ORIGINAL POST: 9:25 AM
Futures are showing a big jump this morning, with the last high of 1448 obviously threatened. But, the currencies suggest this morning’s rally should be only a very deep retracement.
The dollar sank a good deal, but only to the bottom of the purple channel (so long, white channel.) Immediate downside risk has to be to the .618 at 79.41.
The EURUSD still hasn’t retaken its key level — the .886 of the last swoon at 1.329. It reached 1.3298 late yesterday evening, but has since fallen back below the key major white channel.
Bottom line, I wouldn’t chase this rally unless it exceeds 1448. But, taking a long position on the opening just plain makes sense. Overhead target if it exceeds 1448: 1459.56, which is the .886 of 1474.51 to 1343.35.
Of course, exceeding 1448 completely rewrites the harmonics targets, as 1448 can no longer be considered a Point B.
ISM data is due out at 10am. The market will likely care if it’s very negative. But, a slightly negative report would probably be shrugged off as Fiscal Cliff related.
UPDATE: 9:55 AM
Along with the harmonics picture being rewritten by exceeding 1448, we have to consider whether the analog has been busted.
continued for members…
It really depends on how quickly this rally is undone — if at all. Fundamentally, nothing has changed with the economic picture, though this morning’s manufacturing ISM release has to be seen as positive (although very much in conflict with many of the regional releases.) See the full report here.
UPDATE: 10:50 AM
The consensus — even among the MSM — is that the Fiscal Cliff “deal” hasn’t resolved any of our fiscal issues. At best, it removed the risk of a huge tax increase and replaced it with the certainty of a modest tax increase — the biggest impact of which will be felt by low and middle-income wage earners whose payroll taxes just went up 2%. For a family making $50,000 per year, that $1,000 will be missed.
The hard work (and downgrade threat) remains, as the needle on the revenue side of the equation has barely moved. This is a relief rally, to be sure, but has the higher bump changed the prospects for equities?
This morning’s rally stopped just at 1457.53, just short of the .886 at 1459.56, because of a trend line off the 1474 top. Coincidentally, it’s also the mid-line of the rising purple channel from which SPX recently broke down.
There is negative divergence on the daily RSI, but not the shorter-term charts, which leads me to believe the 1459.56 target is still on the table.
RSI is bumping up against channel resistance (in red, below.) But, again, there’s room for an intra-day push to or even slightly above the channel.
Bottom line…in the absence of a strong move up through 1460, I expect this move to reverse itself. My current plan is to close out this morning’s long position and re-establish a short at the .886 fib. But, I have some more charting to do before feeling rock solid about that.
UPDATE: 11:20 AM
VIX itself opened well below the purple channel, and threatens to establish a less aggressively upward channel (in red.)
But, its RSI is showing positive divergence — still well above the midline of the falling channel.
UPDATE: 12:00 PM
SPX itself is pulling back from that fan line discussed earlier. If it finds support near the previous high of 1448, look for a push to that 1459.56 level and then a reversal.
The dollar, which sold off so dramatically this morning, is bouncing back just as dramatically. It just surpassed the purple channel midline and clawed its way back into the rising RSI channel on the 60-min RSI.
A back-test of the purple channel midline would enable that SPX push to 1460. But, a back-test below it lends credence to the alternative white channel — especially if the white channel mid-line is tagged.
UPDATE: 2:00 PM
RUT has formed a quadruple top that dates back to June 2007 (dashed, purple TL.)
But, in so doing, it has re-entered the rising wedge from which it recently broke down. If it can remain above 867 or so into the close, there’s an elevated risk of the ascending triangle breaking out to the upside.
If it reverses strongly, however, then this rally is merely an aggressive back-test of the RW. It’s also occurring at the .786 time fib of the rising wedge. The previous high occurred at the .618.
The daily RSI is meeting resistance at the red channel upper bound (again.) Like before, this high is at negative divergence in every time frame.
UPDATE: 2:40 PM
NYA tagged the apex of its rising wedge this morning — at the completion of a Butterfly Pattern (in purple)…
…and with negative divergence.
UPDATE: 3:07 PM
While we’re on the topic of Butterfly Patterns, the 1.272 of this morning’s dip from the SPX highs of 1457.53 to 1449.37 is 1459.75 – 19 cents away from the .886 at 1459.56. I’m still thinking there will be a last gasp that gets pretty darn close.
We’re inching closer to the .618 at 1454.41. A push up through it stands a pretty decent chance of reaching the .886 on negative divergence across the board — something that was missing with the earlier high.
As discussed earlier, I’m planning on selling this morning’s longs and re-shorting at that price level. At this point, I’m just waiting for the right entry point.
There are plenty of catalysts out there (besides investors coming to their senses as to the real benefit of the Congressional agreement.) My favorite is the rating agencies taking action.
Moody’s has had the US as AAA with a negative outlook for a long, long time. They announced today that a lack of further deficit-reduction measures could negatively affect the US credit rating. Lower deficits are necessary “if the negative outlook….is to be returned to stable.”
More in a few…
UPDATE: 3:55 PM
That was it. Full short here at 1460.
Comments
15 responses to “Charts I’m Watching: Jan 2, 2013”
EUR has broken support and DX back at 80, I would love to see – 170 spx points in 7-13 days. But it seems like that nowadays, the market always over-react up/down, we may even get more than 170 points, who knows??
Similar question to those below. Assuming the analog is still working – have you considered a number where you would change this view? It’s difficult to see a 170+ point drop in 7 – 13 trading days given the euphoric nature right now and calls for 1,550… and more! As always, I appreciate the insight and guidance through a difficult market.
Thanks for the clear signal. At least some pullback should be expected.
It’s a bit hard, from the political point of view, to see the market drop below 1380. It’s more tax cut and more spending. The deficit will flow into the market. The Republicans have all turned into chickens. They will give in before Obama even starring at them. Unless Boehner is voted out, which is a zero probability event.
Hopefully the charts are more prescient.
PW, do you think the analog is still alive after today’s ramp in equity? Good call about the 1460 level, these last minutes blast off has become the trade mark of markets.
dollar is actually higher now. EUR back to support, even at Friday’s level. FX pairs pretty much back to last night’s level, erasing morning gains with the equity ramp. Will equity follow??
IMO, definitely. I’ve always felt the currency markets were more reliable than equity — especially SPX, DJIA and NDX.
VIX appears to be back testing from below a trend line from early October 13.67. That trend line appears to be the lower boundary of a triangle. Is this important?
Yes. This is the bottom of the purple channel. I suspect something like the red channel I’ve drawn will take its place. See above.
This is more of a political comment but congress are such cowards, smoke and mirrors on protecting middle income earners on taxes and stick it to the greedy rich, while using the upcoming debt ceiling to make the unpopular spending cuts for the Dems saying if we did not cut spending the worlds financial markets would be ashes. What is clearly understood is the the politicians with the heads of banks used the futures to make money.
No argument here.
RUT appears leading in the direction of the market, it was the last to roll over on this market manipulation and first to breakout challenging the all time high, very tempting to short now.
I wonder how important it is that RUT is now above all previous highs?
pretty easy to see this as a double top, but it’s really quadruple. please see above.
Did you close out your short position?
Will you be updating the harmonic targets soon, now that SPX has blown thru 1450?
It was stopped out at the same time I opened a long at the opening. But, I anticipate re-shorting at the .886.