 1381.50 was perhaps the most significant level in our target range mentioned above.

Those who’ve been paying close attention will remember 1381.50 as the .786 of the 1576-666 crash.  So, there’s an extremely good chance we’ll get some sort of reaction there.  It’s also the .786 of the last wave down from 1391 to 1343.

But, a reaction at 1381.50 has even greater implications.

….786 reversals…frequently lead to Butterfly Patterns that extend to the 1.272 or 1.618 Fib level — 1404 and 1421 respectively.

The implications for the market if/when we reach those levels are huge.  I spent the weekend revising my primary forecast, and will devote the balance of today’s post to what I expect over the next six weeks — which should usher in the most dramatic moves since the summer of 2011.

Quick membership note.

Not long ago, I added a monthly membership option.  I understand its popularity with members, but it’s been a losing proposition for me — and ultimately to the membership.  Every new membership means time devoted to site administration (setting up the account, emails, etc.) and time away from charting.

I intended monthly membership as a means of allowing folks to spread their costs out over time.  While most have used it in this way, a number of members have signed up for it, gathered good information for 30 days, then cancelled their memberships — only to reappear a couple of months later requesting a new membership. Like I said, too much admin time for me — which detracts from the site.

I have decided not to offer new monthly memberships after Nov 21.  Existing auto-renew members may continue their current $105/mo pricing for another six months if they like.  But, those who purchase one month at a time will no longer be able to do so.

For those who have recently signed up, please consider a quarterly, semi-annual or annual membership.  For anyone who converts from a monthly to an annual membership, I will rebate your last monthly payment and start your new annual membership at your next expiration date.  In other words, your past month is free.

I will also extend the Red Cross promotion through Nov 21– meaning a 25% savings ($200) on an annual membership if you make a $100 or greater contribution to the Red Cross (see details on the membership page.)  Obviously, this is a better deal than paying $105/month for the next six months.  I will also delay the scheduled membership price increase until the end of November.  Thanks for your time.

UPDATE:  11:30 AM

Okay, let’s get on to the forecast.

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