Charts I’m Watching: Dec 27, 2012

The dollar broke down from its steepest channel (in white) as I suspected, settling into a consolidation that might flesh out the larger purple channel today or tomorrow before breaking out of the yellow channel it’s been in since Nov 12.  My target remains the .618 at 79.319 on the purple grid.

I say “might” because the 60-min RSI features a well-defined channel (rising, white) that could legitimately continue to nudge prices upward at a more modest clip now that RSI has lost the purple channel.

The EURUSD, in the meantime, reversed right at its .618 as expected, but then broke out of its falling channel overnight to extend just beyond the .786 at 1.3275, completing a Gartley Pattern (white.)  With the .618 reversal, it could also be working on a Bat Pattern that completes at the .886 of 1.3290.

Note, however, that it has already reached the .886 of a pattern drawn from Dec 20 instead of Dec 19 as shown above; so, there is potential for a reversal without any additional upside first.

A little more negative divergence would help sell me on this being a top for the pair.  Once it does reverse, there is ample downside.  We’ve yet to see a significant sell-off since it broke down from the rising wedge last week.

In equities, my core position remains short since 1447 on Dec 18, but we concurrently played an expected bounce from the completion of a Crab Pattern yesterday at 1416.43 with stops at 1415.

UPDATE:  10:30 AM

SPX just broke down through the bottom of the white channel that’s carried prices higher since the 1343 low.  The next potential support is the .500 Fib of the 1474 to 1343 drop at 1408.93, which intersects with the .382 of the 1343 to 1448 rally at 1408.02.  It’s also the 25% line of the falling channel from Dec 11 (yellow, below.)

The dollar poked up above the top of the yellow channel and is testing yesterday’s 79.81 high.

This is also the mid-line of another channel I’ve been watching, shown below in purple — an area of potential resistance for the dollar, support for equities.

A sustained push through 1408 leaves little in the way of channel or Fib support until 1393.45 (the .382 of 1474-1343, white below) or 1395.68 (the .500 of 1343-1448, purple.)

But, there’s not much else there to recommend this for a substantial bounce.  We might  get nothing more than a back test of the DX yellow channel, then off to the races.  The concurrent move for SPX might be a backtest of the broken purple channel and white channel midline at around 1420-1422.  But, I’m not inclined to play that bounce.

There are only 10 sessions left before our target of 1284-1290 on January 11.  That’s roughly 12 points per day, so drops like today’s will be the norm — not the exception.

The only other potential support I see is the bottom of the white channel, currently at the purple .618 (1383.33) and the red .786 (1381.50.)   Bulls will want to defend 1381.50, as it was a Bat Pattern completion at the next higher Fib level (the .886 at 1472.43) that got the correction started in the first place.

Remember, 1474 is where we sold our QE3 longs and went short back on Sep 14 [see: The World According to Ben.]  The bullish case would benefit most by painting a drop to the next lowest Fibonacci Level (the .786) as a little correction on the way to new highs.

If SPX is very oversold at that point, I’ll consider playing a bounce.  But, as of right now, there’s no positive divergence to support catching this falling knife.

UPDATE:  2:50 PM

We’re getting a decent bounce here at 1401.80.  Nothing special going on in terms of Fib levels, but some channel action and a nice round number bounce are playing into it.  Worth a short-term long, IMO.

It’s likely the market is getting a lot of help from AAPL — which is just a breath away from completing its H&S pattern again.  Recall that since we called the top back on Nov 27 [Update on AAPL] it went down and bounced at its neckline as expected — tagging 501.23 on the 17th.

It was a nice 33-pt bounce, retracing a Fibonacci 38.2% back to a purple channel line.

Today, AAPL came dangerously close to completing the pattern yet again — putting in a 504.66 low versus the neckline’s 502.90.  In so doing, it completed a little Bat Pattern on the 60-min chart which should get a reaction back up to 512-515 or so.

After that rally fails, however, we’re left with a Crab Pattern (smallest pattern in red) that points the way to 480.42.  Note that this is in the same vicinity as a .786 (in white) at 480.65 and a Butterfly Pattern completion at 481.59.

If 480 can’t hold, there is another Crab Pattern completion waiting below at 446-452 (red 261.8, white 161.8 and 88.6.)

If/when the H&S pattern completes, it targets the June 2011 low of 310.  But, don’t be surprised if we get a very strong backtest — even a breakout — of the neckline first.  There are a lot of players with a lot of money who understand full well what a close below 500 means for this stock and the overall market.

UPDATE:  3:30 PM

SPX continues its back test of the recently broken channel lines.  It would have to break up through 1422.58 before the acceleration channel is endangered.

As of now, it looks like a parallel of previous steep plunges such as that of November 2012…

…as well as the one in April – June 2011.

12:40 — getting close…

UPDATE:  3:45 PM

That should about do it.  SPX just tagged the upper bound of the white channel…

…and, DX just completed a back test of the yellow channel.

I would be very leery of playing the bounce any further than right here at 1421 — the .886 retrace of the drop from yesterday’s 1423.97 and the .618 of the drop from Dec 21’s 1432.78.


More later.


Charts I’m Watching: Dec 27, 2012 — 1 Comment

  1. quite a crazy day, who said that holiday season would be boring, 20 points move down and then up is so exciting, now can we just see some real downside drama??