pebblewriter

Category: Charts I’m Watching

  • Searching for a Bottom

    UPDATE:  1:45 PM

    So far, SPX has obliged us by tagging every one of our targets.  The 1310 Fibonacci .707 retrace [see below] of the 2007-2009 collapse is our current intra-day low, and we’re presently sitting at the 1.272 target of the Butterfly incorporated into the analog I first posted on April 9 [see: New Analog I’m Watching.]

    As I mentioned yesterday, I think there’s a very good chance we get down to 1289-1295 (depending on whether they can defend the very important 1292.)  As oversold as things are getting, I wouldn’t even think about going long except, perhaps, to play a bounce — unless we’re able to break out of the acceleration channel on the 60-min chart.

    It’s the dashed red channel that’s guided prices since 1415 (ignore the solid purple line, that’s just our forecast from April 10.)

    UPDATE:  10:05 AM

    Philly Fed numbers aren’t pretty, with a 5.8% drop versus last month’s 8.5% increase.  Especially troublesome is the 6-month outlook, which has plunged from 33.8 to 15.0.

    A negative 5.8%  is bad enough in and of itself, but it looks especially ugly compared to consensus: +8.8-10.0%.

    The Conference Board Leading Economic Index also missed, showing a 0.1% decline versus expectations of a 0.2% gain.  This is the first drop since last September.

    If it looks like the leading economic indicator line hooked down over the past few months, that’s because it has.  Note the monthly rates of change — trending down from +0.7% in Feb to +0.3% in March and now -0.1% in April (not the sort of behavior you want to see in a recovering economy.)  Here’s the official explanation from the Conference Board:

     

    ORIGINAL POST:  9:39 AM

    I’m watching the RSI for clues as to which of our targets SPX will settle on.  Remember, the range is 1295-1323, though the number of unfolding events that could overwhelm our forecast is growing.

    The daily chart shows several parallel trend lines that might provide the final stop.  But, of course, lower stock prices often occur on a higher low in RSI — a phenomenon known as positive divergence, and a sign of a potential bottom.

    Here’s a little better detail on RSI:

    The white dashed trend line (7) is next up.  It stopped moderate declines in April, September and November of last year and probably corresponds with our 1317-1323 target.  Remember, 1323 is the small (yellow) Crab Pattern’s 1.618 and 1317 is the larger (purple) Butterfly’s 1.272.

    The purple dashed line (8) is associated with the declines in November of 2010 and a secondary dip in August 2011 and probably corresponds with either 1300 or 1317 on SPX.

    The yellow dashed line (9) stopped the plunges in March and June in 2011, and provided the higher low for the actual August 2011 1101 bottom.  March 2011 is the analogous point in the analog we’re watching.

    Surfing these RSI channel lines is an inexact science, because turns rarely occur exactly in line with previous highs/lows.  There’s a relatively high margin of error, say 5-8%.  So, it’s possible that yesterday’s RSI low could be considered to have tagged the white line.  If we get a strong rally off the Philly Fed survey or Conference Board numbers at 10am, we’ll call it that way.

    There is one other Fib level we haven’t talked about much — the .707 from the 2007-2009 decline is just ahead at 1309.67.   Many investors aren’t even aware of the .707, so it’s often completely left off charts.  But, this is a long-term pattern, so it could easily come into play.

    Last, the 60-min RSI shows a pretty good possibility of a bounce in the 1317 range.  Between 1323 and 1317, 1317 belongs to the larger and more important pattern — the Butterfly.  So, unless the Philly Fed survey is atrocious, we should get some kind of bounce there.

  • Somewhere Out There, Fibonacci’s Having a Good Laugh

    Some of you might remember this post from May 4.  I was struck by the Fibonacci relationships in both time and price between the last two major H&S patterns, and thought it confirmed my view that the H&S top was ready to play out.

    We all know what’s happened since then, of course.

    The reason I bring it up again is that horizontal purple trend line cutting across the chart from the October high (which helped drive prices higher for months.)  I don’t think it’s a coincidence that it’s at the same price as our H&S target — any more than it’s a coincidence that the latest pattern is:

    1.  1.618 the time of the previous pattern; and,
    2.   .618 of the target price range of the previous pattern.

    These Fibonacci relationships don’t tell us exactly what’s going to happen.  But, they’re practically screaming “pay attention! This could be important!”

    The obvious implication is that SPX will find its way down to 1289, the lowest of our targets initially presented over a month ago [see: Analog Details]  — though I continue to believe TPTB won’t allow a dip below 1292  (too many bearish implications.)

    I’ll post more after the close.

  • Bet Your Bottom Dollar: Part Deux

    UPDATE:  10:30 AM

    Last night’s call on the dollar was timely.  Check out the candle on the daily chart — the completion of both a Bat and Butterfly pattern.

    EURUSD also seems to have put in a bottom, though as mentioned earlier it’s going to take ein Akt des Bundestages (literally) to save the euro now.

    ORIGINAL POST:  2:00 AM

    Back on April 30, I held my nose and plunged head-long into the dollar, also shorting the euro.  I’m pretty sure I invoked that age-old expression of confidence: “here goes nothing.” Hopefully, lots of pebblewriter members went along for the ride.

    In that night’s post [see: Bet Your Bottom Dollar] I put up the following chart:

    I immediately regretted sketching out the forecast in such detail; and, in fact, I caught a lot of guff from a few readers for so recklessly calling the bottom (you know who you are, wretched givers of guff!)

    I didn’t look at the chart for a few days, but knew things were going my way.  I just didn’t realize how well things were going my way…  Here’s the same exact chart two weeks later.

    It deserves a close up…if only to show how spooky a forecast it turned out to be.

    Throwing caution to the wind, I also posted the EURUSD chart below and wrote:

    Meanwhile, the EURUSD shows signs of finally breaking down.  Both the pair and the RSI action show a rising wedge that’s bumping up against a well-established channel.

    Note Point D — the completion of a Bat pattern — sitting down there all by its lonesome.

    It now looks like this:

    Yikes!  Harmonics don’t always work as well as they have this past month.  But, when they do, man is it fun!

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

    As far as the road ahead, EURUSD crossed a incredibly important fan line today.  It’s either fallen off a cliff, or it’s doing that roadrunner-running-in-mid-air thing.  On the other hand, it has completed a Bat pattern (as has DX) that should mean a reversal. The next 24 hours are critical.

    If I had to guess, the RSI leads me to believe we’re going to see a big bounce.  But, I’m taking my profits and sitting this one out.  If it plunges below the fan line, there’s plenty more downside where that came from.

    If it doesn’t, it’ll be because Merkel and Hollande are caught on video, breathlessly moaning “long live the troika” while mending post-election relations.

    Seriously, though, a stick save would almost certainly entail a commitment to all things Greek, Portugese, Spanish, Italian, etc. and more LTRO — lots and lots more LTRO.

    Stay tuned.

     *************

    For the last several weeks I’ve been double-posting pebblewriter.com stuff on the original blog and holding this open for former followers.  This website has been up for nearly a month now, and it’s time to start winding the other one down. [why?]
    If this blog is helpful to you, jump on the introductory prices while they last.  I’ve extended the 10% off discount for all new members through this Friday, the 18th.

     

     

  • Slip Sliding Away

    We’re getting dangerously close to our downside target range of 1295-1323, first discussed back in April.

    • 1349.42 — .886 of the purple Butterfly (tagged)
    • 1343.41 — 1.272 of the yellow Crab pattern (tagged)
    • 1340.03 — horizontal support, prev. Point X  (tagged)
    • 1323.85 — 1.618 of yellow Crab (next)
    • 1317.63 — 1.272 of purple Butterfly
    • 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)

    I have been viewing the downside as consisting of three basic scenarios:

    (1)  stick save: Fed freaks over Europe, QEish leak limits downside to 1349 (fail)
    (2)  top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289)
    (3)  panic sets in: crash and test bottom or large red rising wedge around 1200

    The daily RSI has reached an important trend line of support (solid, purple) and, unlike FTSE, has yet to exhibit positive divergence — meaning it could go lower and tag the dashed purple line.

    I suspect the solid line represents 1323 and the lower, dashed line 1289-1295, but that’s pure speculation on my part.  As we approach 100-pts off the 1422 top, look for lots of investors to throw in the towel.  It’s this capitulation that we need if we’re to see a meaningful rebound.

    As I wrote back on April 12 [see: Analog Details]:

    To me, a drop to 1305-1317 seems fairly plausible.  The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high.  The timing looks to be early May.

    Will the Fed and ECB come to the market’s rescue yet again?  I think so.  I think they understand as well as the rest of us how close to the precipice we are. It’s stupid economic policy that will make things worse in the long run, but since when did that matter?

    On the other hand, I have no doubt that the looming derivatives disaster [see: There is Nothing Wrong] I’ve been writing about — handily verified by JPM — could be beyond their ability to control (hint: 2008 all over again.)

    Stay tuned.

    **********

    And, for fellow Simon & Garfunkel fans…

  • Update on FTSE: May 15, 2012

    ORIGINAL POST:

    In response to several requests from readers across the pond, I’m taking a crack at the FTSE 100.  For some reason, Think or Swim (my trading platform) doesn’t quote the FTSE itself, but does the FTSE 100 mini — 1/10 of FTSE’s value — that goes by the symbol UKX.

    UKX had retraced a little over .786 of its 2007-2009 plunge when it topped in February 2011 at 609.58 (.786 is the normal completion point for a Gartley.)  It subsequently fell 20% to 486.86 last July, then retracing about .886 to reach its recent high of 598.67 in March.

    The April 2010 drop came at the Fib .707, which isn’t a legitimate Point B for a Gartley.  The harmonic implications of a .707 Point B are a Bat pattern that completes at .886 (635.84) or a Crab that completes at the 1.618 (874.90.)   We’ll put a pin in 635.84, because its not that far from the current reality, and see if it lines up with any other indicators.

    Besides the harmonics, a couple of patterns are worth examining.  First, fan lines from the 2007 top (yellow) and 2009 bottom (purple) have been pretty effective at guiding prices.  At present, there’s a purple fan line that — if it holds — should help support prices.  If it fails, watch out for a 10%+ drop.

    Secondly, the faint red channel lines that have provided a lot of support and resistance in between the fan lines are indicating possible support at the same spot.

    Third, the weekly RSI chart shows support at these levels (the dashed yellow line above.)  Breaking this line is a virtual guarantee of 8-10% more downside, but it did a pretty good job of supporting previous slides, even without the added benefit of a fan line.

    Likewise, the daily RSI should offer support.  Even though RSI has fallen in a pretty steep channel over the past 7 months, there are two internal trend lines (purple and yellow above) that intersect with current values that could be supportive.

    Don’t get me wrong: I am not bullish on the FTSE.  But, it’s important to recognize that it has reached a critical level of support according to several different measures.  The economic picture is bleak, so any little nudge could send it tumbling into the abyss.  In fact, I view the entirety of the euro zone as only one press release away from financial disaster.

    But, if it’s able to hold on, we could see a decent rebound. Holding on no doubt means cranking up the printing presses — a game that is doomed long term, but one which TPTB have shown they have reservations about playing.

    When faced with situations like this, I usually punt.  There’s not a compelling enough reason for me to place hard-earned cash at risk until the picture is a little clearer.  But, we’ll keep an eye on it, and see if the picture clarifies in the coming days.

     

     

  • Analog Update: May 14, 2012

    Today’s action plays out well with the analog I first posted back on April 9 [see: Analog Watch] and charted on the 10th and 11th [Analog Details.]

    At the time, SPX had peaked at 1422, one point above a Butterfly target we identified on March 29 [see: All the Pretty Butterflies] and was on its way to our 1357 downside target (tagged later that day.)

    The subsequent completion of the right shoulder at the .886 Bat pattern target of 1415 [see: A Swing and a Hit] got the downside started on May 1, and it’s been all gravy since then — including the completion and back test (more…)

  • Running on Empty

    UPDATE:  EOD

    SPX went straight to our 1338 target and hung around pretty much all day — closing right on the H&S neckline.

    The analog I first posted on Mar 9 is still very much on track.  It called for the low 1300s by May 16 — which looks doable if we have another day or two like today.  Keep in mind, though, that while I had to pick a particular price target in order to chart the analog, I consider the downside to consist of a range from 1295-1323.

    UPDATE:  10:00

    We got the H&S completion we discussed earlier, seen below on the daily chart.  As expected we also got a bounce at the neckline.

     

    ORIGINAL POST:  9:20 AM

    With this morning’s continuing fallout from the latest JPM debacle, we should see the completion of the smaller H&S pattern we’ve been watching.  The neckline is around 1338, so look for a bounce there on the opening.

    As we discussed last Thursday [see: Still on Track], the latest H&S pattern targets 1275, but I believe it’ll be a challenge getting below 1292.  Remember, the overall targets I originally laid out on May 6 [see: So Far, So Good]:

    • 1349.42 — .886 of the purple Butterfly  [tagged May 8]
    • 1343.41 — 1.272 of the yellow Crab pattern [tagged May 9]
    • 1340.03 — horizontal support, prev. Point X [should tag this morning]
    • 1323.85 — 1.618 of yellow Crab
    • 1317.63 — 1.272 of purple Butterfly
    • 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)

    Completion of the neckline mentioned above around 1338-1340 should also find horizontal support from the previous Point X (Mar 6) in the Butterfly pattern we’ve been watching since March [see: All the Pretty Butterflies.]

    But, my base case remains 1295-1317 for now.  It’s hard to calculate the damage that could be done by JPM’s screw-up.  As discussed last week [see: There is Nothing Wrong] JPM can easily withstand a $2-5 billion trading loss.  The danger is that much more damage lies beneath the surface — not difficult to imagine given the enormity of their $78 trillion derivatives portfolio.

    As I said back on April Fool’s Day [see: The Wipeout Ratio]:

    I fear this is the story of the year, folks.  And, it’s just now starting to get some press.  As we learned with AIG, if one segment of the financial markets suffers huge unanticipated losses, the entire house of cards can come crashing down.

    Such is the nature of today’s leveraged, re-hypothecated securities markets.  And, 99% of this stuff isn’t even quoted or openly traded, so who knows what skeletons are out there?  My gut tells me there’s plenty more where this came from.

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

    And, for you Jackson Brown fans…

  • There is Nothing Wrong…

    I can picture it clearly:  It’s 1963 and 10-year old Benny Bernanke sits staring at the black & white Zenith in the living room of his East Jefferson Street house, captivated by the voice of Vic Perrin…

    “There is nothing wrong with your television set.  Do not attempt to adjust the picture.  We are controlling transmission.  We will control the horizontal.  We will control the vertical.  We can change the focus to a soft blur, or sharpen it to crystal clarity.  For the next hour, sit quietly and we will control all that you see and hear. You are about to participate in a great adventure.  You are about to experience the awe and mystery which reaches from the inner mind to the outer limits.”

    click on the image for a trip down memory lane

    These were the formative years for the future leader of the financial world.  The idea that anyone could completely alter someone else’s reality must have captivated him then, as it clearly does now.

    How else to explain the market’s rise after one of the world’s biggest banks admitted to [tip: think icebergs] a $2 billion trading loss on what they insisted was a matched book?

    Now, $2 billion isn’t going to ruin JP Morgan Chase.  They have $1.2 trillion in assets and $112 billion in Tier 1 capital.  The ruinous aspect of this news is that they, as some of the smartest guys in the room, have lost control of their derivatives trading.

    As every aspiring muppet-master knows, JPM has the largest derivatives portfolio of any US bank — an astounding $78 trillion as of June 2011.  This represents a startling 663 times their Tier 1 capital, meaning a miniscule 0.15% move in the value of their derivatives portfolio would wipe out all Tier 1 capital [see: The Wipeout Ratio.]

    Needless to say, the Plunge Protection Team has been mobilized.  In yesterday’s conference call, Jamie Dimon as much as admits that the worst is yet to come:

    “Net income in Corporate likely will be more volatile in future periods than it has been in the past.”

    It’s as clear as the worry lines on Blythe Masters’ face that they have no idea how ugly this might get [read: much, much worse.]  And, if this guy — the Prince of Wall Street — has such tenuous control on the goings-on in his Chief Investment Office, what are we to think about the rest of his $78 trillion in derivatives?  How about the other $630 trillion held by other bankers? [see: City of Dreams]

    click on the above to watch

    In one of Bernanke’s first televised post-fed meeting interviews, Dimon joined in the Q&A, bashing Bernanke for the litany of regulations and reforms that were preventing the financial community from recovering from the financial crisis.  Needless to say, there was no mention made of his role leadership in creating the crisis.

    This is analogous to bailing your kid out of jail, only to have him complain about how long the drive home is taking.  I was impressed by Bernanke’s restraint as he provided a thoughtful response, while no doubt thinking: “I saved your sorry ass, and this is how you repay me!?”

    There’s an old adage in banking: if I owe you $100 and can’t repay it, I’m in trouble.  If I owe you $1 million and can’t repay it, you’re in trouble.  While the TARP loans have long since been repaid, Wall Street’s survival is still very much in the hands of its enablers — the Fed.

    As the guy ostensibly at the controls, Bernanke must feel more than a little perturbed that things aren’t going according to plan.  I wonder if Vic Perrin’s words ran through his mind yesterday as listened to the JPM call.  I wonder, as he called Dimon to lay down the law (“no, really, I mean it this time — no more bailouts!”) whether he heard those familiar words from the other end of the line…

    “There is nothing wrong with Wall Street.  Do not attempt to adjust the picture.  We are controlling transmission….”

  • Still on Track

    ORIGINAL POST:

    In yesterday’s post [see: Two Targets Down], I theorized we would go up and trace out a right shoulder to complete a small H&S pattern in the right shoulder of the larger (completed) H&S.  So far, that’s exactly the way it’s playing out.

    As discussed, the perfectly-formed shoulder would take prices up around 1370 — a shoulder line parallel to the neckline, as well as the neckline of the larger H&S pattern.

    The 60-min RSI chart from May 8 forecast a back test of the solid yellow TL intersecting with the downward sloping yellow channel.  We got that, along with a clear rising wedge in the RSI to go with the triangle in SPX itself.

    From a timing standpoint, the ideal pattern will take 3-4 more days to play out — though there’s enough of a right shoulder now to consider it legit.  The target looks to be about 65 points below wherever we break back through the neckline, probably around 1275 (1340-65=1275).

    This is actually lower than the larger pattern’s target of around 1295.  I favor 1295 simply because I think the bulls will throw a fit if we threaten to take out the 1292 October highs.  Some of you more savvy Elliotticians know better than I what turmoil that would bring to the bullish case.

    More later.

     

  • Two Targets Down…

    Yesterday, we hit our initial downside target laid out over the weekend [see: So Far, So Good] when we nailed the Fibonacci .886 retracement of the Butterfly pattern (purple) we’ve been following since April 10.

    We bounced hard there, as the RSI chart indicated we might [see: 3rd Time a Charm] and completed a back test of the H&S pattern neckline [see: Back Test Complete] by actually closing on the neckline.

    This morning, we bagged the next target on our list, the 1.272 extension of the smaller Crab pattern (yellow) at 1343, which has me wondering…what’s next?

    Not that it always works this way (enjoy the streak!), but here’s the original list:

    • 1349.42 — .886 of the purple Butterfly
    • 1343.41 — 1.272 of the yellow Crab pattern
    • 1340.03 — horizontal support, prev. Point X
    • 1323.85 — 1.618 of yellow Crab
    • 1317.63 — 1.272 of purple Butterfly
    • 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)

    The charts say there’s plenty more downside.  My top case remains 1289-1317.  Though we’re back to that RSI trend line (k-5) that provided yesterday’s bounce.  We can get to 1289 with a cross of that trend line or without. It’s a matter of “recharging” RSI with bounces such as we saw yesterday and this morning.

    At the end of the day, the “bottom” should exhibit positive divergence, and we’re nowhere near that yet.

    So, is it time to pile on more shorts?  If we’ve scored 5 waves down, we should see an a-b-c corrective wave.  As I posted last night, there’s a potential small H&S pattern developing in the right shoulder of the larger pattern.  Prices could loiter in the 1340-1370 area for a day or two and flesh out the small right shoulder before continuing down.  A 7-pt gain at the close would shake out lots of shorts.

    This would offer the added benefit of fully recharging RSI/MACD for the next push down — a very helpful development, should it occur.  I’ll be watching to see if RSI heads up into the intersection of that bold yellow trend line above with the bold yellow channel.

    Good luck to all.

     ********

    Now, we see that the euro zone is considering holding back the next installment of Greece’s bailout, some $5 billion or so. They have this crazy notion that the Greeks might renege on the austerity package/debt restructuring previously agreed to.  All together, now: “duh!”

    Whatever your opinion of why Greece has money problems, the bailout did very little to help the Greek people, who just expressed their heart-felt feelings about austerity in the voting booth. It mostly bailed out the bankers who made too many stupid loans to Greece (gee, where have we seen this before?)