Charts I’m Watching: October 6, 2011

UPDATE:  3:00 AM

THE PATH TO 350:  Day 7

The strong counter-trend rally is developing a rising wedge with an apex of around 1180.   This coincides well with the Bat pattern .886 (mentioned below) of 1182.

SPX has held pretty religiously to the B-6/B-7 channel thus far, the only excursions being intra-day shadows.  So, it’s likely we’ll tag the 1182 level and retreat to the .786 at 1170, back within the channel line.

If we push decisively through 1195, I’m prepared to reevaluate. 

Employment numbers are due out at 8:30.  It’ll be interesting to see if September’s numbers are revised to below the 0% increase that was reported.  Moody’s just downgraded a boatload of British and Portuguese banks.  So far, the futures haven’t noticed. 


I mentioned yesterday that I wasn’t thrilled with the presumed Bat pattern because the entry point looked wonky.  Ideally, Point X should be at a clear and distinctive reversal.

I was operating on what I thought was a pretty good EW count.  It has since been proven at least suspect, and probably wrong by today’s rise above 1140.  So, I’m going to keep my nose out of the EW tent and refocus instead on the harmonic picture.

Given where we closed today, I’d say there’s a great chance we’re working on completing a Bat pattern with the Sep 27 1195.86 as an entry, or Point X.  The Point B retrace was .236, a perfect fibonacci retrace for Bats.  The target is the .886 at 1182.06.

Another possibility arises, though, based on the fact that we came very close to the .618 at 1149.60 today.  1149 could be a Point B, with a reversal to Point C before climbing again.

If we get any kind of reversal tomorrow, look for a rebound to the .786 at 1170 instead of the .886.  This would be a Gartley instead of a Bat, and it would fit just fine with the channel line (B-7 in red) that’s bounded the decline since July.

In any case, we should top out Thursday or Friday and begin a sharp 130+ point decline that wraps up in a week or so.

Keep an eye on the channel line.  While we could easily exceed it intraday, we shouldn’t close above it (about 1173 Thursday, 1169 Friday.) Any such close would be a sign that a lower low is probably not in the cards.

Also keep an eye on the SMA 50.  Currently at 1183, it should help keep a lid on any upside.


Charts I’m Watching: October 6, 2011 — 3 Comments

  1. The pullback early next week will be telling…………….should it hold the 1130 level, we have a pretty good head and shoulders setting up.

    Something to watch.

  2. Yesterday I said be careful on the short side and days like today are the reason why.
    Most traders are thinking that the jobs number if bad will be a sell and if good will be a fade. There is large risk here that the number sparks a huge up day tomorrow and the only question will be will it hold into the close.
    If so then I would say lows are in and one should get long on a pullback early next week.

  3. The USD is going to be the tell. To me it looks and feels ready for a correction (healthy). This should provide the equity bulls with enough hopium for a counter trend rally that lasts longer than three days (I'm thinking four or five weeks). Where I live the general population and media has no where near come to grips with the implications of what is on the horizon (memories of the first week of March '08, in keeping with your analog). This says to me a major capitulation bottom is probably six to twelve months out. I remember the middle of September into October '08 and actually overhearing the stricken faced man and woman on the street crying the blues about crushed stock portfolios. When this happens again (and I think it will) and the market does not immediately head for the summit of Everest (see last half hour Tuesday), rather lies prostrate for months and months with PE's around 6 to 8, the worst of the bear market will be over. From what I've been reading, if the Dollar successfully retests the move out of the July August low it could advance into the 90s. That kind of 'short' squeeze can't be good for anyone on the long side of just about anything. Meanwhile, those who get carried away with leverage in a four or five week false dawn are very likely to get carried out on a stretcher. After three years the bulls have accumulated a rather large schadenfreude debt to the bears. Repayment is going to be a blast.