ORIGINAL POST:
The McClellan Oscillator has a nice track record of alerting us to impending swoons. A system of fan lines drawn from its May 18 low have been especially helpful.
Note how each rebound off a fan line led to bottom and/or higher prices, while breaks through the fan lines led to substantially lower prices. Yesterday’s close represents a back test of the last fan line. If the pattern holds, it lends credence to our current short position.
Be cautious, though, as NYA and COMP need another .50% of additional upside to complete their Gartley Patterns. And, SPX would benefit greatly from a tag of its 2007 fan line from 1576 — currently at 1411 or so.
continued…
SPX completed a Bat Pattern yesterday at 1404.64, and I remain short since 1399 on Monday. Though, there’s a good possibility of tagging 1411 before heading down.
UPDATE: 10:15 AM
Little megaphone pattern setting up on the 15-min chart.
EOD:
Not much happened today. The megaphone remains intact, with a more complex wave count going on since the last lower bound tag.
The daily chart put in a big spinning top of indecision, with no net movement per se. The upper fan line from 2007 is a bit closer (9 pts from the close, 7 from the high), and again we closed below the solid white trend line that acted as the neckline for the head & shoulder pattern several months ago.
The daily RSI made just enough headway to be called a tag on TL #3. So, a reversal here or after an intra-day run up to slightly higher would still look good. The question remains as to the likely downside target.
The most likely RSI targets are: (1) a small reversal to TL #4 or the purple channel line that would probably correlate with a mid-line channel tag on SPX (1380), or (2) a decline to TL #5 or #6 that might mean an SPX drop to 1350.
It’s a little hard to tell without the upper bound of the channel having been confirmed, but my gut is we’ve got it pretty much right.
We did get a reaction off the McClellan Oscillator fan line discussed earlier this morning, so that’s a good start for the expected reversal. Like RSI, the MCO can tolerate intra-day bumps without it affecting the finished look of the chart EOD.
Comments
4 responses to “Charts I’m Watching: August 8, 2012”
Disqus on the fritz again this morning… arghh. Brett asks: for those looking to establish new short positions, does time factor into the decision at all? is it best to wait til tomorrow for the 1411 or is the risk/reward of waiting not a good tradeoff?
My thoughts:
I see a 50:50 shot at 1411 before a downturn to at least 1380. Today was a wash, with very little movement except for the USD which seems to be basing. While it’s always fun to nail a turn within a few points, let’s not be silly about it.
I missed the Feb 28 mini-crash in gold because I had an order in to short at 1800. Yup. You know the old saying…pigs get fat, hogs get slaughtered.
I see the downside risk/reward as worth it. That is, the risk of losing 9 points on the upside versus the likely gain of 30 or more on the downside…
If I hadn’t already established a short position, I would be opening at least a partial short at these levels. If we do get a little ramp tomorrow, I would add to it as close to 1311 as possible. If the market drops strongly, I’d play the downward momentum. Stops are always important — because this market continues to respond strongly to the daily news cycle.
I am still holding the short position…I hope tomorrow things get more spicy…
It seems that no significant correction coming!….
I am about to give up on the short position!
In fact the best short out there will be shorting US Bonds, a bubble ready to deflate along the way.
Why would you give up on the short position? Nothing has changed since yesterday, except that the dollar has rallied a bit off the long term channel line — likely significant support since the recent break through to the upside. The odds still strongly favor a downturn to at least 1380, with 1350s as the next target area.