Charts I’m Watching: October 25, 2011

UPDATE:  4:30 PM

Good, strong close at low for the day.  Guess I’m not the only one looking for disappointing news from Brussels. Here’s a peek at the DX daily chart.  Note the .618 Fib intersecting with the SMA 200 and a reversal candle for the day. 

And, just for grins, here’s a pattern that doesn’t quite fit in any traditional harmonic pattern.

A Gartley Point B should be at .618, with a D at the .786.  So, this is a little high on both (53 and 37 points.)  It could be a Butterfly, which has a B at the .786, though we came up 15 points shy of that.  If so, Point D should be at the 1.272 which is 2548.  It could be a Bat, but B should be below .618.  If it were, it would have a target of the .886 at 2392 – 3 points beyond yesterday’s high.

My guess — Butterfly.  If the market’s up tomorrow, look for the Butterfly to play out to the 1.272 at 2548 before reversing.  If the market’s down, my bet is it’ll be down big and the form of the pattern won’t much matter.

UPDATE:  3:15 PM

SPX just completed small H&S; that could produce a quick drop to 1210.  It echoes the pennant we made earlier in the day, and would leave the index appropriately close to the center line of the regression channel we’re following (dotted yellow line in daily chart below.)

Given the structure of the rise these past two weeks, there are several other H&S; patterns that could complete, depending on how the next day or two go.  A bump back up from 1210, for instance, could form a right shoulder for a 50-pt pattern that helps get us to the 1160 area.  Worth keeping an eye on.

Recapping the forecast…

The Purple Line:

If we don’t do a big Euro-dump tomorrow, we’ll likely bounce off 1205-1210 to one last high around 1265-1270 before Wave 3 gets started in earnest.

The Yellow Line:

If we sell off big, I’m looking for a leg down to 1160ish for starters.  If that comes off as our B wave, then the final push should be to 1307 or so.  If B is done, then the floor drops out.  The big question will be how to know which one it is.  Here, we’ll just have to pay attention to the quality of the news — dead deal or more can-kicking.


Interesting that we paused at the .618 (from the May 1370 top to the 1074 bottom.)   Remember that Gartley patterns reverse at the .618, retrace .382 – .886 of that, then reverse again to test the .786 before heading back in the other direction — typically at least .618 of the last leg, potentially 1.618 or more of it.

Just speculating here, but if we should reverse here and follow the yellow line, completing a more significant B wave in this corrective wave 2,  I’ll be on the lookout for a C wave that terminates at the .786, completing a Gartley pattern at 1307.   Note that this would potentially intersect with a trend line (purple, dashed) off the May 2 and Jul 7 highs.

That’s not to say we couldn’t get there without a more significant B wave; it’s just that this rising wedge is getting very, very long in the tooth and I can’t see it continuing to melt up without more of a break.

I’m going to go ahead and alter the yellow line to reflect this possibility, but keep in mind this is speculating on what I consider an alternate count.  My preferred outcome is a sell-off following disappointment over what’s (not) happening in Brussels.

Speaking of which, I’m starting to see more and more expectation management out of the Eurozone.  My favorite is this one:

He’s correct when he says they “never talked about this summit as the decisive summit.”  The decisive summits were February 14,  March 24, June 23, July 21 and September 16.  Here’s a great visual from Reuters, courtesy of Zerohedge.  It does a great job of charting Italian bond yields over the past year of promises and missteps by the Eurostooges.

More later.


Charts I’m Watching: October 25, 2011 — 7 Comments

  1. Well said. As much as the Fed would like to boost inflation and encourage investment (the rock) they're stuck with the (hard place) prospect of inflation grabbing consumers by the neck and killing off any hopes of a recovery. It's happening EVERYWHERE. In the end, politicians will have to decide between losing their next election (or their lives, depending on the country) or suggesting to their bankster friends that they start taking some losses for the idiotic loans they've made. That's it, really: write-downs or riots.

  2. I'm with pebble and fully in the deflationary camp.

    Over on his blog "Mish" (
    has done some excellent work on debunking the hyperinflation argument. I think his best point was "hyperinflation accompanied with a housing collapse is simply impossible – by definition".

    Read through some of his posts and you will find solid arguments as to why deflation is the concern (for now).

  3. In the near-term, it's all about the EUR. EUR spiked up this morning on the German ESFS vote, which essentially said they'd probably rubber stamp whatever Merkel brought them. But, of course, if she brings them a stinking pile of goose poop…

    Re hyperinflation… I'm personally in the deflationary camp, myself, principally because of all the de-levering that has to happen. Although I can see inflation as a much longer-term result depending on how governments and CBs handle the coming worsening of the downturn.

  4. another new low for the dollar. At what point to we consider that there may not be a bounce coming and that we are entering a hyperinflationary scenario?