Judging from the currencies, I think we could see a bit of a sell-off this morning, down to either 1426 or 1413.  I’ll take a small short position on the opening and monitor it closely for a reversal.

The dollar has pretty nearly completed a back-test of its recently broken channel that dates back to July.  In the process, it’s constructing a pretty well-formed falling wedge at the .618 retracement of its climb from 79.18 last week.

The EURUSD, in the meantime, has pushed up further into its back test of its channel at just beyond its own .618.  It has formed a rising wedge that suggests a pullback here.

UPDATE:  10:05 AM

That should do it for the upside.  Just tagged the channel line.  RSI failing to show further upside potential.   Will add to shorts here at 1438.  Stops just beyond the channel line (currently 1439ish) just in case.

Should have waited for that channel tag before going short.  But, the currencies got me excited and I pulled the trigger before double-checking the channel.  Darned emotions will get you every time.

If I’m right (now) about shorting, RSI’s little push above the red channel below will reverse and head south any minute.

UPDATE:  11:00 AM

DX is very close to breaking out.  I find that most wedges break out at a significant Fib ratio of both time and price from inception to the apex.   Time is usually at 61.8 of the way from inception to the apex, with the .786 and .886 as the next most common marks.

Price can be any of these, but I look for a Fib ratio within the wedge that matches up with other significant levels.  In this case, the .786 is very close to the .618 retracement of the recent 79.18 to 80.29 run that broke out of the channel and set up this back-test.

It’s also close to the .500 retracement of the dollar run-up from 74.86 to 84.245 between Oct 27, 2011 and July 24, 2012.

The trick in these exercises is getting the apex just right, as everything else is drawn around it.  Wedges can and do expand, and they fail a certain percentage of the time.  So, I rarely act on one without first finding corroborating evidence.

If/when the logjam breaks, look for a breakout to around 80 for starters — whatever lines up with 1426.34 on SPX.

UPDATE:  11:35 AM

The dollar and euro just broke through their wedges, and SPX broke down below the previous low to tag the 1.272 at 1427.04.  We should get at least a bounce here, as there was a reversal at the .786 up at 1433.51.  And, this is where it gets tricky.

My money is on a tag of at least the .618 at 1426.34.  If SPX falls any further, the 1.618 of this little pattern is right at 1422.43 — a fraction above the April highs.  I imagine the bulls will defend this level.

So, I’ll cover my shorts and go long here at 1426, with a stop at 1422 just in case.  I’m probably early, meaning I’m leaving money on the table.  If we break 1422.38, there could be considerably more downside — easily to the .786 @ 1413.

More in a few.

UPDATE:  12:40 PM

The market is in a quandary.  There’s unfinished business with several of the harmonic patterns and the big, white channel, but completing them means slicing off a good bit of the bullish case for folks who care about waves and such.

SPX would love dearly to go down and tag the big, white channel — simultaneously tagging the bottom of the small red channel, the mid-line of the gray channel, and the bottom of the expanded small white channel.

A rebound there (our target #5, around 1413-1415) would establish a new leg up on rather firm footings.  But, it would overlap the April 2 high of 1422.38 — confounding the EW bulls.

Then there’s the bane of everyone who charts the market:  shadows and the dilemma of log versus arithmetic scale.  Depending on how one draws the big white channel, SPX is either tagging important support or has broken it — at least intra-day.

But, I don’t think the Fed has pumped eleventy bazillion dollars into the markets… just to watch it evaporate three weeks before an election where their very jobs (nay, legacies!) are at stake.

Rest assured, the Plunge Protection Team is on Tactical Alert.  Snipers are positioned, and little red dots suddenly appear on the chest of anyone caught glancing at a sell button.

If you’re not sure, just look at AAPL.  Remember back on the 9th when it was down 13 points intra-day, 82 points since its 705 high?  I posted that 621-625 was critical support that should provide a rebound.  It wasn’t a lucky guess.

It was the bottom of one channel that’s guided the stock since 522 in May, another channel dating back to June 2011, the completion of a Crab Pattern, and the .618 of the 570-705 ramp from July – September.  The low for the day was 623.55, a level still not broached.

But, don’t be fooled.  Surviving this little scare does not mean everything’s fine.  Far from it.   If AAPL rebounds over the next few days — which it will — it has to climb past 705 just to negate a bearish prognosis (Point C must remain lower than Point A.)  Reversing at the .618 established a Point B for either a Gartley, Bat or Crab pattern that could take it back down (after the election) to 597, 583 or 487 respectively (the red patterns below.)

The worst joke of all would be on those who jump in with both feet at the new high of 706, only to run head on into a completing Crab Pattern at the 1.618 of 719.30 (the purple pattern above.)

UPDATE:  2:50 PM

Rebound has started in earnest, with SPX coming up on 1430.  The first big test is up ahead at the 60-min RSI channel line.  This is the channel we examined in the 10:05 post that signaled a reversal in the early morning ramp.

SPX should take it this time.  The price channel is currently at about 1433.

BTW, note that this morning’s 1425.53 low is the first in the past week exhibiting positive divergence — that is, a new price low was made in conjunction with a higher RSI low.

 

 

 

 

 

 

 

ORIGINAL POST:

I’m keeping trailing stops fairly tight on this ramp after going long at 1431.50 yesterday for a bounce.  There’s a good chance it won’t last.  More after the open.

UPDATE:  9:40 AM

New channel for the leg down?

I’m taking profits on my long position here at 1441 and will sit on the sidelines until this sorts itself out.

More in a few…

UPDATE:  9:55 AM

Here’s one problem.   The EURUSD, after completing a Crab Pattern at the purple channel line as we anticipated, reversed and broke the channel it’s been in since late July 24 (in red.)  It’s back-testing the red channel now, and is unlikely to retake it.

This doesn’t mean it can’t move higher — on the underside of the channel.  I wrote about this a few days ago, noting that the channel would run out of room prior to the election, but TPTB would likely seek to keep it afloat until after Nov 6.

These back tests sometimes go on for quite some time, so I don’t see a clear signal from the EURUSD just yet — other than the possibility that this morning’s rally is done (hence closing the long position.)

The dollar, meanwhile, broke out of the channel it’s been over the same period.  It hasn’t completed a back-test to the same extent as the EURUSD — but there’s a good possibility it will, ramping equities a little higher in the process.  So, why not just stay long?

Since it exceeded the previous high of 80.25 yesterday, the downside case presented by the purple grid is damaged somewhat.  Doesn’t mean it can’t go down, but there’s no harmonic case to support it at present.

Here’s the scenario I have been expecting for the past several weeks…

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The Bat Pattern that completed on Sep 14 [see: The World According to Ben] has played out nicely so far.   Remember, Bat Patterns provide early warning of a reversal at a Fibonacci 88.6% of a previous significant move.  In this case, it was 88.6% of the 2007 — 2009 crash from 1576 to 666.

Note:  In reality, the pattern paid off twice.  Since SPX reversed at the 61.8% Fib in 2010, it first signaled a Gartley Pattern.  These complete at the 78.6% Fib — 1381.50 in this case.  SPX came within 11 points of this target in May 2011, providing an excellent opportunity for making money on the ensuing downturn.

Since reversing at 1474, SPX shed 44 points to 1430, then retraced 88.6% of that decline to complete a much smaller Bat Pattern at 1470 on October 5 (charted below in purple.)  Although 44 points is nothing to sneeze at, it doesn’t measure up to the 98 points lost the last time a Bat Pattern of this magnitude completed in Feb 2007.

Harmonic patterns frequently nest inside and morph into one another.  An astute trader can either profit from the turns or, at the very least, protect a buy-and-hold portfolio from otherwise unforeseeable market plunges.

There are many ways to utilize Harmonic patterns.  I use them in combination with other chart patterns and technical analysis to enhance the accuracy of forecasts.  A stripped-down version of my current short-term chart shows the role that harmonics, channels and a large rising wedge have played over the past month or so.

The descending red channel did a fabulous job of guiding the downside from Sep 14 to Oct 3.  When it was broken on the 4th, a new channel was established (in white.)  This nearly horizontal channel proved its worth earlier today, signaling us to take profits on a short position established a few days ago at 1455.

All of this action has taken place within the confines of a large rising channel (in yellow above) that’s guided prices since the 1266 low on June 4. This yellow channel, in turn, is contained in a larger white channel.  Together, they’re playing out a familiar refrain.

As the market rises, it usually accelerates in a series of channels featuring continually steepening slopes (there are several others in addition to the white and yellow.) When the market tops out, it decelerates, breaking these channels one at a time until ready to begin the process anew.

Declines are typically contained in similarly-sloped falling channels — seen above in red.  The falling red channel in the short-term chart above is barely visible in the upper, right corner of this chart — providing context for the Bat Pattern reversal from 1474 thus far.

What does it all mean for the future?  The major indicators discussed above (harmonics, chart patterns, etc.) all point to the same conclusion — a market running out of steam.  In fact, it appears to be in for a nasty downturn in the not too distant future.

Analogs, sometimes called fractals, are simply repeats of past price movements.  The 2011-as-2007 analog provided an opportunity to short the July 2011 crash in advance, accurately predicting the very day the downturn would begin [see: Why Analogs Work.]  Another analog posted this past March [see: Analog Details]  accurately predicted the downturn from 1422 and subsequent return to 1474.

Yesterday, I posted a new and promising analog [see: Analog Alert] that shows the top is either already in or will be soon — perhaps just after the election.  Check back in the next few days for additional details.

We have remained short since 1456 on Monday morning after going to cash over the weekend as a precaution.  Since then, the market has tested and broken through each of the channels we identified as offering potential support.

Moments ago, SPX tested the red channel mid-line at the same time it hit an .886 at 1435 of the most recent move up from 1430 to 1470.  We could get a bounce here that traders can capitalize on, while the potential for additional downside remains in place.

UPDATE:  12:25 PM

Our thesis has been that SPX rose at an accelerated rate, following progressively steeper channels on its way to 1474.  When it topped out, it then began a process of testing and breaking those channels.  The question is which channel will finally catch.

My favored target in this move remains the .618 retracement of the 1396-1474 move at 1426.34, though the white channel bottom might catch us just short of that around 1430.

SPX made a high of 1426.68 that started a little corrective wave on Sep 21, so that might help validate the .618 from a wave standpoint.

My only hesitation about covering our short there is the bigger picture, which argues for a tag of the .886 at the intersection of the bottom of the red channel and the largest white channel. It’s easier to see on a larger scale.

So, it boils down to whether the yellow or the white channel ends up holding (if either.)

It’s safe to say we should get a bounce at the .618, so the safe play is probably to take profits and play that bounce, going long with tight stops. While I believe we’ll get down to the .786 in time, the little white channel (as it’s currently drawn) doesn’t arrive there till about 1:30 tomorrow, so we might well back test something (the red channel mid-line?) before arriving.

That would be a 7 point bounce for traders — worthwhile enough.  While less active investors might prefer to set stops there around 1435.25 and let their shorts run.  Needless to say, breaking the yellow channel line would be a major event — so much so that we can expect bulls to put up a fight.

FYI, I show the smaller white channel bottom at 1430.17 (about equal to the Sep 26 low of 1430. 53 – another reason for a bounce) and the red mid-line at 1434.  For quite a while, I’ve thought that the nearly horizontal white channel could expand to incorporate the consolidation between Aug 6 – Sep 4.  It would make the white channel 85 points from 1474 to 1389 — a much more respectable reaction to a Bat Pattern completion after an 800-pt rally.

UPDATE:  1:25 PM

We bounced off the white channel line as expected (1430.64), rising very close to the red channel midline (1433.50.)  Now we get to find out whether the white channel should be expanded or not.  If you’re determined to ride a short position to the .618 at 1426.34, please use stops just in case the white channel is all the downside we get.

And, while I’m on the topic, we never really back-tested the broken pink channel line.  Our little white channel intersects there at around 1437 tomorrow morning.

I only see positive divergence on the 15-min and under time frame, so there’s no reason yet to expect anything bigger than that — other than the white channel bottom holding.

UPDATE:  1:45 PM

I’m going to go ahead and take profits on the short position here around 1431.50.  This is setting up as a decent bounce, and I’d like to participate.  If it turns into something more than a bounce at the yellow channel line, I’ll ride a long position for a while.  Please remember to use stops.

More in a moment…

UPDATE:  2:00 PM

Here’s what I saw that got me thinking… RUT is very deep into a falling wedge at the completion of a Butterfly (in purple) and a Crab (in red.)  While I think it also has further to go (probably 806-816 in the next week or so), it’s hard to imagine it not bumping higher from those three tells.

This is a smallish pattern, but it does argue for a decent bounce.

I have to sign off for the day — time to get on the road for the drive home.  My best guess is we’ll back-test the pink channel as high as 1437 very soon.  From there, the market has some decisions to make.

The 60-min RSI indicates further downside to the yellow channel bottom after a back test of the purple.  So, that would support the idea of a bounce to 1437 and retest of the bottom — maybe tagging 1426 in the morning intra-day, but that’s a bit speculative on my part.

Watch the dollar.  If it dips below 79.805, it has additional downside.  And, of course, if SPX breaks out of the little white channel, it has no doubt broken back above the pink channel and could easily rally another quick 10 points.

Above all, trade safe.  We’ve had a nice run in October — probably up 7% or so already.  These critical support levels mean higher risk.  Use stops!

I’ll post later tonight if it’s not too late.

Everyone loves analogs.  Sometimes they play out precisely with enormous profits as in July 2011 [see:  Why Analogs Work.]

While, sometimes they’re merely pretty close, providing accurate price targets even when the timing isn’t exactly right, like this one from April [see: Analog Details.]

Whether on a grand scale or not, analogs often predict price swings the rest of the investing world can’t see coming.  When we’re able to properly position ourselves in advance, we can profit handsomely — or at least increase our chances of avoiding disaster.

A few weeks ago, I observed that the three QE-infused equity rallies seemed to be somewhat proportional [see: The World According to Ben.]

It just so happens that 1566 is a stone’s throw away from 1553 — the Crab Pattern 1.618 extension of last year’s plunge from 1370 to 1074.  It also happens to be the apex of the rising wedge we broke in April.

• QE 1:  666 to 1228 = 562 points.
• QE 2:  1010 to 1422 = 412 points (412 = 73% of 562)
• QE 3:  73% of 412 points is 300 points.  1266 + 300 = 1566

A triple top has long been among my leading end-of-the-road scenarios for the 2009-2012 bull market (recall that Oct 2007 topped out at 1576 and March 2000 reached 1552.)  While the above calculations don’t — in and of themselves — make for a useful analog, they started me down the path to one that I think has a decent chance of playing out very soon.

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I’m still traveling, so today’s post will be brief.   Yesterday’s short-term outlook is still intact.  We broke the pink channel line, which means our initial target of 1449-1452 is in play (the top of the red channel and the white channel midline.)  Look for a back test of the pink channel first.

I’d recommend lowering stops on our short position to around 1458 — depending on how closely you can watch it.  The more important issue is whether SPX can remain below the lower bound of the pink channel.

The dollar and the EURUSD are both testing very important levels, so downside risk is very high at the moment.  Equity bulls need the red channel top to hold.

Several of you have asked about the new analog.  Today is the day, even if I have to deliver it in installments.  There’s a good chance I can post it by 10:45 EDT; if not, it’ll be after the close.  I’ll put out an email when it’s live.

UPDATE:  10:30 AM

I know some of you are watching AAPL closely.  The 621-625 level is critical to AAPL.  It should provide a rebound.  But, if it fails, the next support is at 600 or 585 — at which point it would have lost a major channel.

If the channel holds, especially if AAPL closes above 618, then the Crab Pattern to the 1.618 at 719 is still very much on the table.

UPDATE:  EOD

SPX broke both the pink and purple channels today.  We’ll see if the yellow channel holds (currently around 1430 at #4.)  If so, the decline will also be limited to the red channel midline and SPX’s rally will still be intact.  If the yellow channel fails, look for a drop to the white channel bottom (#5) around 1413-1415.

AAPL respected the Fibonacci bounds we placed on it, reaching within 2 pts of the support we mentioned earlier this morning before reversing

I’m going short at the opening.  There are a number of channels offering support – notably down around 1450, but we’ll see how many will hold.  If SPX loses support at the pink channel (an echo of Sep 14 – Sep 25) around 1454, the top of the red channel is down around 1450.

Charts in a few…

UPDATE:  10:55 AM

So far, the channel line around 1454 is holding.   But, again, there are different ways to interpret this channel.  We won’t really know until we get a stop and can plot the lower bound a little better.  Watch your stops (1461?), but if the red channel breaks there’s additional downside to 1450 or 1447.

I’m traveling the next couple of days, so my posts will be a little spotty.  I finished the forecast I mentioned Friday, and almost got it posted this morning when the market opened.  I’ll post it after the close for members.

Next post in about an hour.

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ORIGINAL POST:

This morning’s election eve NFP ramp should reach our target #2 from last Friday at the .886 of 1469.50.  I would fade this rally if/when SPX reaches that level.  This has pop-and-drop written all over it.

If you’re stopped out on the opening, I would look to reshort at the .886.  As always, please use stops.

DX just bounced off the .618 of the 78.725 low.

UPDATE:  9:35 AM

That’s the tag of target #2 at the .886.  It could leak a little higher, but I’m re-shorting here at 1469 with stops at 1474.

In retrospect, I should have expected them to ramp this after-market due to the election season BLS report which comes out in the pre-market hours.  I thought we’d get a proper 3-wave correction before heading up to our target # 2, but neglected to consider the timing.

There’s some consolation in having nailed target #2 as well as we did target #1 yesterday.  But, I’m disappointed to have given back some of the profit we’d booked EOD yesterday.

UPDATE:  10:50 AM

The dollar pushed lower to a 1.272 extension, a little beyond the .618 of the rise since Sep 14.  This means DX is less likely to reverse at the .786 of 79.05 (other than a bounce) but could make its way down to the .886 of 78.899 by as early as Monday.

This implies that 1474 won’t stand as the high.  Sure, we should pull back from current prices.  The dollar is currently very oversold.  But, we have to remain open to the possibility of a double top or even slightly higher.

UPDATE:  3:05 PM

The market has given back all this morning’s gains and is clinging to support.  1459 is an important level for it to hold, or there’s potentially much more downside — perhaps the .618 at 1457 or even the white channel midline at 1450.

If we get a bounce here, I’d consider taking profits at 1461.  I can see a broken rising wedge and broken channel lines, but others show support at this level.  I’ve spent the past several hours trying to get a handle on things and am, frankly, a little baffled.

I believe when things are unclear, it’s usually best to step aside and let them sort themselves out.  So, I’ll let the market tell me which way it wants to go.

UPDATE:  3:50 PM

I’ll likely take profits going into the close.  I still see a mixed next few days, and it seems silly to hold shorts into the weekend.  So far, we retraced .886 of the drop from 1474, reacted down to the .618 from that, and should be up on Monday.  But, I have no conviction.  So, to cash I go.

Just looking for a little more action into the close.

UPDATE:  4:00

Gone to cash at 1460.  Post mortem probably Saturday afternoon.

ORIGINAL POST: 9:15 AM

We began yesterday’s post with a chart of competing patterns in EURUSD.

Many currency traders disregard H&S patterns in currencies, but I believe they play out more often than not.  Mario Draghi’s comments this morning gave EURUSD the boost it needed to reach the neckline and clear the way for further upside.

The RSI shows a probable back test of the neckline, but appears to support our forecast of a bounce to 1.30 or 1.31.  This is consistent with my expectation that the smaller dollar channel would break down, which indeed it has.

This should give SPX the boost it needs to clear its red channel on the opening bell.

UPDATE:  9:40 AM

SPX gapped open, and will likely back-test the red channel it broke up through. As I posted  yesterday, we can expect at least a pause at the last interim high of 1457 and the .886 Fib at 1459.51.

Also at the 1457 level — a line on the largest purple channel that’s guided us up from the June lows.  It’s stopped the market’s advance each of the past two days.

We remain long from 1441 with an initial target of 1461.  There, we run into the white channel top as posted in the last update to yesterday’s post.

UPDATE:  10:12 AM

We just tagged our target from this morning.  I expect a pull back here, so good time for traders to take profits, or at least enter stops.  I’m taking some profits at 1463 and will likely play the retreat on the first sign of weakness.

Note that the dollar just tagged a channel line of support on the downside and should rebound here at 79.54.  It has more potential downside, but I believe it will need to gather some strength for a push lower.

More in a few…

UPDATE:  11:00 AM

I’m playing the short side for a bit, with an objective of 1452.52-1455 around 11:50 this morning.  But, beware of support at the 1457.71 (.618) and 1456.63 (a channel midline.)  Best to use trailing stops on this move.

Although there’s an argument for no higher prices period, SPX could definitely go higher than this morning’s 1463.14.  I just don’t know if it can manage it today.

Charts in a few…

UPDATE:  11:20 AM

A trend line on the 5-min RSI clearly shows the sell signal.. As often happens, it came a good 10 minutes prior to the broken trend line on SPX itself.

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ORIGINAL POST:  9:20 AM

Competing patterns in the EURUSD…

And, DX taking another crack at breaking out of the channel…

Nothing much is likely to happen until the ISM services numbers come out at 10.

UPDATE:  10:40 AM

Nothing too exciting here.  Slight increase in several measures, even as employment and order backlogs contract.  Between the dollar’s strength and global slowdown, exports are also contracting.

UPDATE:  11:10 AM

A reminder, we’re still long from 1441 yesterday.  We’re approaching a critical level — the top of the falling red channel we’ve been in since Sep 14 at 1474 — currently at 1454ish.  We’ve bounced back off it several times.

Yesterday’s downturn was another bounce off the channel midline.  We retraced a little over 50% of the decline since Monday, so are potentially forming a Bat Pattern at the .886 of 1455.07.  A reversal there would mean yet another rejection off the channel top.

But, there are several patterns that hint at more upside — IF we’re able to break out of the channel (don’t expect it to be easy.)  The yellow pattern suggests at least a Gartley completion at the .786 of 1465.10.  A Bat would target the .886 of 1469.50

The red pattern completed a Gartley Monday at 1456, but could also be a Bat based on the .618 reversal on the 27th.  If so, the .886 is up at 1459.51.  A Butterfly would be at the 1.272 at 1472.14 or the 1.618 at 1483.45.

And, the purple pattern — which is still trying to complete a Bat at 1455, could be working on a Crab at the1.618 of 1468.

All of these require a clean break through the red channel.  I wouldn’t blame anyone for taking profits if/when we reach it a fourth time.  That would be a nice 13-14 point gain since yesterday — another 1% in the bag in the first few days of the new quarter.

I can’t say for sure what to expect.  But, I see no negative divergence on SPX on any time frame — while there’s plenty to be found in the dollar — on nearly every time frame.  SPX is trying to break out of a 2-week channel, while DX is trying to quit both a 10 week channel and a 2-week channel.  My gut says stay with SPX at this point.

We’re in the top quarter of the channel now, so a rejection off the very top should be limited to the channel line we just broke up through (1446ish) if SPX is to break out and go higher.  A break down through 1446, on the other hand, would mean we’re less likely to come back for a 6th try.

UPDATE:  11:40 AM

The dollar is looking very weak here, forming a lazy triangle/RW on negative divergence.  This will break down if SPX is to break out of its channel.

Remember, when SPX breaks out, it’ll likely back test the red channel — maybe from 1457.14 — the last high.  If a legitimatel break out, the channel top should hold.

UPDATE:  11:50 AM

Just reached the channel top, pausing for dramatic effect…  Might pull back here a bit, maybe 1450-1451.  Note the RSI still looking positive, with the purple channel midline and the white TL just above.

Let’s talk about the objective for a moment.  Remember, we completed a big Bat Pattern objective on the 14th — the .886 of the 1576-666 decline from 2007-2009.  We’ve retraced only 44 points since reaching that milestone.

It may have seemed like a lot, but in the scheme of things, it wasn’t.  Therefore, my expectations of this breakout are modest.  I’ll be open to the alternative, but the yellow .786 at 1465.10 or .886 at 1469.50 would be a normal retracement if this is merely a corrective wave 2 on the way to a 100-pt reaction that would be typical of completing that large a Bat Pattern.

As I wrote when I called this latest top on the 14th [see: The World According to Ben], the last Bat Pattern this large to complete was in March 2007.  SPX retraced a relatively minor 98 points before continuing on to make a double top at 1576.

A 98-pt drop here would mean 1376, not the mere speed bump of 1430.  The daily RSI has been a very good indicator for us of medium-longer term trends.  It’s hard to trade intra-day, because the value that gets printed is the end-of-day value.  But, it’s great at pointing out upcoming support and resistance.

Bottom line, there’s plenty of it just above.

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