pebblewriter

Category: Charts I’m Watching

  • Charts I’m Watching: Dec 26, 2012

    I hope everyone had a lovely Christmas.  Intra-day posts will be open to the public this week, my little gift to those considering a pebblewriter membership.   Sorry, but our forecast will still be available to members only.

    As announced on Monday, subscription prices will increase on January 1.  In keeping with our practice of paying for performance, the annual rate will be about $10 for each percentage point of return since the new site’s inception on Mar 22, 2012.

    We’re up about 95% over those first nine months [SEE DETAILS HERE] so the new rates will be as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    The first fifteen to sign up for an annual membership at the current rate of $800, however, will be granted Charter Member status.  Charter Member rates are locked in for the life of the site, so you’ll never pay more — no matter where annual rates end up.

    If we are fortunate enough to continue averaging a little over 10% per month, annual memberships would be $1,200+ in March.  So, locking in current prices is a no-brainer.

    Sign up HERE.

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    We remain short from 1447 on Dec 18.   Per the 1:10 post in the members section:

    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.

    But, I’ll repeat my warning from Monday: bulls will be looking for opportunities to shift momentum, and it could be especially easy with low volume and the inattention that comes with a holiday week like this.

    Keep an eye on the dollar index and the little H&S patterns on SPX this morning.  Some strength is to be expected early in the session, but there is the risk of a small breakout.

    As we discussed Monday, the key SPX level to watch is 1432, which would take prices out of the proposed falling channel as well as complete the lopsided little IH&S that targets a Bat Pattern completion at 1441.  I’d put the odds at 50:50.

    SPX’s bearish H&S pattern has picked up a new neckiline — the bottom of the purple channel above.  The neckline is rising, but it currently completes around 1425.

    The EURUSD is coming up on its .618 at 1.3250 — also the top of a well-formed channel.  The rally should fail at that point, with the key level to watch afterwards being the recent bottom at 1.3157.  Charts later.

    UPDATE:  10:50 AM

    SPX just broke below the neckline of the bearish H&S pattern (in purple below.)  If the pattern plays out, it targets about 1416 — which intersects with a little Crab Pattern at the purple 1.618 at 1416.28.  The key level for bulls to hold is 1422.58.

    A drop to 1416 would very likely see a decent bounce, as it also represents a Bat Pattern completion at the Fib .886 of the 1411 – 1448 rally between Dec 14 and Dec 18.

    The slightly less likely target is the 1.272/.786 intersection at 1419.61-1419.81.  Either level marks an important channel midline, which — combined with the harmonic pattern completions — could elicit a strong bounce.

    A drop through 1411 means much more immediate downside.

    UPDATE:  12:00 PM

    We reached our primary target, reversing at 1416.43.  If SPX can break back through the white channel midline at around 1422, the top case is a bounce to the .618 just formed at 1426.53 (also a white channel line) or the .786 at 1429.28 (the top of the white channel.)

    This is a short-term trade only, and is likely to complete by Friday.  As always, stops are strongly recommended — so, 1415ish should do the trick.

    Any breakout from the channel has upside potential to 1436.

    UPDATE:  12:30 PM

    DX tested the bottom of the little white channel I posted earlier, then zipped right back to its midline with the equities sell-off to 1416.43.

    It has now tested the upper bound of the yellow channel twice in the past two sessions, and must either commit to the rapidly rising white channel  — breaking out of the yellow — or  consolidating further.

    A break out of the SPX white channel would likely equate to a breakdown of DX’s white channel.  If stocks get a rebound to 1436 as discussed above, look for the dollar to flesh out the proposed purple channel to around the .618 at 79.319.

    UPDATE:  3:10 PM

    SPX just pushed through 1422.58, raising the odds that this is more than just a bounce in the current primary wave down.  I never use Elliott Wave to forecast (it either doesn’t work or I’m just lousy at it) but the move down from 1448 to 1416 looks like 5 waves to me.

    If so, the bottom of the 3rd wave down was that 1422.58 level, and breaking that level means we’re probably going to work on retracing the overall move now.

    updated 3:30 PM

    The first big wave down, of course, was 1474 to 1343 from Sep 14 to Nov 16.  Wave 2 was back up to 1448 — a Fib 78.6% retrace. SPX has dropped 32 points since, back to just beyond the .618 retrace of 1474-1343 and only about 30% of the 1343-1448 rally.

    So, technically, we might have just established a Point C for a Butterfly Pattern pointing to 1510 or 1555 (the 1.272 and 1.618, respectively.)  But, that doesn’t fit with our primary forecast, which is that 1474 was an important top which will stand for many, many months (at least.)

    The more likely scenario is that 1488 was the end of the 2nd wave, with 1448-1416 serving as the 1st of the 3rd wave down.  If so, and if SPX holds 1416.43, we should expect a 2nd wave up to retrace anywhere from .382-.886 of the drop from 1448.

    The potential Fib targets (the white grid) are:

    • .382:  1428.49
    • .500:  1432.22
    • .618:  1435.94
    • .786:   1441.24

    A 2nd wave up could stay within the small white falling channel only up to about the .382 at 1428.49. But, even that is pushing it.  In other words, any move higher means a break-out of the channel.

    On the other hand, a reversal at the (red) .618 at 1426.53 means the current wave down isn’t quite done.  This also intersects with the small purple .786 (1426.64) and the small pink .382 at 1426.84.)

    That’s probably about as clear as mud, but suffice it to say there are many harmonic scenarios in play in the small, intra-day scale — even though the larger scale still points down.

    I see absolutely no reason to get bullish at this point, and look at this as nothing more than a bounce.  Those of you playing the bounce at 1416 should keep stops where you’re comfortable, with the understanding that the risk is still to the downside.

    As discussed in the performance update a few days ago, I will occasionally keep a core position in place (in this case, short) while playing a contrary wave for a bounce.  This is one of those situations.  More later.

  • Charts I’m Watching: Dec 24, 2012

    Strange things have happened around holidays this past year.  Though this is a short day (equity markets close at 1pm EST) it’s best to remain vigilant.  Equity futures have recovered most of their overnight losses, and TPTB would love nothing more than to undo the gains we’ve racked up (since shorting on the 18th) while no one’s looking.

    Keep an eye on the proposed channel for the dollar for any signs of weakness…

    …as well as the EURUSD, which is trying to stage a comeback.  A move through 1.3232 would signal 1.3265 — 1.3238.

    UPDATE:  10:15 AM

    As to SPX, any push beyond 1432.78 carries the risk of a Bat completion up at 1441.27.  Though, there would no doubt be a reaction at the .618 of 1435 first.

    Since the 1432.78 high on Dec 21 stopped just shy of the 1432.82 low the day before, it might mark the completion of a Wave 4 in the first subwave of whatever degree wave down we’re currently in.  Thus, the bulls might attempt to throw this most obvious bearish wave count into disarray by overlapping 1432.82.

    It would then be easier to characterize the 1448-1422 slide as a normal A-B-C corrective wave rather than a bearish impulsive wave.  Regular readers know that I don’t use Elliott Wave for predictive purposes, but it’s good to be aware of what Wavers might be thinking — since breaking through key EW levels will likely get them moving one direction or the other.

    Our bearish case would benefit most by a reversal right here at the midline of the proposed white channel.

    More later.

    UPDATE:  11:45 AM

    SPX just completed a small H&S pattern (below, in purple.)  If it plays out, it will negate a potential IH&S pattern (in yellow).  If the purple pattern plays out, it targets 1417 or so, which is around the bottom of the little white channel that’s tracking pretty well so far.

    If the yellow pattern completes with a return to the dashed yellow line at Friday’s 1432 high, it would target somewhere in the vicinity of the .886 retracement of the 1443-1422 drop at 1441.

    A low-volume, holiday-shortened feel-good day like today would be the perfect time to execute a ramp job.  As discussed above, keep your guard up.

    UPDATE:  1:00 PM

    Things remain on track here at the end of the holiday-shortened equity trading day.  Any fireworks will have to wait until Wednesday.

    BTW, I finally updated the RESULTS PAGE for those who follow such things.  Friday marked the end of the third quarter since the new site went live on Mar 22.  After Dec 31, reports will be based upon calendar quarters.

    Since inception last March, we’re up about 95% as compared to 3.7% for SPX (without dividends.)  I don’t have figures for the same time period for hedge funds, but according to HSBC’s Dec 13 Hedge Fund Weekly [available on Zerohedge.com] the average ytd performance for all equity hedge funds was 5.15%.  The top-performing fund (BTG Pactual’s Distressed Mortgage Fund) returned 39.91%.

    *  *  *  *  *  *  *  *

    POTENTIAL CHANGES:

    A couple of weeks ago, I mentioned I’ve been considering some significant changes to this site.  Although our results have been above-average, I’ve debated whether the current format is the best way of delivering value to members.

    It’s challenging, for instance, to convey information in a way that serves the needs of both long-term investors and day-traders.  It’s also difficult to strike a balance between providing timely trade information to those who don’t require a lot of explanation and educating those who are new to my process.

    Also, from a purely mercenary standpoint, I’d like the site to make financial sense for me and my family.  I realized when I began the site that it would take some time for word to spread.  My goal was that by the end of the year I could cover my nut while putting in only 40-50 hours per week — leaving me enough time to hang out with the family, coach a little basketball, travel some.

    Nine months later, membership has grown to a point where it almost pencils out — but, not quite.  I can’t yet justify hiring a proper web developer and administrative staff to handle membership issues, accounting, loss prevention, so I’m putting in 60-80 hours week on average — which, of course, leaves less time to chart, write and sleep — not to mention my family and other business interests.

    It seems I have two choices: grow the site or convert it.  Growing it should be simple but, in all my years as a stockbroker and later in asset management sales, I have come to realize I don’t really enjoy sales.  And, of course, devoting time to shameless promotion takes away from charting and writing — which I do enjoy.

    Converting the site would mean setting up a hedge fund.  Several friends have expressed interest in seeding a small fund that would ultimately grow to about $100 million. I would continue to do exactly what I’ve been doing — identifying major and interim tops and bottoms — and execute unleveraged long or short positions in major markets on behalf of the fund.

    It would be run from my small, but lovely town (also an internationally renowned vacation destination) on the Central California coast with an assistant and a trader.   Custody, administration, etc would be handled by name brand entities elsewhere.

    As I envision it, current members would have the option of investing in the fund or continuing to simply receive research until their membership expires. Current members would, of course, have their pebblewriter.com fees applied to fund management fees — which would be discounted for current members who are involved from the start.

    One member has also suggested a chat-room type system whereby fund trades could be communicated in real time to members who want to continue trading their own accounts as well.  I am fine with this idea, as long as we’re not giving away research to our competitors (one of the problems with the current site, where we get 20-30 login attempts daily for every active, paying member.)

    I have a lot of homework yet to do, beginning with a survey of current members I had planned on sending out regardless.  In the next couple of days, I will be seeking your opinion on both the current site and the proposed fund.  There is no fund yet, so I am not soliciting investments at this time; but, it would be very useful to get a sense of members’ potential interest.  Please watch for an email.

    NEW FEE SCHEDULE:

    In the meantime, membership fees for pebblewriter.com are slated to increase on January 1, 2013 (regardless of what happens with the fund, I need to purchase some new computers, backup systems and communications.)  In keeping with my practice of tying fees to performance, the new rates are as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    I recognize this is a significant increase, so I am offering existing members the opportunity to lock in current rates through December 31.  Also, as a bonus, the first 15 annual memberships will be granted Charter Membership status.  In other words, your annual rate will never rise above $800 for the life of the site.  As those who joined last Spring for $500 will tell you, that’s pretty cool.

    This offer won’t be opened up to the public until December 26th.  And, as always, if you currently have a membership, we’ll tack your new one on to the end of your current one.  That way, you won’t get stuck with even higher prices when your existing membership expires in a few months.

    Again, if we move forward with the fund, current members will receive a full offset for any pebblewriter.com fees paid from this date forward, and will also receive a meaningful discount on any fund fees charged.  I strongly believe in rewarding those who’ve stood by me on this adventure.

    If you’ve read this far, thanks!  I had no idea when I started pebblewriter last year that it would grow into something so rewarding and enjoyable.  I’ve learned a lot, and I hope most of you have, too.

    *  *  *  *  *  *  *  *

    Christmas Eve is always bittersweet for me.  I love being with family, singing Christmas carols and seeing the excitement on my children’s faces as they rush downstairs to see what Santa brought.  And, it seems most people are just a little bit nicer to one another.  But, it’s also the day when, at age 15, I lost my mother — my one remaining parent.  So, for me, it’s a reminder to reach out to loved ones and tell them how much they mean.

    It’s also a reminder of the importance of helping those who are struggling.  These are challenging times.  If you’re anything like me, the events of the past year have caused you to take stock of the world and your place in it.  Between wars, famine, financial distress, political and religious division and, yes, shootings — we need this holy day now more than ever.  And, regardless of what church, synagogue, temple or mosque we attend, we need to look for opportunities — every day — to minister to those around us.

    My family and I wish you all a Merry Christmas and a blessed New Year.

     

  • The Morning After

    What a disaster for Boehner & Co. last night.   Did we really need another warring faction?  What are we — Greece!? Wait, don’t answer that!  The markets will not take kindly to this additional complication.

    Today’s theme song: Maureen McGovern’s song from the 1972 Poseidon Adventure.   Don’t laugh, it won an Academy Award!

    What sold me were the movie clips that Brendan Thompson matched up to the song on YouTube.  Perfect metaphor for our current situation.

    It opens with Larry Kudlow studying the charts: “obviously a buying opportunity!” as the bulls party like it’s 1999 with Bernanke (Hackman) leading the cheering.

    0:18 – In a cameo, Yours Truly sounded the warning, but it was left on the cutting room floor.

    0:30 – Things are suddenly not on an even keel.  Quick, call the Plunge Protection Team!

    0:47 – Boehner’s motion is “tabled.”

    1:06 – Things have stabilized; experts encourage investors to “hold on.”

    1:12 – Bernanke leaps into action.  It’s a crappy job, but he’s just the man “in the end.”

    1:16 – A private conference between Merkel and Draghi:  “I thought we were in trouble!”

    1:18 – Harry Reid restrains a screaming Eric Cantor: “This is what they wanted all along!” as Pelosi dives over the cliff.

    1:30 Boehner makes another brief appearance.

    1:53 – Pelosi caucuses with one of the last remaining moderate Republicans. Together, they hatch a risky plan — find a political middle ground that will preserve the country’s future.

    2:16 – Obama is there to announce that disaster has been averted, since…

    2:18 – Everything’s fine, now that Helicopter Ben has arrived.

    In terms of the current markets, I’d put us somewhere around the 0:35 mark.  Enjoy!

     

    Note: has to be opened on YouTube due to copyright considerations.

    *  *  *  *  *  *  *  *  *  *  *  *

    All I can say is “thank God for Congress.”  They make life so much more…predictable.  While the PPT swings into action, trying to clean up the mess, Boehner reiterates just how far apart the two (how many?) parties remain.  Thanks to the failed House action last night, we now know just how divided are the Republican ranks.

    First test: the channel up from 1343, which coincides with a Crab Pattern completion — not to mention a nauseating diatribe from the MSM as to why this is a buying opportunity.   I remain short from 1447 on the 18th [see: CIW – 1:10PM Update.]

    SPX would have tagged the .618 at 1425.68, but that would have been a pretty obvious breakdown of the channel.

    DX completed the small Crab Pattern we’ve been tracking.  Expect a pause, but not much more.  The currency markets are harder to control than the equity.

    I think it’s safe to say our forecast continues to be on track.  Downside targets coming up.

    continued for members… (more…)

  • Charts I’m Watching: Dec 20, 2012

    The Fiscal Cliff

    Apparently, Congress has secretly agreed on one key measure.  As their Motto of the Month, they adopted writer Douglas Adams’ pithy line:

    “I love deadlines. I love the whooshing noise they make as they go by.“

    I don’t have a clue how the fiscal cliff measure will be resolved.  It’s not looking good, but most insiders and professional prognosticators say the pols will pull something out of their collective arses in time to avert a disaster.

    Our forecast argues otherwise, but every analog breaks eventually.  And, presumably a deal would be bullish — goosing the markets by who knows how much.  For those who, like me, are short — it’s always smart to use stops.

    If SPX exceeds 1448, Tuesday’s reversal at the Fib .786 of the 1474-1343 decline, then the .886 at 1459.56 is the next target.  If that’s taken out, the next upside would be the 1474 top itself.  If that’s taken out, there are a number of higher Fib targets over 1500.

    Stops should be set according to your risk tolerance, your current position, and the type of trading you do (swing, day, long-term, etc.)   In my swing trading, I tend to choose stops that are just beyond the last Fib level that completed the primary pattern that’s currently directing prices.  So, a stop around 1450 would apply to a push through the 1448 level on the way to the .886 at 1459+.

    I’ve written too much already on the FC, but it’s obvious that any agreement, regardless of when it comes, will involve some combination of lower government spending and higher taxes.  There can be no immediate economic upside in such an eventuality, though theoretically it could chip away at our longer-term problems — which in my estimation are virtually insurmountable.

    In the Great Depression, prices across the board and around the world were generally allowed to reset.  Debt was written off, and those who survived picked up the pieces and started over. Bernanke, who fancies himself an expert on all things depressing, is running a grand experiment to see if propping up prices — particularly of financial assets — can avert a replay of the 30’s.

    I suspect not; but, the truth is no one really knows.  Twenty years from now, it’ll be obvious (assuming the world doesn’t end tomorrow.)  But, for now, it’s a high-stakes crap shoot — a desperate measure in response to desperate times.

    In the meantime, the market will react one way or the other — which might or might not be in concert with the perception of any deal.  Remember QE3, which was good for a whopping 40 points on SPX?  We have a (so far) very successful analog in place that’s racked up gains of about 40% in just the major moves it’s called since April.  I’ll stay with it until the market — not the talking heads — signals otherwise.

    *  *  *  *  *  *  *  *  *

    ORIGINAL POST:  9:25 AM EST

    Looks like a mixed opening.  The dollar and EURUSD have each retraced a Fib .886 of yesterday’s reversal candles.  Bat Patterns completed, they appear poised to pick up where they left off.

    Focus should be on the fiscal cliff and Boehner’s terse announcement yesterday of the House’s plan to pass the so-called Plan B.  It will be rejected by the Senate and White House, of course, meaning it is a purely symbolic effort that won’t do much to ease fears that there will be no compromise.

    UPDATE:  11:45 AM

    The Philly Fed Business Outlook Survey is out, and shows decent improvement at the margins in both current conditions and optimism.  But, don’t read too much into the monthly figures with a diffusion index such as this.

    Diffusion indices represent the percentage of respondents indicating an increase minus those indicating a decrease, so it largely ignores those reporting/expecting no change — which actually increased from last month’s negative report.

    In November, the 53% who thought there was a change saw things swinging negative by a 3/2 margin.  This month a lesser amount (47% versus 53%)  see things swinging positive by the same 3/2 margin.

    In October, it was 5:4 positive for the 53% who noticed a change — the first positive month in many.  The chart shows the general trend is a series of higher lows and lower highs — a triangle.  As we all know, these can break either way.

    An interesting weekend project would be to download the data and look for harmonic patterns.

    I’ll post something on the housing numbers later today if the markets remain quiet.  Bottom line, it’s another indicator of optimism.  The builders and buyers might be right, or they might be wrong.  Refer to yesterday’s post and the interview with Robert Shiller for a more meaningful take.

    continued for members… (more…)

  • 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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