Today should be the day.  EURUSD and DX have both broken their wedges, which should help stocks break out of the dungeon they’ve been locked in for the past several days.

Is anyone else struck by the similarity of the past three days to that of Aug 31 – Sep 5?

The key to the upside is breaking above 1388.81 — the Point B in the little Crab Pattern I expect to play out.   The key level on the downside is 1368.31 — the .886 of the 1354-1474 rise.  A break means our 1346.11 target is in play.

 

UPDATE:  10:45 AM

SPX fell slightly through our 1368.31 Fib level, but is showing positive divergence all around.  And, DX and EURUSD have both completed back tests of their wedges.

Olli Rehn, Finnish ECB economics commissioner, was rumored to be announcing something about Spain’s possible bailout request. But, I’m watching the press conference, and it seems to be focused solely on gender equality on corporate boards.

Live here:  http://ec.europa.eu/avservices/video/player.cfm?ref=89737

UPDATE:  11:00

Reuters just reported that the Rehn comment was just an assessment of the current situation in Spain.  There’s no announcement of a bailout request.  In fact, if anything, it appears a bailout request won’t be forthcoming, so the markets are disappointed.

While Spain will miss the nominal deficit targets set by the ministers, it meets the structural adjustment requirement, Rehn told a news conference.

In structural terms, which strip out one-off revenues and expenses, as well as the effects of the business cycle on government income and spending, the ministers asked Spain to cut the deficit by 2.7 of GDP in 2012, another 2.5 percent of GDP in 2013 and 1.9 percent of GDP in 2014.

Rehn said Spain’s structural balance improved 5.25 percent in 2012 and will improve a further 2.25 percent in 2013.

“The estimated annual improvement in the structural balance this year and next year is in line with the effort required,” Rehn said.

“Yet there are risks for next year, they stem partly from an optimistic macroeconomic scenario underlying the 2013 budget. There are also risks of budget slippages in the autonomous communities. It is vital to implement effectively the provisions of the stability law,” Rehn said.

He also cautioned that Spain’s budget measures for 2014 fell short of expectations for now.

Rehn’s press briefing can be seen here.  He doesn’t anticipate revisiting the need for ESM/ECB assistance until February.   No Spanish QE candy, today; should head down.

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The futures point to a 10-point sell off for SPX on the open — perhaps enough to tag the Fib levels we discussed yesterday.

There’s perhaps a 50:50 chance we’ll move slightly lower before reversing.  Note that on the small purple pattern, 1370.63 marks the .500 retracement of the 1266 to 1474 move.  Right there with it is the .886 (red pattern) of the 1354 to 1474 rally — at 1368.31.

And, of course, 1370.58 was the May 2011 high.  A reversal here would likely be seen as bullish by most investors who care about wave structure.

The e-minis completed a little Bat Pattern, reaching the .886 of Friday’s 1363.50 to 1388 rally.

My  view has been that either the .786 Fib of the 1576-666 crash (target #1) or this lesser Fib level (#2) — which also represents the May 2011 high — would catch the falling first wave.  I charted both (see the member section) in our Nov 6 forecast [see: The Morning After.]

We got a good bounce at 1380, but as I’ve noted over the past several days, the wave down didn’t quite look complete.  A reversal here would likely remedy the situation.

UPDATE:  11:20 AM

SPX got within 76 cents of the .500 Fib at 1370.63 and, more importantly, stayed above the May 2011 1370.58 high as expected.  We’ve had a strong reversal and just reached the .886 of the 1391 to 1371 dip.  We should see a pause here and put in a distinct Point C before continuing higher to our next interim target of 1403.75.

Just for grins, I pulled up that chart from Nov 6 to see how well the market followed our forecast.  Funny how things worked out…

UPDATE:  2:30 PM

We got the reversal we were expecting at the .886, along with a pullback to 1382 (the higher of the two C’s we proposed early this morning.  We’ll know the rally is proceeding once we exceed Point B at 1388.81.  It would also help enormously if SPX could close above 1381.60 — the 200-day moving average.

I’ve spent the last several hours fine tuning the analog forecast in order to provide some guidelines as to what to expect in the next leg up.  There’s a lot to factor in, so bear with me if this gets kind of technical.

For those not terribly interested in details, I’ll finish with a chart summarizing the next few moves.

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ORIGINAL POST:  10:15 AM

Friday’s action wasn’t terribly reassuring for bulls or bears.  SPX’s dip to 1373 on the opening was largely a carry-over from Thursday’s decline.  And, from a technical standpoint, remaining above the May 2011 high of 1370.58 was net positive.

The subsequent surge to 1391.39 seemed to ease traders’ fears, but they quickly returned when SPX erased most of the day’s gains by the close.  A break out of the falling wedge would be more convincing if SPX first completed a bullish Bat Pattern down at 1375.12, but it’s not necessary.

As SPX is poised for a bounce, so is the dollar poised for a dip — having already reached our Point D target, but still lingering.  While the larger trend remains positive, we should see a pullback to at least 80.30-80.40, with greater potential down to 79.55.

And, the EURUSD is likewise almost due for a breather.  It has completed a small Butterfly Pattern to the 1.272 at 1.2711 (the red pattern), though a dip to the 1.618/.500 combination at 1.26 — in the proximity of the red channel bottom would make for a much stronger case for a reversal.

Our forecast remains on track, with a high probability of some consolidation in this price range before the next big move — which will likely catch many off guard.   But, it’s the move after that one which will pack a wallop.

Speaking of which, several of you have taken advantage of the Hurricane Sandy promotion we’re currently running.  Through the end of the week, do well by doing good.  A donation of $100 or more earns you a $200 discount on an annual pebblewriter.com membership.   For details, click HERE.  If you’re already a member, pass this along to a friend and get 3 free months tagged onto your membership when they sign up.

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Yesterday’s close was ugly, exceeding the bottom of our SPX downside target range by 2.49 points.  It looked like a nice bounce at 1381 — the .786 of the 1576-666 crash from 2007-2009.  Then, perhaps aided by AAPL, the market faltered and closed at the low.

We’ve had a little follow through this morning, but so far prices have firmed above the 1370.58 May 2011 high — a level I have thought important to hold for the bullish case to remain (somewhat) intact.  And, remember, they need it to remain intact.

This market continues to push the boundaries, selling off nearly as far as it can without breaking the last of the plausible upside patterns — the rising white channel.

While we got in a tad early, we remain long from 1381 yesterday, and should see a nice rebound in the coming week if our analog continues to hold.  I’ll post some charts, along with key levels and indicators, below.

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Needless to say, yesterday’s decision to go short is working out pretty well.  While we missed the top by a couple of hours and nine points, we were well positioned for the 23-point plunge on the opening.

The analog we’re following continues to shine.  Having passed its first important test, another one lies just ahead.

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Finally, another important milestone has arrived.  My perspective has been that The Powers That Be would keep the crap game afloat long enough to maintain the status quo come election time.  And, from all accounts, that’s exactly the case.

While there is plenty to be worried about, you’d never know it from the way the markets have performed.  The S&P 500 has rallied 121% since March 2009 and sits only 50 points away from its recent high which, itself, was only 100 points from an all-time high.

All it took was $16 trillion of deficit spending, a few trillion in quantitative easing, some serious arm-twisting overseas, and a Plunge Protection Team that paid very careful attention to chart patterns.

Some economists (and central bankers) maintain that these steps were necessary in order to free the economy from the worst recession since the Great Depression.  I maintain they were taken primarily to keep global banks from failing.  Ending the Great Recession is the hoped-for side effect.

In my opinion, the books of the world’s largest banks are being cooked (with central bankers’ blessings) to such an extent as to make their balance sheets and income statements a farce.  They are being allowed to carry distressed and dead assets at book value, and to report their trillions in derivatives as a matched book without providing any details to investors.

Why do I harp about government, Fed and bank balance sheets?  Because, in the end, they must be dealt with.  The enormous sums are somewhat manageable with historically low interest rates, a co-dependent regulatory environment and a complicit mainstream media.

But, eventually, the scales will tip.  The truth will out.  Simple arithmetic will once again be accepted and the severity of our situation acknowledged.    It won’t matter who’s in the White House or who controls Congress, because the damage will have been done.

In fact, it’s been done already.  And, it continues to worsen.  The key to higher stock prices isn’t whether everything is getting better.  It’s not.  The key is how much longer TPTB can catapult the propaganda.

 

 

While I enjoy making money in the markets as much as anyone, I am saddened by the circumstances that make the analog we’re following [see: A New Old Analog] possible, if not inevitable.

MARKET UPDATE: 10:15 AM

Guided by the current analog, we went long at 1405 on the 25th, targeting 1428-1451 as the range for this move (reaching 1434.37). We also played the little H&S pattern last Friday for a quick 11 points and went to cash — where we remain.

As discussed yesterday, there are a number of chart patterns in play that offer guidance for the coming days and are consistent with our SPX forecast.

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NOTE TO MEMBERS:

It can be challenging to satisfy the desires of both long-term investors and short-term traders with respect to forecasts.  And, investors of all stripes have expressed an interest in being able to tell at a glance what the current forecast is.  So, I am trying out a new format for posting market expectations.

I will post major channels and harmonic patterns on the market pages (such as https://pebblewriter.com/markets/spx/ ) for those who want a quick snapshot of the longer-term picture.  It will also include brief commentary about major trends, general expectations and key price levels.

The daily posts will focus on shorter-term information generally geared to swing trading, economic commentary, market interactions, etc.  Any new ideas or forecasts such as our analog work will also be introduced here.

I’ve also been exploring various ways of passing along information on when I make a trade.  Note that my personal trading style is fairly active.  I don’t usually day trade.  But, if I see an opportunity to capture 10-15 points when a harmonic pattern completes, I will usually do so.

My approach is simple: if I can make 1%+ per week on average, I’ll have a decent year.  As of mid-October, we’re averaging closer to 3% per week.  Sometimes trades take several days to work out, and sometimes several minutes.

This past Friday was a great example. We reached the middle of our target range indicated by the analog we’re following.  I thought there was a possibility we’d move even higher into the range, but saw a bearish H&S pattern completing.  I posted:

The little H&S played out, so we could see a sell-off down to around 1412 or so.  I’m closing my long position at 1423.50 and playing along on the downside, with the expectation of going long again either later today or tomorrow…There’s a high potential for being whipsawed here.  Longer-term investors might want to hang in there.

Less than two hours later, we had reached our target:

We just reached 1412.91 — close enough to my 1412 target.  Divergence is mixed, with positive on 5, negative on 30, even on 60, 4-hr and daily.  My gut feeling is we’ll rebound here, but I have nothing to hang my hat on other than a couple of hazy RSI channel lines and a cynical attitude regarding TPTB.  I’m closing out my shorts here and will stay in cash over the weekend.

Between the run-up we enjoyed from 1405 to 1423 and the move back down, we made a little over 2% — a nice trade for an unleveraged account with no exposure to specific names in less than a week.  But, it could just as easily have taken several weeks.

Bottom line — it’s up to all members to decide whether to play along or not.  Just know that if you do, there is always the possibility that my position may not be held for very long. Long-term buy-and-hold investors might wish to focus on the forecasts and big-picture harmonics.

Short-term traders, on the other hand, might want to keep an eye out for the blue boxes in the daily posts highlighting my position changes during the day.  I’m also exploring sending out Twitter messages to highlight trades.  It’s simple, fast and cheap for both of us.  And, you can set Twitter to text you or email you messages.  Please let me know your thoughts.

And, please let me know your thoughts on the format below.  Again, this is the overview from the page:  https://pebblewriter.com/markets/spx/   I’ll continue with the daily post shortly.

Thanks.

 

ORIGINAL POST:  9:25 AM

major channels:

major harmonic patterns:

3-year

1-year

close-up

 

forecast:

We’re currently following an analog that has been very accurate since March 2012.  SPX reached our target range of 1428-1451 on Friday, then dropped out of a rising channel.

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SPX continues on the path we laid out for our new analog [see:  The Game is Afoot.]  We reached the lower end of our target range yesterday (Point A), breaking above the new channel mid-line.

We’re getting a back test of the broken channel mid-line here.   SPX remains within the proposed rising channel — for now.

We remain long since 1405 on Oct 25.  But, this is a good time to review the technical picture.  I’ve also adjusted the analog somewhat, including the targets for this particular leg.

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I love this old Sherlock Holmes expression (borrowed from Shakespeare’s Henry V.)  It perfectly captures the excitement of seeing a forecast begin to come together.  Although I’ll admit that, on the face of it, it makes just as much sense as “non-stop flights” and “your door is a jar.”

These are the early stages, of course, and things can come unhinged anywhere along the way.  Murphy is patiently awaiting his cue.

We are nearing the lower end of our target range as detailed yesterday [see: A New Old Analog.]  We should get a pause at the new channel mid-line around 1428, but we’re looking for higher than the .382 Fib.

I’m working today on cleaning up the analog charts posted over the past few days.  My trading platform (TOS) seems to be back to normal (haven’t had to reboot anything since starting around 5am — yay!)  So, look for a bunch of charts over the next couple of hours — including currencies and other major indices — that reflect the path I expect for the remainder of the year.

As I’ve posted before, analogs can be extraordinarily profitable when they come together.  But, they require a certain degree of faith (and a well-designed escape hatch for those that fail.)  From time to time, I make myself go back and re-read a post I truly hated writing: Lessons Learned.

In it, I detail the amount of money that second-guessing my own forecast cost me in the summer of 2011.  Don’t get me wrong; June-August was a very profitable period.  But, my returns would have been about twice what I experienced had I been able to ignore those nagging doubts.

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