The big story this morning is the meltdown taking place in the commodities complex. Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.
Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces. In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.
The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.
If those levels should fail to hold, the next major support levels are 1309 and 1155.
We’ll discuss oil and other commodities later, but first let’s catch up with equities. Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs. As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.
The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.
This morning, we came very close — reaching 1576.87 so far.
I’ll take a long position here at 1576 just to see where it takes us. Tight stops (1573ish) are in order, as the next support is down between 1553-1561.
We discussed last week about core versus interim positions. I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case. A plunge below 1553 does very serious damage.
So, I’m comfortable in closing out my short position from 1597. That doesn’t mean I believe the market will go up from here. The jury is out. But, by placing tight stops below my long position, I can manage the risk of being wrong.
SPX doesn’t have to reverse strongly for a hold here to be effective. The bottom of the big purple channel (from 1343) isn’t far below at 1564. But, it’s rising quickly. It’ll be up to1576 by Apr 22. So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.
UPDATE: 11:40 AM
Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359. It should reverse here. But, again, a failure to hold could easily send prices down to 1309.
It’s interesting to see what the US dollar has done during this sell-off. Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.
UPDATE: 11:55 AM
SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel. But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.
UPDATE: 1:10 PM
SPX just hit our 1564 objective. I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561. I’ll leave stops pretty tight here and be happy to go along if it plays out that way.
The view from 30,000 feet coming up…
UPDATE: 2:03 PM
Just got stopped out at 1564, so it’s back to the short side. Lots of near-term targets, starting with 1561.60, coming up in a few…
continued for members…
Looking at the daily chart, we can see two obvious instances of intra-day drops well below the purple channel bottom: Apr 5 (10 points) and Apr 8 (4 points.)
The next lower Fib level (red grid) is the .786 at 1551, which would be 13 points below the channel bottom. So, I’m inclined to call 1561 the bottom and make the market prove it has lower to go — as we have been all day.
I’ll switch back to the long side here, but be prepared to change sides again with a push below 1561.
BTW, the less-traded path would be to simply place stops in the 1564 range. We could still see downside to 1553-1555 without throwing in upside towel.
We’ve reached pretty decent support on the 60-min RSI purple channel, but show further downside on the yellow channel. And, this one has been a toss-up folks, as the yellow fit’s well on the top, but the purple fits better on the bottom.
If I had to give the nod to one or the other, I’d say the purple — as the midline reversals have been pretty darned accurate.
UPDATE: 3:00 PM
Just got another push lower than 1561, so back to the short side for 1553-1555. Stops 1564ish should be fine. I’d be very leery of holding short into the close.
Remember, we had a lot of consolidation around these levels for an entire month (Mar 8 – Apr 8.) 1555.57 was the 1.618 of the 1474 – 1343 drop last fall, and 1553.39 was the 1.618 of the 1370-1074 mini-crash from May – Oct 2011.
These are very important to the bullish case because we blew through them with very little pullback last month, even though either should have been able to reverse the market.
The bullish interpretation is that the market has much more upside — but, an inability to hold those easily attained levels would seriously damage that argument.
UPDATE: 3:38 PM
That’s good enough for me. I’m going to close out my shorts here at 1554 and go long. I haven’t decided about an overnight position yet. Probably depends on whether we close above 1563 or not.
My only hesitation here at 1554 is the .786 retracement (red grid) at 1551.88. It would be nice to bag it prior to a rebound, but a close back in the purple channel would be of equal value.
UPDATE: 4:00 PM
I have a feeling I’ll regret it, but I’m going to cash here at the end of the day. I’d feel fine about being long overnight if we were back in channel again. And, I’d feel fine about being short if we had made a new low. We’re in between, so I’ll wait this one out.
The news was sketchy earlier, but I’m reading that the explosions in Boston were definitely bombings — the work of either homegrown or international terrorists targeting civilians who were watching the marathon. I’m guessing since it happened on the tax filing deadline it was an “inside” job.
We have a number of pebblewriter.com members who live or work in Boston. My thoughts and prayers go out to them and to everyone with friends and family affected by this despicable act.
UPDATE: 9:20 PM
Quick note: the shape of the purple channel from 1343 has never really put me at ease. Today’s close below what I regarded the bottom was particularly disconcerting.
I’ve been playing around with the channel the past couple of hours, and came up with a placement that might signal a reversal based on today’s closing low.
Given the strong performance of the eminis tonight, I’m inclined to think the slight push below 1553.39 will be forgiven and we’ll get a gap open in the morning.
Stay tuned.