Charts I’m Watching: October 12, 2011

UPDATE:  4:30 PM

SPY provides an interesting peek at the big picture harmonic situation.  Note that the Gartley target is 93.87.

Take your pick of parallel channels.  None of them look particularly bullish.

I’ll update the “Path to 350” chart to reflect the obvious widening of the channels for this rally.  Hopefully will finish it by later tonight or tomorrow morning.

UPDATE:  3:00 PM

Backing out, trying to get a sense of the big picture…

Closing in…

And, the DX picture, on which everything seems to hinge at the moment…

The fan lines from the Apr 08 lows (the white lines) connect with each significant reversal as DX fell from its Mar 09 high at 90 to its November low at 74.  I draw them, then see if they ever come into play down the road.  Most of them do.

The one that passed through the Nov 09 low, for instance, is right around 77.7 today — just a tad away from today’s low labelled as the end of wave 4.  Note it also provided guidance for the Jul 12 high – labelled as the end of wave 1 (it’s also Point B in our Crab pattern).

Likewise, the fan lines from the Mar 09 top (the red lines) connect with each significant reversal as DX climbed from 74 in November to almost 89 in June.   Again, most of them come into play.  The one that passed through May 7 2010 marked the recent Oct 6 high, labelled as the end of wave 3.

We saw a well-formed Bat pattern play out at very near the .886 Fib level at 80.635 — also at the intersection of two fan lines.  Now, we find ourselves at the .50 Fib level, wondering if the Bat might go on and extend to form a Crab pattern.

If so, DX should extend to the 1.618 Fib at 87.058 — also the location of an important fan line off the June 10 high.  It would also exactly match the .886 retrace off that June 10 high.  All this to say…I think DX has a big move ahead of it, from 77 to 87.  I’m working on the time frame, but I’m fairly confident it’ll be very soon.

More later.


We appear to be leveling out around 1210.  The hourly RSI line — already at overbought levels — has been broken and appears to be backtesting.


We’ve reached the .886 fib on the largest of the three potential Bat patterns we discussed yesterday.  It’s not a well-formed pattern, but the completion is at 1203.

An overshoot wouldn’t be surprising, given the strength of this rally.  Some call it a short squeeze, and I’d have to agree.  It’s happening on very low volume, so it hardly qualifies as a major turn.  I’d normally expect a quick backtest, but the slope of this advance means a backtest could extend beyond the apex of the rising wedge itself.  Wouldn’t be surprised to see it shoot beyond 1210 intra-day.

Recall that 1203 is also the level of the fan line connecting the 2007 highs to the Mar 16 low.  The next higher line in the sand is our old pal Trend Line X.  It stopped the Aug 31 and Sep 20 rallies.   It can be seen as the dashed yellow line at 1210 above.   The close for the day should be at 1207 to 1210 range or less, regardless of how high the intra-day rally takes us.

If I’m wrong, then the fail-safe level is the Sep 20 price of 1220.39.  Any higher close than that would probably invalidate my notion that we still have a lower low to put in.

As I mentioned yesterday, this rally feels a lot like those in July.  The start of the climb off the June lows had been delayed by the release from the Strategic Petroleum Reserves, and the act of catching-up led to so fast a rally that it overshot my goal by a good 25 points.

This advance feels extreme, especially coming on such low volume.  On the other hand, we’ve seen the rising wedge expand on us twice.  We’ve overshot my original 1182 target by over 20 points.  The momentum is clearly with the bulls.  It’s entirely possible that I’ve missed this call, and 1074 was the end of Minor 1.

Reaching 1040 by Oct 17 is looking increasingly difficult.  But, I’ve been in this position before — notably on Jun 26 [see: Cliff Diving] when I found myself very much alone, calling for a reversal to the upside.  Regardless of how it turns out, it’s never a good feeling.


Charts I’m Watching: October 12, 2011 — 6 Comments

  1. It did close between 1207-1210 today after touching 1220. Great call. If the dollar were to rally to 87, that will certainly mean a flight to safety. It correspond to a tanking of the market perfectly. By the way, do you really think the spy might hit 93.87, that will take us under 1000 on the S&P.; What time frame are you looking at?

  2. Thanks Pebble for your update. It looks like we almost got to 1220 (maybe too early to say). When do you think this move you are expecting to bottom out? Are we still looking at less than 1040 next week? Do you expect a huge rally off the new low that will surpass 1220 leading to the end of the year?

  3. Pebble thanks again for sharing your insight.

    While the SPX chart definitely looks ready for a correction (the degree of which is debatable), I just am not seeing a bottoming pattern emerging in the DX chart.

    If anything it seems (as hetty mentioned above) like the dollar is headed towards the 50 retracement of its Aug lows to Oct high. Any strength the dollar has exhibited has been met with significant selling overnight .. and I will let you read in to that however you like.

  4. I'm still seeing a tremendous amount of bearishness from those who pay close attention to such things but maybe I read too much Mish, ZH, CHS, TAE and Market Ticker. This Eurozone thing is definitely coming to a head in the next thirty days and today the SPX poked up above the 75 week moving average. The Dollar is correcting and if it retraces 50 to 62% of the rally from the July August lows (and holds) I would not be at all surprised that an encounter with the 200dma may be in the cards over the next few weeks. Isn't this what happened three years ago when the market went from 1250 to 1400 after the Obama, ahem, miracle? When there is no longer any doubt about the 200dma acting as resistance I think Wiley Coyote should rather abruptly cease treading air…

  5. Pebble…………..nice work as usual.

    Think you are right about a strong correction and just maybe be off by degree. A correction is right around the corner………….the question is how much?