Charts I’m Watching: Sep 21, 2012

It appears my idea to close out longs because the bounce was done at yesterday’s close was premature dead wrong.  SPX looks like it’ll break out of the little channel on the opening bell.

We might get a back test as in the past, but it’s difficult to say for sure.  Today is OPEX, so the safe play for traders is to close any shorts on the open and play along on the upside.

UPDATE:  9:40 AM

The market broke out of the channel we were watching.  As I mentioned yesterday afternoon, the upper bound is parallel to that of a similar pattern from earlier in the month.  When that TL was broken, SPX tacked on 30 points.  I don’t think we’re looking at the same thing here, but I can’t be sure.

OPEX warps everything.  If we can drop back into the channel instead of just to its upper bound, then I chased after the upside for nothing.  But, watch for a back test right around 1463.

I still believe we’ll get more of a reaction off of all those key Fib levels we just reached — chiefly among them the .886 retracement of 1576-666 at 1472.  Twenty-four points just doesn’t seem enough after an 808-pt climb.  On the other hand, after that long/strong a rally, it’s not so easy for the market to stop on a dime — especially after the supposedly game-changing QE3.

The RSI picture shows a clear break out on the 15-min chart.  Normally, we will get  a back-test of the broken TL, which will also affect prices.  As the chart below shows, we broke through the initial white channel line and are bumping up against a higher, parallel one.

Note that we’re also testing — for a third time — the yellow channel line (the thin yellow line rising through the middle of the chart.)

If these levels can hold — and, by the way, they represent no special Fib level — then this morning’s rally will be contained at a 65% retracement of the 1474-1449 drop.  Given that it’s OPEX,  we could bump along the red channel line until EOD, at which point we’d be close enough to tag the .786 (small purple grid) at 1469.28 — call it 1470 (i.e. water torture for any remaining put holders, but no reward for the call holders.)

But this would definitely be a breakout of the little white channel.  Can we do that without signalling higher prices to come?  The white channel is currently at 1467 — only a couple points below the .786. Is it worth playing the breakout for 2 points?

Probably not.  But a breakout is a breakout.  And, there’s no guarantee SPX will continue to respect the big yellow channel.  If the rally extends into Monday, the .886 intersects the yellow channel line at 1471.71 — a relatively deep retracement for a corrective wave.

Bottom line, I’ll likely put on more short-term longs if we break out convincingly above the small white channel — currently around 1467.  But, if we do, I’ll probably look to close out before the end of the day.  I just don’t have that much confidence in breaking the yellow channel line.

If we reverse off the channel line instead, then we should at least head down to test the just-broken white channel line at 1463, or the bottom of a larger rising wedge (chart below, in yellow) at 1460-1461.

A break there would open up the possibility of a trip back to the white channel bottom and our 1444 interim goal.

I remain short, but will dump that position if we break above the top white channel line/yellow rising wedge/yellow channel line.  I chased after a few calls this morning (mostly as a hedge) for nothing, as the market hasn’t been able to seal the deal.  Those are on the chopping block unless we can move convincingly through the resistance mentioned above.

UPDATE:  3:55 PM

Market finally shaking loose.  VIX argues for lower prices ahead.


Charts I’m Watching: Sep 21, 2012 — 2 Comments

    • Sorry, David, just noticed this.  I’m still looking for more downside after OPEX, so I remain short.  But, I bought some calls on the opening this morning — mostly to hedge my short. 

      We’d have to break through three levels of resistance in order for me to abandon my shorts — the little RW, the white channel line and the big yellow channel line.  Hope that helps.