This page discusses how pebblewriter.com works: my process and how it is implemented and communicated here on the site. For a discussion of my investment philosophy and strategy, please CLICK HERE.
* * *
What to expect
Each morning, I post price targets for the S&P 500 (SPX and ES.) I also update forecasts for volatility (VIX), 10Y treasury notes (TNX), the US dollar index (DXY), major currency pairs (USDJPY, EURUSD), and select commodities (WTI, RBOB, Gold) as many of these are influential in driving equity prices. From time to time, I’ll also post expectations for widely held individual equities (AAPL, BA, etc.) and those which pique my interest (TSLA, DB, etc.)
Roughly once a month, I’ll post big picture expectations for each of the above. So, whether you’re a day trader, swing trader, or buy-and-hold investor, you should be able to get a sense of what to expect in both the short- and long-term. The posts are additive, so if you take a few days off, it pays to go back and see what you’ve missed.
I try to fit my recommendations to what the markets offer. There are many times, for instance, when certain markets are in a holding pattern (e.g .impending central bank announcements, conflicting economic signals, etc.) These periods might not be particularly conducive to every type of investing, but might still offer opportunities for day traders or scalping. I try to identify these opportunities when I see them.
For an example of a typical daily post, CLICK HERE.
My initial post each day offers a price forecast for each of the primary instruments we follow as well as any specific forces I believe will be at work that day. I typically offer multiple upside and downside targets as they reflect my belief in an “if-then” approach to investing. If prices drop below our initial downside target, for instance, specific lower price targets are activated. Each of these should, in turn, provide a bounce or also break down.
My process
It will help to understand some of the terminology I use — especially the harmonic terms with which many investors are unfamiliar. They are explained under the “learn” tab.
I usually begin a forecast by observing major chart patterns such as trend lines, wedges and channels (parallel trend lines.) What do they say about the long or short-term trends? There are usually relevant channels that slope both up and down. And, it’s not unusual to have channels within channels within channels.
Smaller degree channels often run counter to the direction of larger degree channels (i.e. corrective waves.) When they intersect, it sets up a conflict. The larger channels usually win out. But, one must take precedence over the other, creating an inflection point where things will either change — sometimes dramatically — or continue on the same path.
These can be very valuable warnings of impending changes that, to the unaware, pose a risk. To the prepared, they represent a great opportunity.
Once I have a sense of what the channels indicate, I look at harmonics. Like channels, harmonic hatterns can be nested inside one another and sometimes conflict. They can also evolve, such as when a Gartley Pattern goes on to form a larger Butterfly pattern, or a Butterfly completes within the XA leg of a larger Crab Pattern.
Multi-year patterns, such as the Bat Pattern that signaled a short on Sep 14, 2012 at 1474, or the Butterfly Pattern that signaled a short on May 20, 2015 are easy to spot.
Shorter-term ones are tougher, as they often conflict with one another. It pays to track them all, even those that don’t agree with the current forecast.
For one, it helps to know whether any given day’s price action helps or hurts our current stance. More important, though, they often hint at impending trend changes — which helps us anticipate tops and bottoms.
I also look at an variety of other technical analysis techniques such as moving averages, relative strength, Bollinger Bands, Ichimoku Clouds, put/call ratios, commitment of trader reports, and stochastics. I have also developed a few proprietary techniques of my own which have proven helpful on many occasions.
I spend a great deal of time looking at correlations between patterns in different assets. Currency pairs, for instance, often tell us much about what to expect in the equities markets. This was especially true in 2013-2015, when the yen carry trade drove almost all of SPX’s advances.
Once I have a price forecast in mind, I try to work out the timing. Factors such as Fibonacci time ratios, options expiration, Fed decisions and news flashes can all play a role in the timing of price movements. Contrary to what most of us are taught, markets rarely follow a “random walk.”
Once I have a set of forecasts that agree with one another, I’ll ask myself whether they make sense given what’s going on in the world (financial and otherwise.) What’s the consensus? What is the financial press saying? How is earnings season going? What about seasonal or cyclical factors?
About once or twice a year, I’ll find an interesting analog: where the market repeats a prior pattern. Analogs can be enormously profitable.
This one, where 2011 repeated 2007, enabled me to call the 20% downturn that began July 21 to the very day and within 3 points of the actual top.
When patterns “bust” or don’t work out, we know that our assumption was wrong and we need to change our stance. Again, this fits with my “if-then” philosophy. Recognizing and correcting a mistake is at least as important — if not more so — than making good decisions in the first place. It’s also important to understand why a forecast didn’t work out. Was an underlying assumption wrong?
I don’t often look at other analysts’ opinions. But, when I do, it is always after determining my own forecast. I’m often told that my style resembles that of one analyst or another or asked whether I agree with a particular person. It’s not that I’m smarter than anyone else, but I really try to avoid such questions. They require a level of familiarity with someone else’s technique that I might not have. And, they can be a real distraction.
Having said that, if a client comes across a really compelling conflicting forecast, I’m certainly happy to entertain it. Please make sure the question includes an explanation of the alternative reasoning. I just don’t have time to become an expert on the effects of solar flares and rising hemlines.
Implementation & Communication
Sign up for email and text notifications of posts and updates to posts — available in the column to the right. Notifications go out with a minute or two of a post being made. I try to use Twitter for intra-day notices when something significant happens, but a small lag is unavoidable. Members are strongly encouraged to follow @pebblewriter and, for intraday trade alerts, @pebbletrades.
I don’t usually post when things are right on track. I use these periods to update my charts — a constant process. But, I try to post as quickly as possible when I change my outlook. There’s usually a lag of 2-3 minutes, because that’s how long it takes to make a chart presentable, post it the website, and add a few thoughts. But, if you’ve been following along, you’re probably already aware that some line just got crossed or price target reached.
If you’re an active trader, or simply have too much time on your hands, I recommend refreshing the web page often. Some days are dull or the markets are trending, and I’ll only post first thing in the morning. Other days, especially when it’s choppy, I might post several times with thoughts on intra-day swings. It’s up to you how to use the information.
One warning: I’ll sometimes end an update with “back in a few” or “more in a minute” only to become unexpectedly immersed in a new or puzzling development. Minutes (or even hours) can go by before the next update appears.
If you find yourself wondering why I haven’t updated a post even though one of my forecasts is stinking up the joint, odds are I’m studying it intently and/or preparing a new update. Please be patient. Also, I can’t watch every market every moment of every day; so, I’ll occasionally miss stuff while shuttling a daughter to school or a volleyball match. But, I do my best to stay connected and will let folks know if I’m going to be out of pocket very long.
Even really clever forecasts can be rendered useless by unanticipated events (or my sheer stupidity) so always use stops if you can’t watch the market like a hawk — especially if you’re an active intra-day trader.
I tend to use trend lines and chart patterns as triggers rather than specific price levels. This means stops can change, as trend lines change in price over time. Everyone has different comfort levels, liquidity needs and risk tolerance. Set your stops where you’re comfortable — and try to avoid obvious levels like round numbers, etc. Market makers love to stop you out before a major run that might have benefited you.
Last, I read everything that comes my way, even if I can’t respond right away. If you have a question about something I’ve written, use the Comment section. Chances are that others might also be confused and would benefit from the answer.
We have a very bright and capable membership. Most of you are brokers, investment advisors or managers of mutual funds, hedge funds or family offices. The rest are mostly very experienced traders. Some of you have expertise in other techniques or strategies that would be of interest to your fellow members, or you might simply catch something I missed. Share and share alike, and your generosity will usually be repaid in full.
Summary
I’ll update this page periodically as I have time. Please feel free to make suggestions. Most improvements to the site over the past year have come from you. And, as always, thanks for being a member of pebblewriter. I’ll do my best to be worthy of that honor.
* * *
To subscribe now, CLICK HERE