Futures are indicating several points higher, but it will probably be enough to take SPX right back into resistance. I’ll play along on the upside, but be prepared to ditch the long position at any sign of trouble.
The first challenge will likely come at the IH&S neckline around 1692.60.
UPDATE: 9:33 AM
SPX just notched higher than the neckline, but is just shy of either of the .786’s. I’ll switch sides here at 1692.60 and see if we get much of a reaction. Stops at 1693.25 — though the .786 and .886 are just above at 1694.08 and 1696.19 so would come into play rather quickly.
So far, SPX is following the upside forecast we laid out last week [see: July 24 update] …just slightly out of phase from a time standpoint. Of course, there are other less bullish scenarios we also charted.
continued for members…
The harmonic patterns we’ve been following took a turn for the bullish on the 26th because SPX reversed at the .707 rather than the .618 or lower. Gartleys reverse at the .618, and Bats reverse lower than the .618. So, the implication is that we’re looking at a Crab Pattern if the previous high of 1698.78 is broken.
The 1.618 of 1712.84 is virtually the same as the 1.618 of the 1654 – 1560 decline from Jun 18, and it remains our next interim upside target.
So, why all the drama? Why not just go long and go play golf? The odds do favor such a strategy, but it’s not always easy to tell a retracement or corrective wave from the first legs up of an impulse.
And, there’s still plenty of reason to think 1698.78 might hold as at least an interim top. I’ve redrawn the 60-min chart to be (hopefully) a little clearer.
There are multiple bearish H&S Patterns that, while completed, have obviously not played out. But, they have also not been busted, as the latest leg up hasn’t even come close to the previous highs. But, these are the short-term chart patterns.
The larger dangers to the bullish case come from the purple channel midline just above, the top of the red corrective red channel just above, and the relatively benign reaction to the double top (1687.18) that, so far, hasn’t even reached the .886 of the 1687 to 1560 decline.
There’s still a very good case to be made for a decline to 1655 — the purple Crab Pattern 1.618 extension and the yellow H&S Pattern target. If the news out of the Fed isn’t to investors’ liking, the chart supports the possibility of a 35-pt plunge in the next 24 hours.
And, if the 1654 level doesn’t hold, the bottom of the purple channel (and 2007 high) is still waiting down there at 1576. Even the bulls could cheer such a development, as it would constitute a marvelously bullish backtest and a nice AB = CD flat on the way to SPX 1823.
UPDATE: 12:20 PM
SPX is nearing the bottom of a little channel that could offer support. I’m going to try a long position here at 1687.88. Stops at 1687ish.
I was a little surprised that we didn’t quite reach the .786 this morning (1693.19 versus 1694.08) and I think SPX might give it or the .886 (1696.19) a try between now and the Fed statement release. Note the small white Crab Pattern 1.618 at 1698.02.
UPDATE: 1:17 PM
Long position just stopped out at 1687. Back to full short here, though I might take another stab lower (1683.15?) Stops on the short around 1687.25ish.
UPDATE: 1:33 PM
Trying another long position here at 1683.12. Target = 1691.96, stops at 1681.75ish.
Note that this is the intersection of the .886 retrace of the rise from 1681 to 1693, the .618 of the rise from 1676 to 1693 and the .236 of the horizontal yellow channel and a white channel line.
The interim upside target is 1691.96, as this is the .886 of this morning’s move down and the completion of the latest IH&S (teal) that happens to target 1710 — close enough to the 1712 target that it’s probably significant.
By staying north of 1681.86, this latest harmonic pattern is still intact and features a 1.618 of 1698 — same as the 1691.85-1681.86 pattern.
UPDATE: 3:45 PM
I’m growing concerned about the odds of reaching 1692. I’m closing out my long position here at 1687.88 and going short. I’ll leave a stop in at 1688 in case we get the usual last minute heroics.
But, at this point, SPX is going to fail to reclaim the rising red channel by the close — meaning it’s busted. The eminis have also lost their rising channel and appear to have backtested it.
The dollar has reached an important .786, though I’d be more confident if it were sitting at the .886 and channel bottom.
I will close out my short position at the close and go to cash. Odds are we’ll get a spurt up to the .786 or .886 (1690.89 or 1691.96) in the morning to complete the Gartley or Bat and a back test of the broken channel, then the decline will begin in earnest. The shot higher on SPX should enable DX to reach the .886 at 81.111 — our target from July 26.
But, I can’t predict what effect closing below the channel might have overnight, so I’m uncomfortable keeping a long position on overnight for the sake of a few points upside.
Comments
3 responses to “Charts I’m Watching: Jul 30, 2013”
PW, when you say you’ll “play along” at the opening, what exactly does that mean? You’re buying calls right at the open?
Usually in the case of an opening gap, I find that futures already reflect the “full” gap and SPX cash converges to futures within the first couple of minutes. Since futures already reflect the “true” open price, buying them doesn’t do any good – but it’s hard to get options filled at a price based on SPX’s opening print, because SPX moves so quickly in the first couple of minutes to converge on the futures price.
I’ve never had any luck at all trying to buy opening gaps with either futures or options, so I’m wondering how you do it.
Thanks!
I have the same trouble, even if I see the asking price of spy right at 9:30, the “playing along” is already over.
IMO, option pricing at the open are always ridiculous.
This is the challenge with using SPX as the primary means for following/ forecasting the market. The eminis are often the dog wagging the cash market tail. As I’ve frequently lamented, ALL the net gains over the past 4 months have been generated in the first hour of trading following the gaps up.
Technically speaking, it blows. SPX often closes the prior day in the process of completing a normally reliable pattern, only to have it busted overnight — usually to the upside, of course.
So, I have two choices…switch to eminis for forecasting purposes, or call the moves in the cash market as I see them. This morning, for instance, I thought SPX might go 3-4 points beyond what the futures indicated because of the pull from the IH&S neckline at 1692.60 and the .786 at 1694. So, I pointed that out. Other mornings, the magnitude of the move is less clear, so I might ID several targets or even wait for momentum to wain and then call a potential reversal.
My sense is that most subscribers are cash market investors, so I’ve
stuck with SPX for now (though I would change if that’s what everyone
wanted.) But, sometimes, things happen during trading hours and then SPX takes the lead and ES patterns get busted.
As for how best to play a gap opening, it’s obviously easier if you play the futures. Failing that, it helps to have an upside target. If you don’t get a fill on the way up, no need to sell. Might do better simply waiting for the reversal. It’s trickier, though, when the upside target isn’t clear.
Personally, I am leaning more towards the eminis rather than ETF’s. I anticipate using them in the fund, too. But, my sense is that most subscribers use cash instruments instead of futures for their daily trading. So, I’ll stick with SPX for forecasting purposes.
As far as options go, I’ve cut way back on using them for direction reversals. The cost of being wrong is so high relative to equity trades — which IMO are profitable enough if actively managed. As MM points out below, it’s especially tough on openings — unless you’re using them to fade a short-lived gap up.