Channel Tilting

A reminder to subscribers… I am taking early tomorrow morning for a long weekend off for a long weekend (my first day off in about a year I’m told.)  So, my last post will be prior to the market opening.  I’ll be with you in spirit.

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The eminis are up about 8 points at the present time, about 3:00 AM EDT.  But, the market closed at another odd point from a harmonic standpoint.  So, I imagine things will have changed by 7 hours from now.

I laid out several scenarios Wednesday afternoon.  SPX spent the afternoon in apparent pursuit of the most bearish one.   Among the support it broke today:

  • the purple channel bottom
  • the 1608 low
  • the 1598 low
  • the .618 of the 1536 – 1687 rise
  • the TL connecting the 2000 and 2007 highs

While I pounced on a few bounce opportunities, they were mostly figments of my imagination.  Like Don Quixote, it would have been better had I kept my suspicions to myself.

The most important market development today was the loss of the purple channel.  When channels break down, they usually don’t just disappear.  They tilt.  That is, a steep channel gives way to a less steep one which morphs into a fairly flat one which eventually becomes a falling channel.

Catching one of these in the early stages is the key to avoiding losses when markets turn.  For those who are wise enough to short such markets, it’s a great way to goose your returns.

That has clearly happened with SPX.  Consider the red channel inside the purple channel from last November. It took SPX on a wild ride between Apr 18 and May 22: up 10% in about a month.  It died at the top of the purple channel on May 22 and I was confident in going short at 1687 when it did.

The purple channel itself is also a subset of a larger channel, seen below in white.

Here’s a view from a little further out…

We could keep pulling back, but I’m sure you get the picture.

In fact, channels with the same slopes keep showing up over and over within the larger patterns, as is seen with the purple channel from 2009 – 2011.  That channel breaking down was one of the factors that helped me nail the crash in July 2011.

I mention these things because the purple channel from 2009-2011 is the exact same slope as the more recent reincarnation that broke down yesterday.  This is no guarantee of a tilting to the white or any other channel in the near future.

Bernanke could put a stop to the current meltdown (at least temporarily) with a simple phone call to the WSJ.  But, these are things I look at when I’m forecasting.  And, they’ve worked pretty well so far.

UPDATE:  9:20 AM

The eminis dipped overnight but are back to up 8 pts.  But, DX has broken through resistance at the channel midline and is likely on its way to 83.075.

And, EURUSD has broken channel support.

SPX might bounce up to retest 1598.  Additional resistance is at 1606, then 1624.

But, I suspect it’ll reverse around 1598 and head down to 1580, then possibly to 1568 and finally 1553.  Don’t know if it’ll all happen today, but those are the key levels I’d be watching for.

I’ll post later tonight.  Good luck to all.


Channel Tilting — 6 Comments

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