Charts I’m Watching: Nov 15, 2012

There’s a distinct lack of anything positive in the headlines this morning.  Even CNBC has nothing cheery to say.  The jobs numbers are worse than most expected, inflation is so-so, McDonalds is floundering, Walmart’s forecast is gloomy…  Most of Europe is off .5-1.0%.

SPX broke a couple of potential levels of Fib support yesterday — the key 1368.31 and then 1360.33.  I’m hard pressed to find any significant channels to prop things up either.  And, the options data I monitor, while slightly negative, doesn’t show any real capitulation.

As a result, there’s a good possibility that we’ll continue to see weakness.  If we break down this morning, I’ll play the downside and see if we catch a bid at the 1344-1348 level.

As detailed in yesterday’s post, these prices represent:

  • the 1.618 extension of 1396 to 1474 at 1348.39 (white)
  • the .786 retrace of 1309 to 1474 at 1344.63 (red)
  • the .618 retrace of 1266 to 1474 at 1346.11 (purple)

The most important of the three is 1346.11.  A reversal there gives the downside case the maximum flexibility, as it can lead to a Gartley at the .786 (1311), a Bat at the .886 (1290) or a Crab at the 1.618 (1138.)

But, as we also mentioned yesterday, the analog we’ve been following turned in between some key Fib levels, without any real technical support. So, this morning’s rally could end up being the one that keeps the analog alive.

The dollar broke down from its rising wedge on Tuesday, but is still hugging the channel mid-line — going on two weeks, now.

The EURUSD likewise broke out of its falling wedge, but hasn’t really reacted much since.

The daily RSI has reached channel support (in red), but this was after a breakdown of a 8 month channel (in purple.)

Yesterday’s plunge at the close erased most of the positive divergence we had. Only 5 and 15-min charts still show any, and that doesn’t mean much.  More in a few…

UPDATE:  10:00 AM

The market broke negative and is threatening even lower.  So far, prices are moving in a very narrow channel.  So, we could easily see bounces off the channel bounds of 10-12 points.  The first significant Fib level is coming up at 1348.39 — the 1.618 of the 1396 to 1474 rally for a potential Crab Pattern.

Each of the waves down has produced a bounce that failed to clear the previous high.  One good indication of a lasting bounce would be a higher high that breaks out of the channel.  More in a few…

UPDATE:  10:30 AM

SPX bounced, but so far it’s a series of lower lows and lower highs.  There is something of a channel that’s formed since Friday (in pink) but it’s not exactly a thing of beauty.  I’ll leave it up for now and see if it holds.

Actually, it looks pretty decent if we expand it.  Though it shows a potential bottom, it’s still a falling channel.  Prices could stay in it and still decline to 1348 by the end of the day.  Frankly, it’s not enough to get excited about, as it doesn’t resonate with any other major channels we’re watching.

More later…

UPDATE:  11:50 AM

SPX just reached the top of our target range with a tag of the 1.618 at 1348.39.

The .618 of the 1266-1474 rally is just below at 1346.11 and is the more important of the two Fib levels.  But, this qualifies as a Crab Pattern completion.  Together, they signal an impending bounce.

Those of us who went short this morning or remain short should consider a stop at around 1352.   There’s positive divergence up through the 60-min chart.  But, the downside potential for the 1346.11 target remains.

Some may have noticed the red channel in the above chart.  I drew it to intersect with the above-referenced Fib level for a reason.  Obviously it’s a pretty good fit with some important tops and bottoms.  But, what makes it matter is the way it fits in the bigger scheme of things.

The expanded version (in purple) also captures the May 2011 high, the Oct 2011 high, most of the Oct 2011 low and the Sep 2012 high.

And, we get the feeling the purple channel matters because its big brother cuts an even more impressive swath.

UPDATE:  1:30 PM

SPX is making a move. For this move to last, it must break out of the red channel at the very least.  Be prepared for resistance.

I have my doubts that the downside is done until we tag 1346.11.  It would also help if the 1348.05 low had come with positive divergence on the 30 and 60 min charts.  The 60-min shows potential resistance at around 1356.

I’m going to add some shorts with tight stops here on a hunch the break-out fails and we return to tag 1346.

UPDATE:  1:50 PM

Seeing a little strength here.   But, coming up on the .886 of the previous high at 1358.66, followed by the high itself at 1360.02. Charts in a minute…

UPDATE:  2:00

Here’s a proposed expanded channel to watch.  The best case for continued upside is a back test of the channel midline at around 1354.

Getting back to the long-term picture, let’s put some of these channels into perspective and see how they fit with our forecast.

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