pebblewriter

Tag: analog

  • Harmonics Are Your Friend

    It seems longer than seven weeks since we led with this chart on Sep 14 [see: The World According to Ben.]   QE3, the ECB’s latest stick save and the German Constitutional Court’s pro-ESM decision had all just been announced.  According to just about everyone, stocks were about to explode higher.

    To me, it was a long-awaited shorting opportunity.

    Meanwhile, SPX is nearing our 1472 target. I will ease some stops into the equation as we approach it, as I’d like to remain long for as long as possible.  This is a 35 point gain since we went long yesterday at 1437 with the Fed’s announcement.

    And, less than an hour later…

    Going ahead and pull the plug on my longs here at 1474.  The 5-min, 15-min and 60-min charts are all showing negative divergence.  I’ll place stops at 1475 or so, trailing lower as need be, just in case it makes another run higher.

    It wasn’t rocket science — just a big Bat Pattern that had finally completed.  Those who simply hung on to that short position scored 86 points for a nice 5.8% gain.  For buy and hold types, it’s been a great trade that is nearing an end.

    For us swing traders, it’s been a wild ride with (much) higher returns [Results] from anticipating the swings that had most analysts scratching their heads.  Yet, most of the swings were signaled by Harmonic Patterns and/or chart patterns that usually agreed.

    We were able, for instance, to short again just ahead of yesterday’s plunge — earning me some sympathetic private messages from well-meaning friends [“Are you sure, man?  This one seems kinda out there, especially without any election results yet.”  B.B.]

    This is essentially the same chart as above — seven weeks later.  We’re coming up on the next Fib level lower — the .786 retracement of the 1576 to 666 crash.  And, it just so happens that we’re nearing the SMA 200 at 1380.80.

    Not shown on this chart, there’s also a Crab Pattern completion at 1384.13, not to mention the .786 of the 1354 to 1474 run at 1380.30.  So, as the rest of the investing world is jumping on the bearish bandwagon, harmonics are signaling another important and unexpected turn.

    *   *   *   *   *   *   *   *

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    continued for members… (more…)

  • The Hangover

    Bulls had quite the party last week.  SPX broke through fan lines, Fib levels and resistance galore on decent volume and breadth, reaching our 1472 target in a big blowout party hosted by the ECB/GCC/FOMC.

    We discussed this target as far back as March 18 [see: Big Picture].  It was refined further a few weeks later in my posts re an analog I developed [see: New Analog I’m Watching].

    The timing ended up being off, as we made essentially two right shoulders in that H&S pattern, and thus reached the bottom in early June instead of early May.  It also took longer to get up to 1472 than I expected – 3 1/2 months of gut-wrenching chop instead of the nice 3-wave move higher I charted.

    SPX also fell further than the 1305-1317 target I originally anticipated.  I amended it along the way to as low as 1295, never imagining we’d break the 1292 support level.  But, in general, the analog played out pretty darned well — establishing new highs and turning many bears into bulls.

    The great thing about reaching targets, of course, is the profits.  Our theoretical long/short SPX portfolio is up about 55% in the 5 months since that analog was posted [see: results.]  The scary thing is figuring out where things are going next — as it’s absolutely no fun giving any of it back.

    Are we really on a sustainable path to SPX 2000 now that Bernanke has practically guaranteed the market will never go down?  Or, are we due for a killer hangover — those 208 points vanishing faster than a Vegas bachelor party security deposit?  The answer, as usual, is somewhere in between.  Though, since I shorted at 1474 Friday, you can probably guess how I expect this to play out.

    continued… (more…)

  • Calm Before the Storm?

    Fridays before a holiday weekend have a tradition of being very, very quiet.  Today seems to be no exception.   Unless something weird happens, we’re aiming for a close around 1323, up a few points.

    (more…)

  • The Road Ahead

    I’ve taken advantage of a relatively quiet morning in the markets to finish mapping the road ahead.  There are quite a few harmonic patterns in play right now.  My practice is to map all the apparent possibilities and look for confirmation (or lack thereof)  between patterns — and then look for ways in which they agree or not with all the chart patterns, channels and analogs I’m watching.

    It’s fairly exhaustive, so takes a fair amount of time.  I hope to post the results in the next hour or two.   In the meantime, the short-term forecast is still for increasing prices.  This morning’s chop does nothing to change that, but does illustrate the importance of using stops.

    Like yesterday, l will occasionally post short-term trading opportunities.  For traders so inclined, the idea of shorting at 1328 and buying back at 1298 is a great trade.  But, it requires a certain degree of vigilance.  For the buy and hold crowd who aren’t interested in 30 point blips, feel free to ignore such forecasts.

    Whichever camp you fall into, please remember to use stops at all times.  These are very precarious times, where unforeseeable events capable of moving markets are unfolding daily.  Please don’t get caught with a significant portion of your net worth hinging on any particular forecast — mine or anyone else’s — without protection.

    For those of you who who haven’t yet signed up, prices are going up at midnight tonight (PST.)   Current members are not affected, of course.  And, as before, the first 100 annual members are grandfathered for the life of the site.  If you’re a quarterly or semi-annual member, you might want to consider upgrading to annual.  To sign up, click here.

    Stay tuned.

     

    Update:  2:30 PM

    The 5-min RSI just broke out from a falling wedge on positive divergence.  If it can stay above the upper bound this morning’s decline should be erased, and then some.  Watch for a back test of the wedge, which would correspond with a back test of the little red trend line at around 1311.

    Still working on the longer term picture.  I’ll send a message as soon as it’s posted.  At this point, all members should be receiving an email within minutes of when a significant post or update is posted.  Please let me know if you’re not receiving these messages.

    I’ve put the texting option back in the sidebar to the right.  Just enter your cell phone and service provider and you’ll be notified of new posts.  Note:  it doesn’t notify you of post updates, just the initial publishing of a new post.

    UPDATE:  4:05

    That worked out pretty well.  The falling wedge paid off as advertised, turning an 8-pt decline into a 2-pt gain at 1310.50 — just a smidge below our 1311 target.  I hope readers were able to take advantage of it.

    Since I didn’t complete the longer-term picture before the close, I’ll work late this evening and try to get it up before turning in.

    BTW, I get a number of emails during the day from readers, and I’m good with that.  But, I much prefer that anything market related — questions about strategy, investment options, etc. — go into “comments” on the post.  I’m likely to see them more quickly, and more importantly, your fellow readers might benefit from the discussion.  Thanks!

  • On Track

    Our forecast remains on track.  Since calling the 1422 top, we’re up a little over 20% on a cash basis (versus -6.5% for SPX) in a little over seven weeks.  We’re likely to pause around 1330, as this represents a key TL on RSI as well as the neckline of one of our recent H&S patterns.  The chart below shows several key price levels coming up.

    (more…)

  • Ship It!

    Today’s rise continues our successful run — now up 18.5% in the 5-6 weeks since the new pebblewriter.com came online (knocking on wood…)  As expected, we got a sizable reversal off the Crab, Butterfly and H&S patterns.

    As discussed in today’s earlier post, the 60-min channel is again being tested – – to the upside, now.  A study of the RSI picture indicates that SPX will likely (more…)

  • Message in a Bottle

    Back on April 12 [see: Analog Details] I wrote:

    To me, a drop to 1305-1317 seems fairly plausible.  The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high.

    Truth be told, I was really writing this note to myself  — a time capsule that would hopefully provide a little backbone.  I had a feeling I would begin to doubt the analog in the face of news bleak enough to produce that large a decline.

    Now, as we approach the 120-point drop (patience, grasshoppers) within two days of the original target, am I still as confident?

    (more…)

  • Searching for a Bottom

    UPDATE:  1:45 PM

    So far, SPX has obliged us by tagging every one of our targets.  The 1310 Fibonacci .707 retrace [see below] of the 2007-2009 collapse is our current intra-day low, and we’re presently sitting at the 1.272 target of the Butterfly incorporated into the analog I first posted on April 9 [see: New Analog I’m Watching.]

    As I mentioned yesterday, I think there’s a very good chance we get down to 1289-1295 (depending on whether they can defend the very important 1292.)  As oversold as things are getting, I wouldn’t even think about going long except, perhaps, to play a bounce — unless we’re able to break out of the acceleration channel on the 60-min chart.

    It’s the dashed red channel that’s guided prices since 1415 (ignore the solid purple line, that’s just our forecast from April 10.)

    UPDATE:  10:05 AM

    Philly Fed numbers aren’t pretty, with a 5.8% drop versus last month’s 8.5% increase.  Especially troublesome is the 6-month outlook, which has plunged from 33.8 to 15.0.

    A negative 5.8%  is bad enough in and of itself, but it looks especially ugly compared to consensus: +8.8-10.0%.

    The Conference Board Leading Economic Index also missed, showing a 0.1% decline versus expectations of a 0.2% gain.  This is the first drop since last September.

    If it looks like the leading economic indicator line hooked down over the past few months, that’s because it has.  Note the monthly rates of change — trending down from +0.7% in Feb to +0.3% in March and now -0.1% in April (not the sort of behavior you want to see in a recovering economy.)  Here’s the official explanation from the Conference Board:

     

    ORIGINAL POST:  9:39 AM

    I’m watching the RSI for clues as to which of our targets SPX will settle on.  Remember, the range is 1295-1323, though the number of unfolding events that could overwhelm our forecast is growing.

    The daily chart shows several parallel trend lines that might provide the final stop.  But, of course, lower stock prices often occur on a higher low in RSI — a phenomenon known as positive divergence, and a sign of a potential bottom.

    Here’s a little better detail on RSI:

    The white dashed trend line (7) is next up.  It stopped moderate declines in April, September and November of last year and probably corresponds with our 1317-1323 target.  Remember, 1323 is the small (yellow) Crab Pattern’s 1.618 and 1317 is the larger (purple) Butterfly’s 1.272.

    The purple dashed line (8) is associated with the declines in November of 2010 and a secondary dip in August 2011 and probably corresponds with either 1300 or 1317 on SPX.

    The yellow dashed line (9) stopped the plunges in March and June in 2011, and provided the higher low for the actual August 2011 1101 bottom.  March 2011 is the analogous point in the analog we’re watching.

    Surfing these RSI channel lines is an inexact science, because turns rarely occur exactly in line with previous highs/lows.  There’s a relatively high margin of error, say 5-8%.  So, it’s possible that yesterday’s RSI low could be considered to have tagged the white line.  If we get a strong rally off the Philly Fed survey or Conference Board numbers at 10am, we’ll call it that way.

    There is one other Fib level we haven’t talked about much — the .707 from the 2007-2009 decline is just ahead at 1309.67.   Many investors aren’t even aware of the .707, so it’s often completely left off charts.  But, this is a long-term pattern, so it could easily come into play.

    Last, the 60-min RSI shows a pretty good possibility of a bounce in the 1317 range.  Between 1323 and 1317, 1317 belongs to the larger and more important pattern — the Butterfly.  So, unless the Philly Fed survey is atrocious, we should get some kind of bounce there.

  • Somewhere Out There, Fibonacci’s Having a Good Laugh

    Some of you might remember this post from May 4.  I was struck by the Fibonacci relationships in both time and price between the last two major H&S patterns, and thought it confirmed my view that the H&S top was ready to play out.

    We all know what’s happened since then, of course.

    The reason I bring it up again is that horizontal purple trend line cutting across the chart from the October high (which helped drive prices higher for months.)  I don’t think it’s a coincidence that it’s at the same price as our H&S target — any more than it’s a coincidence that the latest pattern is:

    1.  1.618 the time of the previous pattern; and,
    2.   .618 of the target price range of the previous pattern.

    These Fibonacci relationships don’t tell us exactly what’s going to happen.  But, they’re practically screaming “pay attention! This could be important!”

    The obvious implication is that SPX will find its way down to 1289, the lowest of our targets initially presented over a month ago [see: Analog Details]  — though I continue to believe TPTB won’t allow a dip below 1292  (too many bearish implications.)

    I’ll post more after the close.

  • Slip Sliding Away

    We’re getting dangerously close to our downside target range of 1295-1323, first discussed back in April.

    • 1349.42 — .886 of the purple Butterfly (tagged)
    • 1343.41 — 1.272 of the yellow Crab pattern (tagged)
    • 1340.03 — horizontal support, prev. Point X  (tagged)
    • 1323.85 — 1.618 of yellow Crab (next)
    • 1317.63 — 1.272 of purple Butterfly
    • 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)

    I have been viewing the downside as consisting of three basic scenarios:

    (1)  stick save: Fed freaks over Europe, QEish leak limits downside to 1349 (fail)
    (2)  top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289)
    (3)  panic sets in: crash and test bottom or large red rising wedge around 1200

    The daily RSI has reached an important trend line of support (solid, purple) and, unlike FTSE, has yet to exhibit positive divergence — meaning it could go lower and tag the dashed purple line.

    I suspect the solid line represents 1323 and the lower, dashed line 1289-1295, but that’s pure speculation on my part.  As we approach 100-pts off the 1422 top, look for lots of investors to throw in the towel.  It’s this capitulation that we need if we’re to see a meaningful rebound.

    As I wrote back on April 12 [see: Analog Details]:

    To me, a drop to 1305-1317 seems fairly plausible.  The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high.  The timing looks to be early May.

    Will the Fed and ECB come to the market’s rescue yet again?  I think so.  I think they understand as well as the rest of us how close to the precipice we are. It’s stupid economic policy that will make things worse in the long run, but since when did that matter?

    On the other hand, I have no doubt that the looming derivatives disaster [see: There is Nothing Wrong] I’ve been writing about — handily verified by JPM — could be beyond their ability to control (hint: 2008 all over again.)

    Stay tuned.

    **********

    And, for fellow Simon & Garfunkel fans…