UPDATE: May 8, 2012
The past two forecasts are still holding up well. I still believe we’re likely to test the large red rising wedge as detailed below.
The completed H&S pattern targets 2446, which the large red RW crosses around May 16. It also permits a wave down that doesn’t overlap with the October highs, which seems the most likely case.
The RSI falling wedge we looked at last week is still progressing.
Either the H&S pattern is about to break or, as I rather suspect, the back test is just about complete. Note the bold, purple TL on the 60-min RSI (ignore the rest — too confusing to translate from the daily chart.)
As I suspected, the 60-min RSI gave us a decent reversal signal when it tagged the TL off the August lows (the lowest horizontal line.) As we discussed in the earlier post, the key is whether we can close beneath the neckline, currently around 1364. Don’t be surprised if we close right on it.
We more than tagged our first target — the .886 Fib level we talked about back on May 6 [see: So Far, So Good.] And, we bounced off the daily RSI fan line I suspected might create a bounce.
My gut is that it won’t be possible to stuff today’s plunge back into the “let’s pretend” box…too many H&S pattern completions, too many rational, reasonable, mainstream acknowledgements of the broken euro zone situation.
UPDATE: 8:45 PM
Another possibility that just occurred to me… ewtnewbie points out that under EW theory we should see an a-b-c corrective wave as our back test after 5 waves down we’ve traced out. I’ll buy that, though as most of you know I’ve long since given up trying to trade off EW. I do like the idea, though, of another H&S pattern on the right shoulder. Here’s how it could work…
UPDATE: May 8, 2012
NYA has completed its Head & Shoulders pattern, targeting 7340 on the downside. The Mar 30 forecast has played out nicely, although it took a little longer than expected.
My gut is that NYA will remain stalled between 8300-8450 and not complete the larger Bat pattern at 9679. I suspect it will chew up the next two weeks or so, ranging from 8100-8450 before breaking down on the smaller rising wedge.
NYA has also overlapped its October 2011 high, which has serious implications for the Elliott Wave picture, as waves 1 and 4 are not supposed to overlap.
I’ll defer to folks who know much more than I about EW, but I believe this overlap strongly suggests the past seven months rise is a corrective, rather than impulsive, wave.
The harmonic picture continues to be a bit obtuse, as has been the case with NYA. The recent top completed (and overshot) a Gartley pattern. But, 7340 is pretty much no-man’s land from a harmonic standpoint. It’s about .500 of the Aug 2011 to Mar 2012 rise, and .707 of the Nov 2011 to Mar 2012 rise.
It also intersects with the larger rising wedge/channel bound around the first week of August 2012, so we’ll put a pin in that time/date for now.
Longer term, NYA appears to be tracing out a diamond pattern. Whether it breaks up (continuation) or down (a top) remains to be seen. But, the next move would seem to be to the lower bound of the pattern.
Other completed H&S patterns: RUT, NYA, COMP, NDX
UPDATE:
Down to 1350.76 so far, getting close to the .886 of the larger purple Butterfly pattern. We didn’t bounce much at all when RSI first hit its fan line, a show of strength for the bearish case.
The next test is the 60-min RSI, which has reached 18 — the low since August of 2011 and a sign of short-term oversold condition. A push into the 17 range would be extremely bearish, though I suspect we’ll get a bounce before too long.
A reminder of our downside targets posted on the 6th [see: So Far, So Good]:
- 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)
I talk a lot about bounces, but watch the market’s momentum. If we slice through one level, consider adjusting stops rather than closing out positions. We’ve seen it happen often enough on the upside — where logical reversal points were routinely ignored by a runaway bull. The same thing can happen on the downside. It’s just been so long that it’s easy to forget, LOL.
ORIGINAL POST:
This push below the neckline looks rather convincing, but — as before — the key is a close below it, currently around 1364. The fly in the ointment is the RSI, which just tagged the fan line from Aug 2011. It should provide at least a bounce.
More shortly.
It now sits at a critical juncture — the last fan line coming off the 2008 lows is the only thing standing in the way of a plunge to the midline currently around .85. A hard bounce on this fan line, on the other hand, would buy it some time.
From a fundamental standpoint, AUDUSD is probably as good a canary in the inflationary/deflationary coalmine as there is.
UPDATE: 1:40 PM
VIX came within a point of completing its Inverse H&S pattern this morning but was beat back by the equities stick save. The purple channel we drew a couple of weeks ago was broken, but there is one last viable channel (yellow) that can be drawn — based on this morning’s high. Anything beyond will have to be viewed as a break out.
Based on the RSI channels we’ve been watching for the past few months, (more…)
Over the past 5 weeks, our forecasts have been remarkably accurate.
The Butterfly pattern identified back on Mar 29 [All the Pretty Butterflies] correctly called the 1422 interim top. As anticipated on Apr 10, we got a bounce at 1357 (the .786 of the 1340-1422 rise) and began tracing out a head & shoulders pattern that fit with an analog of the Feb-May 2011 topping pattern [Analog Details].
The analog been very accurate thus far, although the initial right shoulder bounce had us wondering whether the alternate path to 1462 was playing out. Our RSI indicators kept us on the right path. Instead, we got a complex H&S pattern, with a second test of the neckline and subsequent round trip to the shoulder line, accurately forecast in both time and price.
Friday’s bounce at 1367 was within 2 points of our 1365 target [2d Time a Charm], with a nice little back test — as forecast — to the neckline, where we closed out the week. The only reason I mention all the above is that, while this degree of accuracy is always desirable, it’s not typical and should not be expected.
Regardless of how well your investments have performed the past five weeks, don’t forget that they are out to get you. Even now, as it appears that the analog is playing out nicely, the financial establishment is working overtime to separate you from your money. There will be more times, such as in January, when perfectly good harmonic and chart patterns don’t play out as they should.
Always use stops!
Now, with that out of my system, it looks like the results of the Greek and French election, on top of Friday’s dismal non-farm payroll numbers, is going to provide the push we need to get on with the downside.
Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective; i.e., I think they’ll pull out all the stops to avoid it.
Potential bounces along the way include:
- 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)
But, I divide the downside into three basic scenarios:
(1) stick save: Fed freaks over Europe, QEish leak limits downside to 1349.
(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.
I expected to be able to update all of the charts today, but my youngest daughter has been home with stomach flu while my wife and daughter #2 were at an all-day volleyball tournament. Needless to say, it wasn’t as productive a day as I expected. Look for updated charts Monday.
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Over the next couple of days, I’ll finish converting the new website to a premium site. Many thanks to those of you who have joined up. I hope you’ve been able to act on my forecasts; if so, you’ve more than earned back your subscription costs in the first week.
To anyone still thinking about it, the end is near. The old site will still display articles of general interest and delayed market updates. But, members of the new site will enjoy the first and best of what I can put out. To join now, click here.
Good luck to all.
As we close precisely on the trend line between the Oct 27 high (which kicked off a 112-pt Inverse Head & Shoulders pattern) and the just completed (for the 2nd time) Head & Shoulders pattern, I’m reminded of how little fundamentals have come to matter.
Oh, and for any Fibonacci haters out there, check out the time and price relationships between the two patterns.
UPDATE: 11:30 AM
I feel pretty good about my downside (primary) case now that things are moving along. I mentioned back on April 25 [see: The Bulls Fight Back] that we needed to start down by Wednesday in order for the larger H&S to maintain some time proportionality between shoulders. We got our reversal Tuesday, and have been moving down since.
Also, check out the RSI and MACD on the chart below. RSI broke the little fan line I threw up a few days ago, and has no support until it hits line k-5 — presumably below 1370. MACD just saw a bearish cross and is approaching the center line. Note, also, that SPX has fallen below its 10, 20 and 50-day SMAs. The only remaining moving average to offer support are the SMA100 (at 1342) and the 200, way down at 1276.
I’ve already seen a few Fed comments, talking up the economy, employment, etc. And, SPX is pausing here at the neckline. I assume that even the most fundamentally oriented and/or manipulative powers that be have a smart technical analyst on staff who explains to their bosses what happens when various patterns play out.
So, there’s always a struggle at key moments like this. It’s interesting, all the same, that if we look very hard at all, we can find chart patterns that provide rationale for the price movements. Here, at the neckline, we can see that RSI has also reached a midline of sorts in the channel we’ve been following.
If we break the neckline, look for that back test somewhere around 1365 mentioned below. After that, not much support till 1340, and then 1323.
UPDATE: 11:15 AM
Here’s the big picture, again. The larger H&S, which completed but didn’t play out on Apr 23, is back in play. If we can close beneath 1370, we’ll have a crack at a complex H&S pattern (two shoulders on each side) that targets the low 1300s.
The harmonic picture supports this, by the way. If the H&S plays out, the little Bat pattern (yellow) under construction becomes a Crab pattern. These typically extend to the 1.618, but can go further (2.000, 2.24, 2.618, etc.)
The larger purple pattern – a Butterfly – completes at 1317 (the 1.272) or 1289 (the 1.618.) Hence, my call for a downside of 1295-1323.
ORIGINAL POST: 10:30AM
The Bat, Crab and H&S patterns are doing their thing, and we’re fast approaching the target we set yesterday of 1372. That was an interim target of course, because if we complete the larger Head & Shoulders target (again), the potential downdraft is to 1295-1323.
I’m refining the larger H&S completion target to 1370.73 and the nominal target to 1300.
The .886 Bat pattern retracement of the 1358-1415 rise from Apr 20 to May 1 indicates a turn at 1365.23. So, if the pattern is to play out, that would be an excellent place for a back test to commence.
Of course, TPTB will attempt to turn it again. Cue the talking heads, or QEeak from deep inside the Fed that will attempt to turn the tide before it’s too late.
