UPDATE:  July 2, 2011

Friday evening’s subpoena of BofA CEO Moynihan is a great reminder of the many lingering legal problems all the banks still face.  It might give even bullish investors pause about the wisdom of trying to ride the financials any further.

Regular readers will recall I have been extremely negative on the financials for several months now.  From a fundamental standpoint, there is little in the QE-less, higher interest rate world to suggest sustainable profitability is probable, let alone possible.

But three weeks ago, when XLF completed a bullish Bat pattern, I suggested we were in for a rebound (see below).   The pattern called for an upside of 16.55, but I felt the rise would be contained by the channel it’s been in since Feb 18.  Now, it’s closing in on our target and a nearly 7% profit.

There are other reasons besides the channel, however, to question whether XLF can go much further.

First, the fan line it broke through on June1(which had been providing support) is now prepared to pose substantial resistance.  It’s the yellow dashed line below.

Also, at Friday’s high of 15.66, XLF completed a bearish Bat pattern that has a target below 15.

Last, the 200-day moving average looms overhead at 15.69 — 3 cents above Friday’s high.   On the hourly chart, the RSI is well into nosebleed territory.  Along with the histogram and the MACD, there’s an obvious hook to the downside. 

The BofA subpoena announcement came after Friday’s close, so the markets haven’t had the opportunity to react.  Given that, and the technical indicators we’ve looked at, I’m expecting a sharp reversal.   The financials can then get back to that zombie shuffle we all know and love.

 

ORIGINAL POST:   June 6, 2011

Update on Financials: Getting Off Cheap

If the reported settlement of $20 billion is all it takes to get the banks out of their foreclosure fraud liability, we should see a pop in the financials.

I’ve been watching a bullish Bat pattern evolve in XLF.  While I’m very bearish on the financials (and the market in general), a settlement could provide a short-term boost that leads the XLF and the overall market higher over the next few days.

The pattern targets an upside of 16.55, but a return to the upper end of the channel is likely all we’ll see.

One note of caution for traders: this pattern’s CD leg is currently approaching a 2.00 extension of the BC (1.94 at today’s low.)  Bats can also extend to 2.24 or 2.618, which would result in continued downside to 14.6 or 14.24 respectively.

That would drop XLF out of the channel, which is entirely possible.  Experienced harmonics traders look for a confirmed move in the anticipated direction before placing trades, and place stops to limit the fallout from the 30% failure rate.

UPDATE:  10:05 AM PDT

XLF (currently 15.6) finally joining the action on the upside.  But low volume and a declining ADX…  I think it’s about to get smacked down by its 50 and 200 day moving averages.  Also within a few cents of completing a bearish Bat pattern.  Initial target is below 15 in the next two weeks.  It should remain in the falling channel it’s been in since February, so the upside should be limited to  15.7.  Possibly a little early, but can’t resist initiating a small put position here. August 15’s at .21 are calling…

In the meantime, watching for a good entry point on SPX.  I wouldn’t mind initiating a short position here, but would feel more comfortable waiting for some confirmation — a nice red candle on the 15 or 30 minute chart, for instance….

UPDATE:  7:05 AM PDT

SPX just had the little spurt we were talking about yesterday, hitting 1329.51.   I think that should do it for the upside.

ORIGINAL POST

/DX has been in a falling wedge for a year, now. 

Since early May, however, it’s been stuck in a rising channel.  As can be seen below, they intersect this month.  So, it’ll have to choose.  Staying in the channel means breaking out of the wedge.  Staying in the wedge means breaking out of the channel.

As the longer running pattern, I’d give the nod to the wedge.  But, my gut tells me the channel will provide strong support until either a breakout to the upside or the wedge forces things back down.  Bottom line, the dollar looks to rise for at least the next few weeks. But, we’ll keep an eye on it.

Descending broadening wedge on VIX hourly.  rising wedge on SPX hourly???  negative divergence rsi vs histogram.  Inverse etf, falling wedge. Gartley on SPX daily?  neg diverge on rut/comp/nasdaq.  hitting 50 sma all over the place. overbought.  Right shoulders building all over the place.  vix lower BB.

UPDATE:  11:00 PM PDT

Not much to add.  Just looking at chart patterns… and see what looks like:

There’a a bearish Bat pattern setting up on XLF in another .10 or so; VIX horizontal support at current prices, a falling wedge and descending broadening wedge on VIX hourly, bumping the -2 bollinger band on VIX, negative divergence between price action and RSI and histogram on SPX, VIX, RUT, COMP and SPX, overhead resistance from 50 SMA all over the place.  Right shoulders developing on SPX, RUT, etc.  They go back to February and are starting to look fairly well formed.   Good luck, everyone!

ORIGINAL POST:

What seemed laughable two weeks ago actually happened today, as SPX reached 1321.97 intraday — 3 cents shy of our 1322 target drawn back on June 16 by studying trend lines.  In so doing, it is within spitting distance of its IHS target as well as completing bearish Bat and Crab patterns.  It also reached our statistical target and bumped up against the trendline which should limit the rally to these levels.

VIX also dipped below our target of 16, reaching 15.88.  I currently view any dip below 16 to be a good buying opportunity.  But, keep in mind, the decline not only hasn’t been confirmed yet, it hasn’t even started. 

It is possible (not necessarily likely) that we’ll overshoot in the morning — possibly as high as 1326-1329.  But, from there, the likely direction is down — either tomorrow or Monday.  I’m expecting 1285-1300 within the next week or so, followed by a strong bounce back up to the 1315 area by July 15th and a subsequent dive to the low 1200s.

My confidence in this pattern unfolding over the next month is about 75% — less than I’ve had over the past several weeks.  I hope to spend more time studying the charts later tonight and will try to clarify things.  But, I’m traveling this week, so might not have the time.  The patterns to which I’ve referred are discussed in detail in various posts over the past several weeks.

What seemed laughable two weeks ago actually happened today, as SPX reached 1321.97 intraday — 3 cents shy of our 1322 target drawn back on June 16 by studying trend lines.  In so doing, it is within spitting distance of its IHS target as well as completing bearish Bat and Crab patterns.  It reached our statistical target bumped up against the trendline which should limit the rally to these levels.

It is possible (not necessarily likely) that we’ll overshoot in the morning — possibly as high as 1326-1329.  From there, the likely direction is down — either tomorrow or Monday.  I’m expecting 1285-1300 within the next week or so, followed by a strong bounce back up to the 1315 area by July 15th and a subsequent dive to the low 1200s.

My confidence in this pattern unfolding over the next month is about 75% — less than I’ve had over the past several weeks.  I hope to spend more time studying the charts tonight and will try to clarify things.  But, I’m traveling this week, so might not have the time.  The patterns to which I’ve referred are discussed in detail in various posts over the past several weeks.

[Reprinted from June 29 Intra-day Post]

We closed up almost 11 today at 1307.41, coming within 3 points of overlapping [i] down, which seemingly everyone believes would invalidate the bearish count.  Other indices such as RUT and COMP did overlap this wave.   Here’s the daily chart again, with my original projections from a couple of weeks ago in red.

There’s absolutely nothing wrong with that above conclusion — as long as you’re positive that 1258/1262 was the termination of [iii] and not [v].    If it was [v], as I contend, then 1 is done and we’re in [c] of a corrective wave 2.  To me, the A-B-C move off the lows is pretty clear.  But, then again, maybe I’m off my bean.

I’m not ranting and raving about this count because I know more about Elliott Wave than anyone else.  Far from it.  But, as I’ve posted for several weeks now, this top is ridiculously similar to that which we experienced in 2007-2008.  I’m not going to bore everyone a restatement of the premise.  If you have no idea what I’m talking about, go back over the past month and read forward to today.  Deja Vu on June 6 is as good a place to start as any.

So, where do we go from here?  Am I turning bullish?  Absolutely not.  The intersection of all those fan lines and trend lines is still hanging out there at around 1322 or so (my favorite spoiler candidate is the trendline off the May 2 and June 1 highs.)  So is the target of the inverse H&S; set up at the recent bottom.  Also at 1322, we’ll have completed both a bearish Bat and bearish Crab patterns I talked about in the recent post about Patterns. 

Could we overshoot?  Absolutely.  Once the bears capitulate and/or the margin calls get to be too much, I can easily imagine a higher move.   As I understand it, the medium-term bearish case is still alive unless we exceed the May 2 1370 high.

And, given that most — if not all — of this bull has been attributable to Fed manipulation, who knows what else BB might have up his sleeves?  I’m certain they’ll try; not very sure at all that it’ll work.  Certainly wouldn’t bet the farm on it.

So, no, I don’t think we’ll establish a new high.  I think we’ll stop somewhere shy of 1330 and begin [i] of 3 of (1) of P[3] down.  I expect it to take us down to 1300  (any lower would make it difficult to trap more bulls.)  The bounce back up, the last bullish frenzy, will falter on or around July 15th (the 87th day) at the above-mentioned trend line — probably around 1310.   If this all plays out as expected, look for the low 1200’s from [iii] of 3 down. 

Once caveat:  many are calling this a wave 4 triangle, and I can see the logic in that.  If so, we hit the very same targets above.  Except, after the bounce from 1310 to that trend line, we keep on going.  The one thing that’s been consistent about this market is its propensity to leave the greatest number of options on the table as long as possible.    I’ll be watching for that possibility.  A study of previous tops tells me it’s a slim, but distinct possibility.

I’m reminded of Dennis McCarthy in the original (and best) Invasion of the Body Snatchers. 

The lesson there?  Just because someone rants and raves like a lunatic, they’re not necessarily crazy.

UPDATE:  6:45 PM PDT

We closed up almost 11 today at 1307.41, coming within 3 points of overlapping [i] down, which seemingly everyone believes would invalidate the bearish count.  Other indices such as RUT and COMP did overlap this wave.   Here’s the daily chart again, with my original projections from a couple of weeks ago in red.

There’s absolutely nothing wrong with that conclusion — as long as you’re positive that 1258/1262 was the termination of [iii] and not [v].    If it was [v], as I contend, then 1 is done and we’re in [c] of a corrective wave 2.  To me, the A-B-C move off the lows is pretty clear.

I’m not ranting and raving about this count because I know more about Elliott Wave than anyone else.  Far from it.  But, as I’ve posted for several weeks now, this top is ridiculously similar to that which we experienced in 2007-2008.  I’m not going to bore everyone a restatement of the premise.  If you have no idea what I’m talking about, go back over the past month and read forward to today.  Deja Vu on June 6 is as good a place to start as any.

So, where do we go from here?  Am I turning bullish?  Absolutely not.  The intersection of all those fan lines and trend lines is still hanging out there at around 1322 or so (my favorite spoiler candidate is the trendline off the May 2 and June 1 highs.)  So is the target of the inverse H&S; set up at the recent bottom.  Also at 1322, we’ll have completed both a bearish Bat and bearish Crab patterns I talked about in the recent post about Patterns. 

Could we overshoot?  Absolutely.  Once the bears capitulate and/or the margin calls get to be too much, I can easily imagine a higher move.   As I understand it, the medium-term bearish case is still alive unless we exceed the May 2 1370 high.

And, given that most — if not all — of this bull has been attributable to Fed manipulation, who knows what else BB might have up his sleeves?  I’m certain they’ll try; not very sure at all that it’ll work.  Certainly wouldn’t bet the farm on it.

So, no, I don’t think we’ll establish a new high.  I think we’ll stop somewhere shy of 1330 and begin [i] of 3 of (1) of P[3] down.  I expect it to take us down to 1300  (any lower would make it difficult to trap more bulls.)  The bounce back up, the last bullish frenzy, will falter on or around July 15th (the 87th day) at the above-mentioned trend line — probably around 1310.   If this all plays out as expected, look for the low 1200’s from [iii] of 3 down. 

Once caveat:  many are calling this a wave 4 triangle, and I can see the logic in that.  If so, we hit the very same targets above.  Except, after the bounce from 1310 to that trend line, we keep on going.  The one thing that’s been consistent about this market is its propensity to leave the greatest number of options on the table as long as possible.    I’ll be watching for that possibility.  A study of previous tops tells me it’s a slim, but distinct possibility.

Remember, just because someone rants and raves like a lunatic, they’re not necessarily crazy.

UPDATE:  11:50 AM PDT

The market’s taking a breather here as bears, especially EWers assume we’re starting wave 4 down.  There’s even a way to draw the trendlines so that looks to be the case.

I don’t think it is.  I continue to believe we completed wave 1 of (1) at 1258/1262 and are in corrective wave 2.  It should take us to 1320 (probably a little higher).

IMO this rally isn’t over until we reach the TL drawn off the 1370 high (see the chart below.)  Going short now should be okay in the medium/long term, but there is a better entry point waiting just a little higher.   VIX puts look like a steal here with SPX at 1202.

ORIGINAL POST:

Here’s where the market is this morning, with my original projections plotted in red.  SPX currently at 1303.  I’m expecting a backtest this morning, but otherwise still expecting 1320 in next few days.  Keep an eye on VIX, nearly back to 18.  I suspect we’ll end up closer to 16 by the end of the week as bears capitulate.  I’ll be looking for good entry points, preferably in the 15 range. 

I’ll try to post again at the end of the day.  Good luck to all.

Okay, folks, I need help from someone who knows a lot more than I about Elliott Waves (which is pretty much everyone.)

Anyone out there who’s looked at the 2007 EW count vs the latest from 2011?  Maybe one of you has charts from way back then, or can look at this and see all they need to see.

I’ve been pounding the table on the similarities in the markets for several weeks, now.  Except for the attempt to crash oil the other day, they could be twins.  At least cousins.

But, to my blurry eyes, the EW counts look like they could mesh pretty well too.  What say you?

UPDATE:  1:00 PM PDT

Should see a little backtest here, possibly down to 1292, before the next leg up.  We pushed to 1296.80, just shy of the 1298.61 and 1297.62 highs from the 14th and 15th.  So, natural for there to be some momentary indecision about whether we’ll be able to establish a higher high or not.  I continue to believe we will, with my target still at 1320 or so.

We’ll keep an eye on the technical picture, currently getting a little frothy but not necessarily topped out.  A 5-7 point  breather should relieve some of the froth and give us ample room to continue the push tomorrow.  Here’s the updated daily chart.  The path to 1320 and [c]/2, which looked so far-fetched two weeks ago…

is looking decidedly “near-fetched.”

UPDATE:   9:30 AM PDT

As we climb past 1290, two things.  First, a backtest is to be expected.  Second, keep an eye on the technical indicators.  Rallies tend to be contained at around 60 on the RSI.  Check out the asterisks on the chart below.  Also, note the diverging downward trend of the RSI and MACD/Histograms.  And, the fact that ADX is on the downswing – meaning the momentum is waning as the market rises.

Also, I forgot to mention earlier that we completed the H&S; pattern on VIX — the one with the upward sloping neckline.  Should give the bulls a shot in the arm.  The flat neckline pattern will complete at around 18 and should be just in time to trap some bulls into a falling market.

Stay groovy.  Meaning, as we approach 1300, it’s a good time to review stops and plan out the next couple of days.

ORIGINAL POST:

We’ve completed both a bullish inverse H&S; and a bearish Gartley.  Battle of the chart patterns.  Also, the hourly SPX is bumping up against its 200 period MA.  And the daily is bumping up against an important trendline drawn off the 5/5 lows.  It previously supported the market on May 17, 23-26, 6/1 and 6/2.  Turned to resistance on 6/3 and stopped the 6/21 and 6/22 rallies.

Should at least take a breather here while the bulls work up more courage and the bears consider drawing another line in the sand.

SPX is off to a strong start, up 11 at 1279 with Personal Income about where it was expected, positive rumblings on the Greece problem, and a White House pow-wow to try to break the debt ceiling impasse. The way we’ve started, I expect today to leave a bullish engulfing candle on the day.

Last Thursday’s high was a .618 retrace of Wednesday’s high, and we’ve retraced .786 of the rise from Thursday’s low.  In other words, we’re about 3/4 of the way through a Gartley Pattern.  It sets up for a possible reversal at 1290.69 (.786) or 1294 (.886) with a .618 target of 1276.

Gartley?  Crab?

But, the downturn may not be that substantial.  If momentum remains strong, we will have completed an inverse H&S; we’ve been working on since June 10.  The upside potential would be 1320.

At 1320, the CD leg in the Gartley Pattern mentioned above would also have extended to 1.618 of the XA leg and 3.14 of the BC leg — a perfectly-formed Crab Pattern.    But, look what else happens there: a big, fat Bat Pattern that’s retraced 78.6% of its June 1st high at 1345.

Bat Pattern?

If you read this weekend’s post Cliff Diving, you know that a bounce to 1320 would be perfectly in keeping with historical retracement activity and would reflect very accurately the price action when the 2007-2008 market topped.

I was telling someone just last night that I love it when various indicators come together, pointing toward the same result.  These harmonics-based possibilities rely on certain things coming together — chief among them, now, that we complete the IHS at 1290.  But from there, it seems like a reasonable roadmap to 1320 that would catch a lot of bears off guard.

As regular readers of this blog know, 1320 is the intersection of lots of important trendlines.  You can read more about it here.   The bulls will be popping champagne and lighting cigars with $100 bills again, anticipating new highs.  Won’t happen.

I expect the resistance provided by the line down from the 1370 top to stop any further advances cold and mark the termination of Wave 2 of (1) of P[3].  The completed Bat and Crab patterns will also point the way down.

The initial target would be 1291, the 61.8% Fib level.  Aside from a brief bounce, we should head down to test and ultimately break through the previous lows at 1258.

I’ll be traveling most of the rest of the week, so won’t have much time to blog unless something big happens to change my viewpoint.   Have a great week everyone.