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  • Chart Patterns and You

    ORIGINAL POST:  9:15 AM

    Last night, the dollar tagged the .786 Fib retracement of its decline from Apr 4.  It subsequently sold off almost to the .618 but, so far, is hanging in a rising wedge.

    The EURUSD re-tested the .500 Fib of its rise from Apr 3, and snapped back into its falling wedge and the (purple) channel that’s guided prices since then.

    The e-minis tacked on a few points overnight — almost reaching the .786, only to give them all back with this morning’s underwhelming Durable Goods report.  The H&S Pattern that was looking pretty good at yesterday’s open is now looking a little ragged, with a right shoulder that’s already 15 points higher than the left.

    UPDATE:  9:45 AM

    SPX continues trudging toward the .786 retracement (1584.23) of its decline from 1597 to 1536.

    After plunging beneath the channel that’s guided it from 1343 to 1597 on Apr 17, SPX rallied and re-joined the channel yesterday.  This was a very bullish development, as long as SPX remained in the channel all the way to the closing bell.

    Despite a five minute thrill ride from 1578 to 1563 (the channel bottom) and back, SPX managed to regain and hold the 2007 high of 1576.09 into the close.

    It now sits perched on the neckline of an Inverted H&S Pattern which has either completed or not, depending on whether a 5-minute plunge qualifies as a shoulder.  Short answer — I have no clue.

    Here’s what we do know:

    1. Prior to Apr 17, SPX had been locked into that purple channel below since 1343 on Nov 16 — an 18.9% gain in five months
    2. SPX barely paused when it completed two big Crab Patterns — the 1.618 extensions of the 1370-1074 decline and the 1474-1343 decline (purple and white below)
    3. Instead, SPX exceeded the Oct 2007 high of 1576.09 (yellow)
    4. SPX reversed at 1597.35, almost precisely at a trend line drawn between the 2000 and 2007 highs
    5. SPX fell 3.8%, making a lower low, dropping out of the channel mentioned above and suggesting a H&S pattern that targets 1474 — the Sep 2012 high (white pattern)
    6. It roared back into the channel, retracing almost 78.6% of its drop
    7. In the process, it topped the 1576.09 high and the 1553 and 1555 Fib levels and almost reaching the 1583 target of an IH&S Pattern
    8. Depending on your interpretation, it might also have completed an IH&S that targets 1621.

    What Does It All Mean?

    When I forecast markets, I look for lines in the sand.  I try to determine price levels that, if crossed, would signal a change in trend.  When that trend switches from bullish to bearish, I want to be short.  When it switches from bearish to bullish, I want to be long.

    A channel is one such method that features boundaries rather than absolute price levels.
    As long as prices remain in a rising (or falling) channel, we can expect prices to continue to rise (or fall.)  It’s rather simplistic, but it usually works.  We can make educated guesses as to future price targets based on where the channels point.

    Of course, even well-formed channels (multiple tags on the top and bottom and over a sufficient time period) can’t go on forever.  I look for moments when prices have to choose whether to remain in or leave the channel.  A tag of a top or bottom bound or midline usually create opportunities, though other lines can as well.

    The Real World

    Recall that we shorted SPX at the 1597 high on the 11th [see: Big Picture], riding down to the channel bottom where I went long at 1554, expecting at least a bounce.  We got one on the 16th with SPX rallying up to 1575 — the channel .25 line.

    We closed our long position, going short the following morning for the trip back to the channel bottom at 1555.  We tried another long position there, but were quickly stopped out as the channel was broken — signalling a bearish trend change.

    So, we shorted again, playing quite a few bounces down to 1540 where we eventually went long in anticipation of establishing a H&S Pattern neckline [see: Dollar Daze.]

    At that point, I expected a back-test of the broken channel.  We got it, reaching 1565 on the 22nd but closing beneath the channel’s lower bound.  Note that this move completed 5/6 of a H&S, but the right shoulder was underdeveloped relative to the left.

    Anticipating an intra-day retracement to 1567 (the .500 Fib) or 1574 (the .618) the next day (yesterday), I stayed long — trying without much success to anticipate the top.  Since SPX topped the .618, the next up on the chart is today’s target: the .786 at 1584.23.

    Going Forward

    With all that as preamble, here’s what I expect going forward.

    continued for members… (more…)

  • Charts I’m Watching: Apr 23, 2013

    Watching the eminis this morning…

    Rallying with the dollar again…   Something’s gotta give.

    We discussed what a push up to the white midline would mean last week [see: Dollar Daze.]

    As SPX approaches the white .618 at 1573.93, we’ll find out whether the H&S Pattern is still in the cards.  Note that this is the .618 retracement of the 1597 to 1539 decline between Apr 11 and Apr 18.  It was our secondary target, as discussed yesterday [members’ section: 2:35 update.]  And, it’s arriving right on schedule.

    We’ll look for a pullback here to backtest the neckline just established (1561.50) and then a rally to 1567 either late in the day or (more likely) tomorrow morning.  From there, though, I’d give a continuing rally to the 1574 level a 60:40 shot.

    The beauty of investing with harmonics is not so much that they tell you where the market is going — although that can be nice when it works out like this.  It’s that you know relatively quickly whether or not you’re on the right side of a trade.

    I’m going to take the 19-pt profit on our interim long position (from 1555 yesterday) and revert to full short here at 1573.70.

    Obviously, SPX has quite a head of steam going, so loose stops make sense here.  I’ll likely reestablish a long position if it moves strongly through 1576.

    UPDATE:  10:25 AM

    So far, so good.  The MM are making their move to stop out the weak shorts.  Remember, 1576.09 was the 2007 high and a key level of resistance/support.  Many traders would naturally use it in setting stops at, say, 1577.

    I’m going to hold short here, as all my other indicators continue to point south.  It might seem a little counter-intuitive, but the bulls need a retreat more than an advance right now.  A 10-20 point reversal would set up a potential Inverted Head & Shoulders Pattern that targets 1617 or so (shown below in red.)

    Whereas, a push through 1577 would likely fizzle out at the white .786 (1584) or .886 (1590.)  But, I’ll keep an eye on it, anyway.  The best laid plans, etc…

    SPX has obviously pushed back into the purple channel from the Nov 2012 low of 1343, the bottom of which is way back at 1568.  We’ll take a look at what this does to the medium and longer-term scenarios.

    BTW, I am posting the updated charts for DJIA, NYA and RUT this morning.  NYA is already updated, and I’ll get the others up ASAP.

    continued for members… (more…)

  • Charts I’m Watching: Apr 22, 2013

    Looks like we’re getting some follow-through this morning on Friday’s technical rally.  But, this doesn’t appear to be one worth chasing unless it can push up strongly through 1560.

    I’ll play along on the opening with an interim long position, with tight stops for the fizzle that could come quite quickly.  If 1560 is exceeded, look for 1573 or so.

    The dollar pushed above the TL from the prior highs as well as its .618 Fib of the Apr 4 high.  This bodes well for a run to at least the purple midline — probably at the .786 or .886 (83.258 or 83.446.)

    UPDATE:  9:35 AM

    There’s 1560.10, I’ll close the interim long here and revert to full short unless SPX can push higher.

    UPDATE:  9:39 AM

    Got a pullback to the neckline of the small https://pebblewriter.com/inverted-head-shoulders-pattern/ (in yellow, below) completed on the opening.

    I’ll try another interim long position here at 1554, with very tight stops (1553ish) in the event SPX pushes down through the neckline.

    The IH&S targets 1574 — which is also roughly the .618 retracement of the 1597-1536 decline.

    UPDATE:  9:50 AM

    I’m going to allow a little more wiggle room on the stop, as this setup is too good for the bulls to waste.  Hanging in there for 1574.

    UPDATE:  10:00 AM

    The existing home sales won’t make it any easier for more upside, here.

    Pulling the plug on the interim long unless it can push back up through 1555.

    As we discussed Friday, the right shoulder formed thus far is sufficient for the H&S Pattern proposed on Apr 16 to play out.  All we need now is a drop back to 1535 or so.

    But, getting SPX up to 1474 would be a coup for the bulls.  At that point, it would have formed 2/3 of another larger IH&S that targets 1610.  So, don’t expect them to give up this seemingly insignificant pattern easily.

    UPDATE:  11:55 AM

    SPX just shot through 1555 on weak technicals.  I’ll add an interim long position, but wouldn’t get excited about this move just yet.

    It’s questionable whether can push through 1558.74 — the .886 of this morning’s decline.  I’d have to classify it as corrective unless it can break out of the falling white channel.

    UPDATE:  12:15 PM

    Just reached 1558.53, pushed above the channel upper bound for about 3 1/2 seconds, and retreated.  I’ll hold on to the long, but raise stops to 1556ish.  The bulls really need a breakout here.

    *   *   *

    A quick shout-out to John Lounsbury, Managing Editor over at Global Economic Intersection.  He’s celebrating three years of fine reporting on economics and market analysis.  He’s a darn smart guy and fine writer in his own right, but also features some terrific guest writers on a regular basis (they’ve even been known to post occasional pebblewriter.com stuff when they’re desperate.)  Check it out HERE.

    * * *

    UPDATE:  12:40 PM

    SPX just burst through our channel line mentioned above.  This puts the red .786 at 1566.94 on the table — a Gartley Pattern.  Note that this is also roughly the level of the .500 retracement of the 1597 – 1536 decline.

    Assuming SPX will push through 1560 this time (the RSI chart below suggests it will) we’ll look for signs of weakness between 1567 – 1574.

    UPDATE:  2:35 PM

    SPX making nice headway toward our interim target range of 1567-1574.  I’ve had a chance to fine tune some of the charts; and, this move is shaping up pretty much as expected.

    Recall that we shorted at 1597 back on Apr 11, and held went long again at 1541 last Thursday.  SPX is coming up on the .500 retracement (in white, below) of that decline, which is a common enough corrective wave move.

    Note also that the red .786 and light blue 1.618 are very close to that same price level.  While the coincident Fib levels concur on the importance of 1566-1567, it’s the chart patterns that will likely determine the next 100-point move.

    continued for members… (more…)

  • The Storm Before the Calm

    I’ve been quite bearish since going short on April 11 at 1597 [Big Picture: 11:30 update.]  Yesterday, though, SPX reached our initial downside target of 1540 and, as expected, paused.

    As we’ve discussed, this was an important points for bulls to take a stand.  It was also the ideal spot from which to launch the right shoulder of a Head & Shoulders Pattern as I posted on the 16th.


    So, we closed our short position late yesterday [Dollar Daze: 3:45 update in members section] and played “catch the falling knife” with a long position at 1541. This morning, we’re being rewarded with a nice bounce that should have legs.

    Whether it will form the right shoulder we’ve been expecting, or resume its QE-fueled race to the moon is open to debate.  But, for now, the trend is higher.

    Note that SPX formed a nice little falling wedge (in yellow above) that, if it plays out, supports the idea of a return to the idealized right shoulder height represented by the dashed yellow TL.

    The falling white channel I’ve slapped on the chart, as regular readers know, probably won’t last.  It’s rare for the initial slope of a decline to be maintained through the series of rallies and sell-offs that comprise a major move.  But, it’s a good initial fit, so it will do for now.

    UPDATE:  10:30 AM

    The ideal right shoulder in a H&S Pattern is the same height as the left.  But, it needn’t be in order for the pattern to play out.  The high so far for the day is 1549.63, which represents a 14 point bounce off the neckline — compared to the left shoulder’s 33 points.

    UPDATE:  12:15 PM

    SPX has reached the important Fib levels of 1553 and 1555 (the Crab Patterns from 1370-1074 and 1474-1343.)  This would be a natural place for prices to reverse, so I’ll close my long position here at 1554 and go short.

    This constitutes a 20-pt rise off the neckline, so it’s technically enough of a right shoulder for the pattern to play out.  And, the bears could really use a H&S Pattern completion to keep the downward momentum going.

    A good reversal here – or, at least by 1574 – and we can write off the 1576-1597 rally as a prank, a juvenile burst of irrational exuberance.

    Bulls, on the other hand, would greatly benefit from a push through the Fib lines that they completely dissed the first time around.  And, they should have mattered.  Take a look at yesterday’s Dollar Daze for a discussion of how the dollar confirmed the sell signal that a few good overnight ramp jobs were able to beat.

    There are other logical turning points as well.  This could quite likely be a short term trade to score a quick 10 points or so — unless 1535 is taken out and the H&S completes.

    Choices, choices.  We’ll take a look at different scenarios below.

    continued for members… (more…)

  • AAPL: Is it Safe?

    Owning AAPL shares these past seven months would have been about as much fun as having your annual cleaning done by Nazi war criminal with a penchant for pain and a disdain for novocaine.

    It might seem like it’s been in a free fall, but AAPL’s tumble from 705 has been very aptly guided by a well-defined channel, a few chart patterns and, to some extent, harmonic patterns.  The channel that’s been eating away at AAPL is shown below, along with two recent Head & Shoulders Patterns that helped it on its way.

    But, it’s the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce.  Whether it turns into something more than that will depend on whether it break free of the falling channel from hell.

    This is the set of major channels I’ve used for the past several months of charting AAPL.  Note that the purple channel broke down a few weeks ago, prompting the latest plunge.

    But, AAPL should find support at the .75 line of the white channel around 380-385.  This is an equally well-defined channel that dates back 20 years.   Because channel placement is as much an art form as science, I like to have confirmation from other sources.

    In this case, the harmonic picture is also quite bullish, at least in the short term.  There are quite a few potential patterns from which to choose.  But, note how the overlapping of several key Fibonacci retracements in the 391-395 range.

    This group, seen better in the close-up below, includes the purple .786, the white .618, the yellow .500 and the red .886.

    AAPL pushed down through them like they weren’t there yesterday, prompting many to wonder if it was heading much lower.  But, the channel lines mentioned above should provide the bounce that will bring them back into focus.

    As to the purple channel, it’s done.  I’ve added a new, red channel that should take over going forward.  If we get the bounce I expect at 380-385, it will have been proven.

    Where does AAPL go from here?  There’s still the not-so-small matter of the large H&S pattern that completed back in December (in white, above).  Recall that it targeted around 305.

    If the large white channel shown above should fail, that’s a distinct possibility.  The falling white channel from 705 has shown remarkable staying power. And, the next lower gathering of key Fib lines is at 307-317.

    But, I suspect the big white channel will provide a significant bounce before any new lows occur.  The top of the falling white channel is currently around 435 (though obviously dropping daily), and at 380, AAPL will have nearly met the price target of the latest H&S Pattern to complete.

    If the overall market rebounds Friday as I expect, look for AAPL to perk up and participate.  A H&S pattern that’s brewing on SPX could easily take prices up to the 430 range.

    If the overall market continues past 1597, AAPL could finally break out of its funk and — more importantly — that falling white channel.  Another backtest of the broken purple channel at 466ish would be a great initial objective.

    Stay tuned.

     

     

     

     

  • Dollar Daze

    I’ve been focusing on the dollar because it’s been an excellent guide to equities’ behavior.  There’s been a lot of talk lately about the correlation between the two shifting from highly negative to positive.

    The fact is, the dollar didn’t suddenly change it’s stripes.  It has simply rallied in anticipation of a market correction that, as yet, hasn’t yet gathered much momentum.

    This has happened many times over the years, as the chart below demonstrates.  Most of the DX spikes correlate with actual market corrections.  The others correlate with expected corrections.

    Note the times when DX spiked toward the white channel midlines.  The actual SPX plunges with which they match up include 741, 666, 1010, 1074, 1266 and 1343.  The other DX peaks match up with the expected SPX corrections listed below:

    • .618 Fib:   the retracement of the crash from 1552 to 768 (2000 – 2002.)
    • 1173:  the .786 retracement of the 1576 to 666 crash (2007 – 2009)
    • 1308:  the .786 retracement of the 1370 to 1074 correction (May – Oct 2011)

    The same could be said the the DX plunges.  The 1576 peak from 2007 was a bit of a surprise from a chart pattern and Harmonic standpoint.  But, the 184-pt rally from Mar – May 2008 was seen as a top in the works – especially coming near the .618 of the drop from 1576.

    The .500 Fib refers to the retracement of the 1576 to 666 plunge – a logical place for a pullback after the 450 points gained in only 8 months.

    The .618 Fib refers to the actual retracement of the 1576 to 666 crash.  The previous pullback in April came in just a bit shy of the actual Fib level.

    1370 was obviously an important high in 2011, as was 1292: the ramp job that derailed the 2011 as 2007 analog.  1474 was the Sep 2012 high.  And, the low marked Point C was where the two large Crab Patterns should have caused a reversal at SPX 1553-1555.

    So, what about our present position?  DX just tagged the smaller channel’s midline, so clearly currency traders have anticipated a correction.  Since we haven’t had much of one yet, it’s possible DX could be sending a false signal.

    On the other hand, the larger channel midline is only 1.81 away — a mere 2.2% away.  And, the rising red channel is guiding us straight towards it.  About 2/3 of the daily candles since Mar 12 have crossed over a trend line between the last two important tops: Jun 9, 2010 and Jul 24, 2012.

    So, clearly the dollar is having trouble making up its mind whether or not to break out.  It bounced off the bottom of the purple channel and the .25 line of the red channel on Tuesday, rallied strongly on Wednesday, and ended the day right on the TL.

    Want to know where stocks are going?  Watch to see what DX does.  It knows…just isn’t saying — yet.

     

    * * * * * * * *

    The dollar backtested an important channel line Tuesday (red, below) and bounced up through an equally important trend line (dashed, yellow).  If it holds, equities are in for more downside.

    We turned bearish on April 11 [The Big Picture – 11:30 update], shorting at SPX 1597 due to a collision there with two long-term trend lines.  Since then, the channel that has guided SPX up from 1343 has been holding on for dear life.

    It finally broke down yesterday morning when SPX plunged below 1556.60 on its way to 1543, and we’re waiting to confirm whether or not the initial backtest is complete.

    Remember that 1540 is the Apr 5 low and the neckline of the potential H&S Pattern I charted on the 16th.  We should get a bounce that retests the broken channel and either keeps going or completes the H&S Pattern, setting up the next leg lower.

    CIW: Apr 16

    UPDATE:  10:15 AM

    We reached 1541.05 —  close enough for those interested in playing the bounce.  I’ll try a long position here, but revert back with any move through 1540.

    More in a few…

    UPDATE:  10:30 AM

    Getting some air here, helping the H&S case. The left shoulder was way up at 1573, which would be about a 61.8% retracement (1575.84) of the drop from 1597 to 1541.  It would also represent a second retest of the 1576 high from 2007.

    The more nefarious aspect of a move to 1576 is that it would set up a potential Inverted Head & Shoulder Pattern targeting 1611ish.

    Bears aren’t out of the woods yet.  As we’ve discussed, at this point the bulls can legitimately argue that the drop to 1541 was a backtest of the broken red 1.618 at 1553.39.  Recall, this represents the completion of the Crab Pattern set up by the drop from 1370 to 1074 in 2011.

    SPX closed at 1552.01 yesterday — slightly below the 1553.39 line in the sand.  So, this would be a slight violation of the rules (so are gifting $85 billion to the banks every month, all the ramp jobs over the past several months, etc;  we’ll not quibble over a point or two.)

    If SPX can close back above 1553, we’d have two bullish candles in a row and a good shot at tacking on the necessary points.  So, we’ll keep this scenario in the back of our minds.

    UPDATE:  2:20 PM

    There’s the actual 1540 tag we discussed earlier.  The previous low was 1539.50, so we’ll see how SPX reacts at that level specifically.  I’m ready to cut and run if it pushes lower.

    Not saying it will rally from here, but we had a very similar incident back in April 2012.  SPX “completed” a right shoulder in a pattern that looked very solid — but had in reality just missed on the right shoulder’s first tag — only a couple of points, not enough for most to notice.

    Because the right shoulder wasn’t technically complete, though, it wasn’t really a right shoulder.  SPX bounced 58 points and completed a proper RS before finally playing out and touching off a 100-pt decline.  So, be careful and watch your stops.

    UPDATE:  2:53 PM

    SPX just pushed through our stop at 1540, so we’re done with the long position and reverting back to full short.

    Just beware that the right armpit is allowed to be lower than the left — since the inception of the pattern is adjustable.  That is, the neckline can be sloped downward as long as the two armpits connect and the shoulders are complete.

    Not a bad idea to have stops up around 1541 just in case — especially as we move into the final hour of trading.

    UPDATE:  3:08 PM

    This is what I meant by the last comment up above.  No reason the red, dashed line couldn‘t be the neckline.  Is it legit?  Yes.  Is it cricket?  Not even close.  Do paranoid people ask themselves lots of rhetorical questions?  Apparently.

    I’m going to add an intra-day long position if we push up through 1540 — just in case.  Don’t trust this move one bit…

    Coming up, a look ahead.

    continued for members… (more…)

  • Charts I’m Watching: Apr 17, 2013

    Going short here on the opening, as SPX failed to clear yesterday’s target and previous 2007 high of 1576 yesterday.

    Note, we closed our long position just before the close yesterday at 1574 [CIW: Apr 16 – 3:45 in the members’ section.]

    DX is signaling a rebound with the tag we expected of an important channel line.

    While the EURUSD is showing weakness related to rumored downgrades of France and/or Germany.

    There is channel support at 1.3087, however, so we’ll see how much momentum the pair can gather.

    For SPX, the test will come at 1555.57.  We’ll look for a bounce there at the bottom of the rising purple channel and the 1.618 of the 1474 – 1343 plunge last Fall.  This Crab Pattern completion produced barely any correction at all back in March — quite a bullish sign.

    Was the push beyond 1555 to 1597 merely a throwover that will produce a delayed reaction, or — as bulls are betting — will we successfully backtest it and move higher?

    UPDATE:  10:00 AM

    As we discussed yesterday, the rather complicated big picture has become fairly simple.  SPX has levitated higher since 1343 on Nov 16 within a (now) fairly well-defined channel (below in purple.)

    As long as it remains in that channel, the overall trend will remain positive.  But, if the channel breaks down, we enter a new phase which will be different from the past five months.  Working against higher prices, however, are two important trend lines that stopped SPX’s advances at 1597:

    • the TL drawn from the two previous 2000 and 2007 highs (red dashed line below)
    • the TL drawn from the 1994 and 2003 lows (yellow, dashed)

    It’s a battle between a rock and a hard place.

    We went long at 1345 [Charts I’m Watching: Nov 16] with the expectation of retracing 61.8 — 88.6% (1424 – 1459) of the decline from 1474 before continuing lower.

    Then came the fiscal cliff solution over the New Year holiday.  The overnight ramp job that followed was a thing of beauty, coming as it did while no one was looking — or was too hung over to care.  That was the first of many overnight ramp jobs in the futures market that have propelled this market higher.

    UPDATE:  10:22 AM

    SPX just reached our 1555.57  target and is almost to the 1553.39 Fib (the 1.618 of the 1370-1074 crash in 2011.)  I’m going to switch sides here at 1555 and go long, with stops at 1552ish.

    UPDATE:  10:43 AM

    Just got stopped out on our long position.  So, it’s back to the short side. Tight stops are advised, however, as Monday’s “tag” of the .786 was a near miss (1552.58 vs 1551.88), whereas this plunge actually reached it.

    Targets in a few.

    continued for members… (more…)

  • Charts I’m Watching: Apr 16, 2013

    We’re set to get a nice bounce here at the bottom of the purple channel — as revised in last night’s last post.

    Based on where the futures are pointing, I’m not sure whether it will have legs or not.  But, I’m inclined to play along on the upside, but with relatively tight stops in case it peters out.

    The EURUSD has rebounded nicely as we anticipated, but has reached a point of resistance at the midline of the rising channel at a price level that’s proven difficult to exceed since early March.

    The daily chart shows a bounce off the bottom of the purple channel as expected, but plenty of overhead resistance in the 1.33-1.34 range if it’s able to break through 1.316 or so.  The .618 is up at 1.3341.

    The dollar continues to tread water.  I’ve drawn a tentative new wider channel that might represent the expected range now that the rising white channel is officially kaput.

    Remember, this decline is a backtest of the broken red .25 channel line.  If the decline continues on track, we could reach that channel line (at about the .red .382) in very short order.  It’s currently at about 81.74.

    But, there’s no reason DX must retrace all the way to that line.  It has already back tested the purple .618 — a reasonable pullback after the Bat Pattern that completed at our 83.616 target back on Apr 4.

    The daily RSI, in fact, shows strong support from the bottom of the rising purple channel and the .25 of the rising white channel.

    The yellow midline on the RSI chart represents that dashed white channel midline cutting across the middle of the price chart above.  A thrust up through it should accompany the next big equities dump.  And, to my eyes, that’s the next major move.

    Though SPX is safely back in the purple channel, it can’t go on forever — right?  Even if our most bullish scenario plays out, there would need to be pauses of more consequence than the past two sessions.

    In that pullback, SPX reached the .786 of the 1539 – 1597 rally between Apr 5-11 (1552.36 vs 1551.88.)  The bullish case will consider that reversal as the full extent of the pause — a proper corrective wave that reversed at the bottom of a very well-defined channel dating back 5 months and 230 points.

    If so, SPX should head up and push through the trend line extending from the 2000 and 2007 tops — currently around 1593.50 — on the way to its 1823 target.

    The bearish case suggests we slap a Point B on that reversal and call it a Butterfly Pattern that targets 1523 or 1503.

    So, which is it going to be?

    continued for members…

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  • Update on Gold: April 15, 2013

    Gold continued to melt down today, shedding another $126 and continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.

    Gold had a nice bounce from 1539 to 1590 after reaching the bottom of the channel and the horizontal support of several prior bounces on Apr 4.  In a dramatic demonstration of what can happen when channel support is lost, it has since shed almost $270/oz.

    The red channel below represents my best shot at the new operative channel.  It supports the idea of a bounce at the Jan 2011 low of 1309 — 3rd on our list of potential bounce spots during today’s onslaught.

    The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.  If those levels should fail to hold, the next major support levels are 1309 and 1155.

    We got good bounces earlier today at the first two: the Fib retracements at 1359 and 1379  But, along came the CME with announcements of increased margins and that was the end of that.

    Please note, I am not a gold bug.  I don’t advocate the purchase of gold. I shy away from most assets that increase exponentially in price — especially those backed with the kind of religious fervor as is gold.

    The time may come when inflation is taking hold and it makes sense to switch everything you own into the metal… but, we’re not there yet.  It’s a crowded trade, and IMO, today’s price action underscores the risk.

    So, the following is offered in the same spirit as my picks for NCAA champion, Best Picture, and  Westminster Best in Show (the affenpinscher, really!?)

    There’s another channel (below, in purple) that kinda sorta supports the first, but shows the potential downside in the event that 1300 can’t handle the pressure.

    It’s speculative, for sure.  But, I like the fact that it crosses the white .618 at a key point in time, so I’ll leave it up for now.What’s interesting to me is the Fibonacci Fans that can be drawn on this chart.  The ones from 681 low (yellow) have done a pretty decent job of guiding the bounces on the way down.

    And, the ones from the 1923 high (red) have done well at halting several attempts at a breakout.

    I could almost believe we’ve seen the worst of the drop, but I wonder about this potential channel…

    …and, the daily RSI — which suggests at least a little more potential downside any way you slice it.  The bottom of the purple and red channels probably correlates to 1309, while the bottom of the gray channel represents something much more ominous.

    So, where do we go from here?

    I believe we’ll get a nice bounce here to backtest of one of the broken channel lines — say the white midline around 1410 or even the 1450 level.  But, it probably wouldn’t happen anytime soon.  After that, the downside risk is to 1155 or so.

    Of course, if the FBI were to announce irrefutable proof that the North Koreans were behind the Boston bombing, or the Iranians launched a Rahd SAM at an F/A-18, or [insert your favorite catastrophe here], it’s a whole new ball game.

    GLTA.

  • Charts I’m Watching: Apr 15, 2013

    The big story this morning is the meltdown taking place in the commodities complex.  Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.

    Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces.  In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.

    The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.

    If those levels should fail to hold, the next major support levels are 1309 and 1155.

    We’ll discuss oil and other commodities later, but first let’s catch up with equities.  Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs.  As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.

    The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.

    This morning, we came very close — reaching 1576.87 so far.

    I’ll take a long position here at 1576 just to see where it takes us.   Tight stops (1573ish) are in order, as the next support is down between 1553-1561.

    We discussed last week about core versus interim positions.  I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case.  A plunge below 1553 does very serious damage.

    So, I’m comfortable in closing out my short position from 1597.  That doesn’t mean I believe the market will go up from here.  The jury is out.  But, by placing tight stops below my long position, I can manage the risk of being wrong.

    SPX doesn’t have to reverse strongly for a hold here to be effective.  The bottom of the big purple channel (from 1343) isn’t far below at 1564.  But, it’s rising quickly.  It’ll be up to1576 by Apr 22.  So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.

    UPDATE:  11:40 AM

    Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359.  It should reverse here.  But, again, a failure to hold could easily send prices down to 1309.

    It’s interesting to see what the US dollar has done during this sell-off.  Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.

    UPDATE:  11:55 AM

    SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel.  But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.

    UPDATE:  1:10 PM

    SPX just hit our 1564 objective.  I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561.  I’ll leave stops pretty tight here and be happy to go along if it plays out that way.

    The view from 30,000 feet coming up…

    UPDATE:  2:03 PM

    Just got stopped out at 1564, so it’s back to the short side.  Lots of near-term targets, starting with 1561.60, coming up in a few…

    continued for members… (more…)