Charts I’m Watching: Oct 18, 2012

Trend changes are always tough.  No matter your level of conviction, there’s always that “what if I’m missing something?” moment that makes time stand still.  You stare at the screen, watching the market unfold, and do your best to stifle the self-doubt — looking for any sign of encouragement or disparagement.

You draw a line in the sand and dare the market to step over.  When it does, you say a little prayer and then you celebrate.  You take your significant other out to dinner (they had to put up with you for the past 24 hours while you anguished over it — not pleasant, I assure you.)  You tip your waiter a little extra.  And, you slip the homeless guy on the corner a five-spot instead of a quarter (“there, but for the grace of God go I.”)

When the market doesn’t cooperate…well, I guess that’s what keeps cardiologists, psychologists and the good people at Oreo cookies in business.  You figure out what went wrong, enter it into your trading diary, and vow to avoid that particular mistake in the future.  The silver lining is that after making enough mistakes, you can get pretty good at this stuff.

The only real mistake is the one from which we learn nothing. – John Powell

* * * * * * * *

While I’m waiting to learn whether I’ll be dining out or munching Oreoes tonight, these are the charts I’m watching.  We came into the day short, so I’m encouraged by SPX’s daily RSI chart.  The latest channel looks bearish to me, though there’s an obvious test coming – regardless of whether we use the yellow or the white rising channel.

The 60-min chart is also encouraging.  It’s broken the dashed yellow TL, but must push down through the purple one (from the Sep 14 high) in order to get the ball rolling on the downside. It’s already bounced off it once this morning.

Two weeks ago, the break of the initial yellow line was followed by a bounce off the purple line and a back test that added 30 points to SPX.  But, that occurred at the bottom of the white channel — not the top, where we are now.

While, the 15-min RSI looks like it’s back-testing a broken channel — helpful in confirming the broken rising wedge we’ve been watching.

I would be much more confident about equities taking a dump here if the dollar had reached its .886 off the last low of 78.96.  It would mean a tag of the (broken) falling wedge apex as seen below.  I thought it might happen after-hours last night.

The fact that it didn’t tells me there’s still a chance we’ll get one last push for equities, perhaps up to one of the .886’s we discussed yesterday: 1465.78 or 1468.93.

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