Charts I’m Watching: Dec 26, 2012

I hope everyone had a lovely Christmas.  Intra-day posts will be open to the public this week, my little gift to those considering a pebblewriter membership.   Sorry, but our forecast will still be available to members only.

As announced on Monday, subscription prices will increase on January 1.  In keeping with our practice of paying for performance, the annual rate will be about $10 for each percentage point of return since the new site’s inception on Mar 22, 2012.

We’re up about 95% over those first nine months [SEE DETAILS HERE] so the new rates will be as follows:

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The first fifteen to sign up for an annual membership at the current rate of $800, however, will be granted Charter Member status.  Charter Member rates are locked in for the life of the site, so you’ll never pay more — no matter where annual rates end up.

If we are fortunate enough to continue averaging a little over 10% per month, annual memberships would be $1,200+ in March.  So, locking in current prices is a no-brainer.

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We remain short from 1447 on Dec 18.   Per the 1:10 post in the members section:

SPX just tagged the .786 mentioned above, pushing just beyond 1446.44.  I’m closing my intra-day longs (again) here at 1447 and will see what kind of reaction we get here.  Charts in a few.

But, I’ll repeat my warning from Monday: bulls will be looking for opportunities to shift momentum, and it could be especially easy with low volume and the inattention that comes with a holiday week like this.

Keep an eye on the dollar index and the little H&S patterns on SPX this morning.  Some strength is to be expected early in the session, but there is the risk of a small breakout.

As we discussed Monday, the key SPX level to watch is 1432, which would take prices out of the proposed falling channel as well as complete the lopsided little IH&S that targets a Bat Pattern completion at 1441.  I’d put the odds at 50:50.

SPX’s bearish H&S pattern has picked up a new neckiline — the bottom of the purple channel above.  The neckline is rising, but it currently completes around 1425.

The EURUSD is coming up on its .618 at 1.3250 — also the top of a well-formed channel.  The rally should fail at that point, with the key level to watch afterwards being the recent bottom at 1.3157.  Charts later.

UPDATE:  10:50 AM

SPX just broke below the neckline of the bearish H&S pattern (in purple below.)  If the pattern plays out, it targets about 1416 — which intersects with a little Crab Pattern at the purple 1.618 at 1416.28.  The key level for bulls to hold is 1422.58.

A drop to 1416 would very likely see a decent bounce, as it also represents a Bat Pattern completion at the Fib .886 of the 1411 – 1448 rally between Dec 14 and Dec 18.

The slightly less likely target is the 1.272/.786 intersection at 1419.61-1419.81.  Either level marks an important channel midline, which — combined with the harmonic pattern completions — could elicit a strong bounce.

A drop through 1411 means much more immediate downside.

UPDATE:  12:00 PM

We reached our primary target, reversing at 1416.43.  If SPX can break back through the white channel midline at around 1422, the top case is a bounce to the .618 just formed at 1426.53 (also a white channel line) or the .786 at 1429.28 (the top of the white channel.)

This is a short-term trade only, and is likely to complete by Friday.  As always, stops are strongly recommended — so, 1415ish should do the trick.

Any breakout from the channel has upside potential to 1436.

UPDATE:  12:30 PM

DX tested the bottom of the little white channel I posted earlier, then zipped right back to its midline with the equities sell-off to 1416.43.

It has now tested the upper bound of the yellow channel twice in the past two sessions, and must either commit to the rapidly rising white channel  — breaking out of the yellow — or  consolidating further.

A break out of the SPX white channel would likely equate to a breakdown of DX’s white channel.  If stocks get a rebound to 1436 as discussed above, look for the dollar to flesh out the proposed purple channel to around the .618 at 79.319.

UPDATE:  3:10 PM

SPX just pushed through 1422.58, raising the odds that this is more than just a bounce in the current primary wave down.  I never use Elliott Wave to forecast (it either doesn’t work or I’m just lousy at it) but the move down from 1448 to 1416 looks like 5 waves to me.

If so, the bottom of the 3rd wave down was that 1422.58 level, and breaking that level means we’re probably going to work on retracing the overall move now.

updated 3:30 PM

The first big wave down, of course, was 1474 to 1343 from Sep 14 to Nov 16.  Wave 2 was back up to 1448 — a Fib 78.6% retrace. SPX has dropped 32 points since, back to just beyond the .618 retrace of 1474-1343 and only about 30% of the 1343-1448 rally.

So, technically, we might have just established a Point C for a Butterfly Pattern pointing to 1510 or 1555 (the 1.272 and 1.618, respectively.)  But, that doesn’t fit with our primary forecast, which is that 1474 was an important top which will stand for many, many months (at least.)

The more likely scenario is that 1488 was the end of the 2nd wave, with 1448-1416 serving as the 1st of the 3rd wave down.  If so, and if SPX holds 1416.43, we should expect a 2nd wave up to retrace anywhere from .382-.886 of the drop from 1448.

The potential Fib targets (the white grid) are:

  • .382:  1428.49
  • .500:  1432.22
  • .618:  1435.94
  • .786:   1441.24

A 2nd wave up could stay within the small white falling channel only up to about the .382 at 1428.49. But, even that is pushing it.  In other words, any move higher means a break-out of the channel.

On the other hand, a reversal at the (red) .618 at 1426.53 means the current wave down isn’t quite done.  This also intersects with the small purple .786 (1426.64) and the small pink .382 at 1426.84.)

That’s probably about as clear as mud, but suffice it to say there are many harmonic scenarios in play in the small, intra-day scale — even though the larger scale still points down.

I see absolutely no reason to get bullish at this point, and look at this as nothing more than a bounce.  Those of you playing the bounce at 1416 should keep stops where you’re comfortable, with the understanding that the risk is still to the downside.

As discussed in the performance update a few days ago, I will occasionally keep a core position in place (in this case, short) while playing a contrary wave for a bounce.  This is one of those situations.  More later.


Charts I’m Watching: Dec 26, 2012 — 23 Comments

  1. PW–Agree that 1422.58 is the bottom of Wave 3, but the bottom of wave 3 has no bearing on the waves 4 & 5 below it.  In fact, the peak of subwave (iv) of 3 (which I abbreviate iv:3) tends to act as resistance to the actual wave 4 peak to follow.  In this recent case, iv:3 was established at 1433.69 and the wave 4 peak was at 1432.78.  Also, notice that iv:3 DID overlap into the bottom of wave 1 establishd at 1432.82, but the actual wave 4 did not.

    Once wave 5 started down from 1432.78, the only price EW practitioners are concerned with immediately is 1425.06.  That is where i:5 was established, and by my count, iv:5 ended at 1423.97 today without overlap of waves i and iv.  [Yes, there is the very confusing Ending Diagonal (ED) exclusion to this rule, but ED’s are a series of five 3-wave moves, and so far the i & iii waves are 5-wave motive waves, eliminating the ED for this wave 5 from consideration.]  However, wave v:5 could still be an ED on the smaller intraday time frames tomorrow.

    I am expecting a 5-wave move (impulse or ED) down from 1423.97 to establish a new low below 1416.43 tomorrow.  With this move down being so long in the tooth, honestly any new low with positive divergence on ANY chart is going to get me to sell the last of the shorts I am holding (very few, as I harvested profits at the bottom of wave 3 at 1427 and wave iii:5 at 1417) or I will sell them at a loss if price breaks above 1425.06.  Depending upon the type of bottom that is created, I will make a decision on whether to establish none, small, or heavy longs for the wave 2 retrace.

    Perhaps I should rename myself, as I have been practicing EW for some time now, but prefer to stay by the same handle so everyone knows who I am when I post.  I hope this post helps everyone better understand EW and how it can be used to help setup trades.  I do not trade exclusively by EW, and would have to consider anyone that does a genius or a fool.  GLTA.

    • “would have to consider anyone that does a genius or a fool”  Love this line, newb.  I know you ain’t no fool, so will assume this makes sense from an EW standpoint.  And, yes, the moniker is definitely misleading!

      • Thanks PW.  My trailing stops took me out of the plunge far too early, but rather not be greedy when playing with options and EW is telling me we are in a wave 5.  I’ve had FAR too many moves leave me holding worthless options in my trading career–hopefully I’m wising up.  Looking for “one more low” can be a quick way to the poorhouse, ask me how I know!

        *IF* we’ve put in a real 5-wave bottom at 1401.80, I agree that it is likely w1 of a 3/C that will take us down into the low 1200’s and w2 may have gotten started today.  I had to head into work on my vacation today, so luckily had autotrades programmed to take advantage of the reversal as I left the house with SPX at 1405.  I fully expect this w2 to be sharp and quick, but stay near/under 1431.  Missed doubling up my SSO options at 1401 by that lousy 0.80.  Argh.

        I’ll use EW and Fibs to help me trade both directions or trade around a core trend position, but typically favor the trend on a weekly time frame.  My next short ETF core option position is going to be in the March expiry–I have indicators that show weakness into February–so I don’t have to panic about expiration AND I can let all of w3 of that 3/C we’re expecting play out.

  2. PW – To clarify, you are only going short-term long after 1422 is broken?  Thanks, and hope you had a great Christmas.

    • Personally, I played a little bounce right at the target, but a push through 1422.58 takes us up through the last wave (morning of 12/21) and up through the white channel midline, thus is a decent confirmation of the size of the bounce — likely up to the .618 or so.

  3. Left an email, but can’t seem to renew/click on the annual membership? Is it because your allotted 15 people already signed up or ?

  4. PW, The site wont let you open the charts in a new window, so
    you can’t make them big enough to seethe detail. Anything
    I can do different to expand the size of the charts?j

    • It’s broke here too. I got it a little larger by;

      right click on the chart and select, Open in New Tab.
      Open the new tab.
      Move pointer onto the chart.
      Hold the CTRL key while tapping on the +

      I got it big enough here to see the detail.

    • Can you right-click to open image in another window or tab?  Just did that with Safari and Chrome without any problem — takes up the whole window and can zoom further with a click.

      • Been having the same issue PW since late last week.  It comes up as a series of charts and clicking on them just toggles between the charts of the post.  Can’t isolate the charts to blow them up to see detail.

        Took short profits 10 cents off the high of the day so far on SPXU.  Will likely grab a long if we get a new low on divergences and oversold on the hourly looking for the zig zag higher after the 5-wave move.  Happy Holidays all.

          • Using IE.

            I’m playing the short side from the 1422/3 area with 1426 as a stop looking for one more low near 1413.  9 points down vs. 3 points on the stop out.  I’ll take 2:1 and 3:1 setups.  I’m not seeing any divergences yet on the longer intra-day charts, so I’d like to see that before playing the bounce back to 1436 or higher.  GLTA

    • Right-click and “Open image in new tab/window” instead of just “open in new tab/window” will give you just the image.