The dollar is making a stand at the upper end of the target range I charted Friday, but hasn’t yet broken out of the steep falling channel. While there was a turn at the .618 Fib that would justify a .786 completion (a Gartley), the more obvious Point B was at the .382.
In a perfect world, this would signal DX has further downside potential to the .886 for a Bat Pattern completion — though, obviously, not every corrective wave has to be a harmonic pattern.
The EURUSD similarly reached a common turning point at the 1.272 extension of the latest move down from Dec 19 (or Jan 2, take your pick.)
But, as can be seen, the rally from last week features no potential Point B whatsoever. It’s hard to call this a Butterfly Pattern in the absence of an actual pattern.
Furthermore, the tails on the daily candles offer an even more aggressive upper bound for the rising wedge we’ve been charting for the past several weeks.
Equities are pointing to a soft opening, but nowhere near what one would normally expect with horrid AAPL news on the tape — much less the approaching budget showdown.
Regular readers are well aware of the importance of the 500 price level for AAPL. As we’ve discussed many times, the completion of the H&S pattern could have dire consequences for AAPL and the entire market.
Around the horn with major indices and currencies… Like SPX, most are at a threshold where they must either break down or break out (I think “break down,” but we’ll know soon enough.)
Coming up: VIX, RUT, COMP, NYA, NDX, DJIA, FTSE, SPX, DX, EURUSD, USDJPY, AUDUSD, CL, GC, SI. And, yes, I’m happy to take requests — first come, first served after the above are done.
Draghi’s press conference was beyond positive — mostly rhetoric, of course, but it sounded good. The ECB sees conditions improving, blah, blah, blah even as euro zone unemployment continues to set record highs and bank health hits record lows.
Facts might eventually enter the equation or not, but in the meantime it’s enough for currency investors to disregard the lack of a rate cut and bid up the EURUSD almost a full 1% on the session.
The dollar is likewise plunging, reaching 80.055 moments ago.
Jobless claims were reported slightly higher than expected, perhaps giving Fed intervention fans hope that the punchbowl won’t be removed as quickly after all.
The eminis are up 8 points at this time, suggesting SPX will likely surpass the recent high of 1467.94. I’ll likely go long on any move over 1468, but with tight stops as there is likely to still be negative divergence on the daily chart.
The previous high of 1474.51 remains the obvious key level for bears to defend and the area at which I would probably close my core short position. Why bother to continue holding it?
I have a very strong suspicion that this is one of those rallies on vapor that will quickly fizzle. The dollar, while selling off big time, will likely hold 80. And, note that this morning’s slide is still just an A-B-C back test of the recently broken channel.
There is some indecision, to be sure. There’s still positive divergence to the upside (relative to Point B) but, now, negative divergence to the downside (on 4hrs or less, not the daily.)
UPDATE: 9:48 AM
SPX pushed above 1468 for about one minute and immediately retreated. This is likely nothing more than a stop clearing exercise. I’ll hold off adding a long position unless we get a sustained push back through. My core short from 1462 remains in place, though we’re obviously on high alert for a break-out.
The dollar has rebounded slightly off its lows, and the euro has stalled for the moment.
If we set aside the euro (the largest component of the DX) the dollar is showing much more resiliency. Consider the AUDUSD pair, which has formed a double top (1.0585 Dec 12), but hasn’t broken out of the falling channel or made any new highs since breaking down from the rising wedge.
Taking a look at the USDJPY, the pair has pushed higher since our Jan 4 top call (despite heavily negative divergence.) A push above 88.52 would justify switching sides.
I guess what I’m saying is I have no confidence whatsoever in the euro rally. It seems quite overdone on both a technical and fundamental basis. The ECB will print and cut rates before long, despite what Draghi says.
If the Fed really does hold the line on further easing, this could be disastrous for the EURUSD. I suspect it’ll be much closer to 1.20 than 1.30 before mid-year.
UPDATE: 1:20 PM
The Philadelphia Fed released their revised December survey numbers this morning. When was the last time a revision revealed that things were actually better than originally reported?
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November (see Chart). The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.
Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.
The revised data (if it is to be believed) shows the index hit 4.6, not 8.1; and, new orders hit 4.9, not 10.7. But, the most telling adjustment was employment which, instead of registering the first positive reading in six months at 3.6, remained mired in negative territory at -0.2 — the sixth negative reading in a row.
Expectations for the future general activity were revised from 30.0 to 23.7 – about where they’ve been for the past year. And, expectations for future employment dropped from 14.8 to 11.2 — the third lowest reading for 2012 and a very slight improvement from the Hurricane Sandy period.
click to watch
This new information helps explain the body language of the Fed employees delivering the “great news” a couple of weeks ago.
UPDATE: 3:30 PM
SPX continues to inch higher — only a few points below the previous Sep 14 high.
The little H&S pattern we were watching yesterday busted this morning, with a ramp job up to the .786 (so far) of the previous high eclipsing the proposed right shoulder.
I’ll move the RS tag over to this morning’s high for now unless we take out 1465 — at which point the RS would exceed the head height (as per the falling white channel.)
60-min RSI has reached potential resistance here, which pretty much correlates with the importance to the downside case of not exceeding 1468. But, as discussed yesterday, there’s no guarantee the market will start acting rationally now.
The dollar and euro are similarly at important inflection points — though the current pauses appear to be just that, and not impending reversals.
EURUSD is retesting its rising wedge lower bound…
…while its daily RSI, demonstrating negative divergence, suggests there is more downside ahead.
The dollar reached an internal channel line (white) and reversed to complete a back test of the recent broken red channel.
Daily RSI has reached resistance at the short red channel’s upper bound and an internal yellow channel line. But, the white channel and yellow upper bound offer more upside if the dollar breaks through the white price channel line.
Alternatively, it could bounce along at the channel line until reaching the red .886 at 81.261. They intersect on Jan 29. A break through the 81.55 high would open the door to the purple pattern playing out to 82.171 – 83.651.
We’re getting a little more momentum going on the downside today. SPX completed the small H&S pattern I posted yesterday. It targets 1445 — approximately the .146 Fib of the 1266.74 – 1474.51 rally.
DX completed its back test of the falling red channel and continues to show strong positive divergence. The RSI chart shows substantial upside.
And, despite the Japanese vote of confidence, the euro is showing continued weakness — with another test of the rising wedge and a white channel line coming up. The channel line intersects with a .382 Fib at 1.3060, so look for a bounce there.
We remain short from SPX 1462, but we can expect to see some bounces along the way. As discussed in the last performance posting, I will likely maintain a core short position until we reach our ultimate target. But, I’ll also provide thoughts on any foreseeable interim moves.
Longer term investors who wish to ignore the intra-day swings should feel free to disregard that info. While, those who hope to capture the many 10-20 point swings along the way will have some useful (and hopefully helpful) information.
As of last week, the primary directional moves accounted for about 40% returns since inception on Mar 22. The interim swings were good for an additional 55%. So, pick your poison.
UPDATE: 11:15 AM
AAPL just broke through an interim channel line on the primary channel we’ve been following since early November. This should set up another test of the channel midline and, more importantly, the H&S pattern neckline.
Since AAPL is an important bell cow, it’s important to know what’s at stake here.
We got the reversal we were looking for last Friday, but as detailed in the last forecast there is still some uncertainty as to the ultimate outcome of this latest rally.
We remain short from 1462, but a stop in the 1466-1468 range would be prudent. A rally through 1474 changes our forecast, as discussed yesterday.
The euro bounced off the bottom of the rising wedge we’ve been tracking as expected. There is negative divergence relative to the Dec 7 low; so, in all likelihood, the larger wedge should break.
The daily RSI shows the two options quite well — a bounce off the yellow channel line or just a back test of the broken purple channel line.
The dollar continues to move in tandem with equities. It rose last week as SPX rallied, and is off today. But, like EURUSD, there is marked divergence on the daily chart since it broke up through the top of the red price channel and retested the bottom of the white price channel.
It reversed at the .786 of the B-C (purple) drop. And, the 1.618 extension of this move is the same level as the .786 of X-A: 83.10ish. This would set up a tag of the white channel mid-line somewhere around Jan 22-23 (the .886 intersects with the mid-line around Mar 6.)
I posted quite a bit over the weekend about the SPX forecast, so I won’t rehash it here. Suffice it to say we need to see some follow-through on the dip this morning in order to get anything going on the downside.
The 15-min chart shows a potential H&S pattern that targets 1443. But, SPX will need to reverse before 1468 for it to play out.
I’ve updated the channels and harmonics for the most recent top. In general, they confirm the current forecast. But, there is plenty of wiggle room.
Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.” “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.” ― Lewis Carroll, Alice’s Adventures in Wonderland
The market never ceases to amaze me. Despite all the ingredients being in place for a sizable correction, it’s sailing along as though everything were copacetic.
Negative divergence abounds. The correlated currencies are all selling off. Gold is down. Silver is down. Even AAPL is down. Numerous indices have completed bearish Harmonic or Chart Patterns.
The Fed let slip yesterday that the adrenaline drip will soon be removed — leaving banks without a buyer for their underwater mortgages and the stock market without any downside protection. They’ve finally admitted what we’ve all known for some time: QE’s effect is diminishing, and the risk is growing.
The budget showdown is still ahead (the part of the fiscal cliff that really matters.) The most fractured Congress in modern history, which utterly failed to resolve the important issues, will now turn the task over to an arguably more partisan Congress.
The country’s AAA credit rating is hanging by a thread at both Moody’s and Fitch. A downgrade by either would require massive selling by institutions which require at least two AAA ratings in order to comply with their investment policies (especially insurance companies.)
Unemployment has reportedly declined, but only because we no longer count the dejected job seekers who are leaving the work force in droves. Include them, and the actual picture is startlingly bleak. (source: Shadowstats.com)
The EU is officially back in a recession (though it never really left.) Its banks are being kept afloat by the ECB/ESM, which is exchanging (somehow AAA) paper backed by shaky sovereigns for junk sovereign debt as fast as it can. Meanwhile, unemployment continues to soar.
The big 2013 headline that isn’t (yet) is the global derivatives debacle: $700 trillion — over 10 times the global economy — of unregulated, unpriced, unreported private contracts which have been sliced and diced so many times that no one has the slightest notion what the risk really is — except that it dwarfs the capital of the banks that hold it.
In my opinion, the onlythings keeping the economy and the market afloat are the unrelenting screech of MSM fairy-tale “good news” and the Bernanke Put (the Fed’s money printing and plunge protection operations.)
As long as these two factors can outweigh the negative fundamental picture, the market stands a good chance of rising. Take one of them away, and the resulting crash will be swift and severe.
That said, I’ve spent the past two days assessing the current state of our analog and forecast. I’ve quantified it as best I can in an attempt to eliminate my admittedly negative bias. I’ll lay it out over the next several hours, a few charts at a time.
If you’d rather skip to the punchline, I’m still bearish. In the absence of a push through 1474, I think we’re in for a sizable correction and remain short from 1462. If 1474 is broken, everything changes.
For members who enjoy getting their fingers dirty, stay tuned.
* * * * * * * *
About an hour ago, we completed a Bat Pattern which is nestled inside of a Bat Pattern which is nestled inside of a Bat Pattern.
UPDATE: 3:15 PM
RSI channels show how much is riding on this moment. A push through the top of the purple channel brings the red channel mid-line into play. Could it correlate with 1474, or maybe just the next channel line on the intra-day?
I’m not sure. The intra-day 1.272 is 1468.17 and the 1.618 is 1471.61. A double-top would be a real nut-buster.
All I know is there’s still negative divergence across the board, so I don’t expect the red mid-line to be broken.
My apologies for the delay in getting the forecast charts up. They’ll have to wait until after the close. I’ve been distracted by the melt-up, checking and re-checking my charts to see what I might be missing.
EURUSD is approaching the critical bottom of a large rising wedge, after having maxed out at the .618 time Fib and .886 price Fib.
Daily RSI indicates a break down of the wedge. But, watch out for the mid-line of the forming white price channel. It could put a floor under the pair’s decline around the .886 of the red grid.
USDJPY reached the first of our two target areas [see: USDJPY Update.] Back on Dec 18, we noted an upcoming channel midline that, if broken, could see a breakout to the trio of Fib levels represented by the first shaded rectangle.
We got that channel break and tagged the target area. The Japanese central planners have vowed to cheapen the Yen until the 牛 come home. But, the charts indicate it’s time for a breather (while markets sell off.)
Aside from those Fib levels, there’s a channel mid-line (white) and a channel upper bound (red) to contend with.
And, the daily and weekly RSI’s show the pair is due for a significant reversal. Daily RSI has run all the way into the apex of a rising wedge and has reached the second highest level in the past 20 years.
Weekly RSI, at the highest level in 20 years, is in serious need of some recharging.
Prices could move very slightly higher to the red 161.8 at 88.52. But, I suspect we’ll first get a back-test of the broken white channel mid-line and/or the red mid-line down around 82-84 before zipping up to 92.76. As always, watch your stops.
Not quite four months ago, the Fed guaranteed lower interest rates and higher stock prices forever. At least that was the mainstream media’s take on QE3. The market shot up about 40 points in a day, then did something rather curious. It stopped.
While the rest of the world took advantage of the pause to shift more money in AAPL, those who study harmonics loaded up on shorts in anticipation of the huge Bat Pattern that was completing [see: The World According to Ben.]
After having reversed at the Fibonacci 61.8% of the 2007 to 2009 crash, SPX had reached the 88.6% level. Would it be a huge reversal as occurred when the Gartley Pattern completed at the .786 (- 21.6%) or something more modest?
The fact is, we don’t know yet. After shedding 131 points (8.9%) from September to November, SPX has retraced 119 points — roughly 88.6% of them.
This means that SPX has constructed another Bat Pattern over the past 4 months.
It’s easier to see if we zoom in.
Like the larger pattern that took place from 2007 to 2012, will this pattern deliver a big reversal or something more modest? For help, we can examine how SPX reacted the last time it reached a major Fibonacci level — the Gartley Pattern at the .786 in May 2011.
SPX lost 112 points to 1258.07 before regaining about 88.6% of them to complete a Bat Pattern (the light blue pattern.) At that point, it did it all over again (the red pattern.)
In retrospect, the move from 1370 to 1258 was the 1st wave. The move back up to 1356 was the 2nd, corrective wave. It was powerful and quick — taking only 14 sessions compared to the 1st wave’s 33. This fooled a lot of investors into thinking it was a motive wave and was going to establish a new high.
Note: For those of us following an analog that compared the 2011 top to the 2007 top, it was a fabulously opportune time to start loading up on shorts [see: Why Do Analogs Work?] Our gains over the next couple of weeks were nothing short of spectacular.
The same thing happened a second time (the red pattern.) The wave from 1356 to 1295 took 7 sessions, while the wave back up to 1347 took only 3. Again, this suggested higher prices, not the powerful reversal that slashed 246 points in only 13 sessions.
Are there any parallels between the market’s reversal at 1370 and its reversal at 1474? As regular readers know, I am tracking a new analog [see: A New Old Analog] that suggests there are. But, there’s a line in the sand at current price levels.
We can argue all day about whether the pathetic fiscal cliff deal, combined with the latest QE incarnation, should mean higher prices. But, if the latest Bat Pattern doesn’t hold, and prices ramp up past 1474, I’ll consider the analog broken and start charting upside targets.
But, it won’t be because the Transportation Index just made a new high. It simply completed a Crab Pattern (on negative divergence I might add), imbedded in the tail end of a large Bat Pattern that it’s been trying to complete since February.
And, it won’t be because the Russell 2000 just made a new high — which can also be viewed as a quadruple top (dashed purple TL) that coincides with: (1) a Butterfly Pattern completion (in purple); (2) a Crab Pattern completion (in red); (3) a back-test of a well-formed rising wedge; and, (4) the .786 time fib of the wedge. All of this, of course, is on negative divergence.
It would be in spite of a dollar index that just broke out of a channel that dates back to May (red), after testing the bottom of a channel (in white) that dates back to Feb 2011.
It broke out of and back-tested the latest channel on the hourly chart, too.
I’ve always wondered what would happen when The Powers That Be threw everything they had at the market and it yawned. Might that be a rabbit hole from which there is no easy escape?
Between QE3, ESM, Congressional Kumbaya singing…the market should be hitting new highs. So, why is it mired at the same point (metaphorically, at least) that preceded the last big correction?
The market is currently frozen in headlights, wondering whether to respect the latest Bat Pattern or not. So, I’m going to take the opportunity to review our analog and general forecast.
In a perfect world, this would signal DX has further downside potential to the .886 for a Bat Pattern completion — though, obviously, not every corrective wave has to be a harmonic pattern.
But, as can be seen, the rally from last week features no potential Point B whatsoever. It’s hard to call this a Butterfly Pattern in the absence of an actual pattern.
