pebblewriter

Tag: bat

  • Charts I’m Watching: Dec 27, 2012

    The dollar broke down from its steepest channel (in white) as I suspected, settling into a consolidation that might flesh out the larger purple channel today or tomorrow before breaking out of the yellow channel it’s been in since Nov 12.  My target remains the .618 at 79.319 on the purple grid.

    I say “might” because the 60-min RSI features a well-defined channel (rising, white) that could legitimately continue to nudge prices upward at a more modest clip now that RSI has lost the purple channel.

    The EURUSD, in the meantime, reversed right at its .618 as expected, but then broke out of its falling channel overnight to extend just beyond the .786 at 1.3275, completing a Gartley Pattern (white.)  With the .618 reversal, it could also be working on a Bat Pattern that completes at the .886 of 1.3290.

    Note, however, that it has already reached the .886 of a pattern drawn from Dec 20 instead of Dec 19 as shown above; so, there is potential for a reversal without any additional upside first.

    A little more negative divergence would help sell me on this being a top for the pair.  Once it does reverse, there is ample downside.  We’ve yet to see a significant sell-off since it broke down from the rising wedge last week.

    In equities, my core position remains short since 1447 on Dec 18, but we concurrently played an expected bounce from the completion of a Crab Pattern yesterday at 1416.43 with stops at 1415.

    UPDATE:  10:30 AM

    SPX just broke down through the bottom of the white channel that’s carried prices higher since the 1343 low.  The next potential support is the .500 Fib of the 1474 to 1343 drop at 1408.93, which intersects with the .382 of the 1343 to 1448 rally at 1408.02.  It’s also the 25% line of the falling channel from Dec 11 (yellow, below.)

    The dollar poked up above the top of the yellow channel and is testing yesterday’s 79.81 high.

    This is also the mid-line of another channel I’ve been watching, shown below in purple — an area of potential resistance for the dollar, support for equities.

    A sustained push through 1408 leaves little in the way of channel or Fib support until 1393.45 (the .382 of 1474-1343, white below) or 1395.68 (the .500 of 1343-1448, purple.)

    But, there’s not much else there to recommend this for a substantial bounce.  We might  get nothing more than a back test of the DX yellow channel, then off to the races.  The concurrent move for SPX might be a backtest of the broken purple channel and white channel midline at around 1420-1422.  But, I’m not inclined to play that bounce.

    There are only 10 sessions left before our target of 1284-1290 on January 11.  That’s roughly 12 points per day, so drops like today’s will be the norm — not the exception.

    The only other potential support I see is the bottom of the white channel, currently at the purple .618 (1383.33) and the red .786 (1381.50.)   Bulls will want to defend 1381.50, as it was a Bat Pattern completion at the next higher Fib level (the .886 at 1472.43) that got the correction started in the first place.

    Remember, 1474 is where we sold our QE3 longs and went short back on Sep 14 [see: The World According to Ben.]  The bullish case would benefit most by painting a drop to the next lowest Fibonacci Level (the .786) as a little correction on the way to new highs.

    If SPX is very oversold at that point, I’ll consider playing a bounce.  But, as of right now, there’s no positive divergence to support catching this falling knife.

    UPDATE:  2:50 PM

    We’re getting a decent bounce here at 1401.80.  Nothing special going on in terms of Fib levels, but some channel action and a nice round number bounce are playing into it.  Worth a short-term long, IMO.

    It’s likely the market is getting a lot of help from AAPL — which is just a breath away from completing its H&S pattern again.  Recall that since we called the top back on Nov 27 [Update on AAPL] it went down and bounced at its neckline as expected — tagging 501.23 on the 17th.

    It was a nice 33-pt bounce, retracing a Fibonacci 38.2% back to a purple channel line.

    Today, AAPL came dangerously close to completing the pattern yet again — putting in a 504.66 low versus the neckline’s 502.90.  In so doing, it completed a little Bat Pattern on the 60-min chart which should get a reaction back up to 512-515 or so.

    After that rally fails, however, we’re left with a Crab Pattern (smallest pattern in red) that points the way to 480.42.  Note that this is in the same vicinity as a .786 (in white) at 480.65 and a Butterfly Pattern completion at 481.59.

    If 480 can’t hold, there is another Crab Pattern completion waiting below at 446-452 (red 261.8, white 161.8 and 88.6.)

    If/when the H&S pattern completes, it targets the June 2011 low of 310.  But, don’t be surprised if we get a very strong backtest — even a breakout — of the neckline first.  There are a lot of players with a lot of money who understand full well what a close below 500 means for this stock and the overall market.

    UPDATE:  3:30 PM

    SPX continues its back test of the recently broken channel lines.  It would have to break up through 1422.58 before the acceleration channel is endangered.

    As of now, it looks like a parallel of previous steep plunges such as that of November 2012…

    …as well as the one in April – June 2011.

    12:40 — getting close…

    UPDATE:  3:45 PM

    That should about do it.  SPX just tagged the upper bound of the white channel…

    …and, DX just completed a back test of the yellow channel.

    I would be very leery of playing the bounce any further than right here at 1421 — the .886 retrace of the drop from yesterday’s 1423.97 and the .618 of the drop from Dec 21’s 1432.78.

     

    More later.

  • Charts I’m Watching: Dec 26, 2012

    I hope everyone had a lovely Christmas.  Intra-day posts will be open to the public this week, my little gift to those considering a pebblewriter membership.   Sorry, but our forecast will still be available to members only.

    As announced on Monday, subscription prices will increase on January 1.  In keeping with our practice of paying for performance, the annual rate will be about $10 for each percentage point of return since the new site’s inception on Mar 22, 2012.

    We’re up about 95% over those first nine months [SEE DETAILS HERE] so the new rates will be as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    The first fifteen to sign up for an annual membership at the current rate of $800, however, will be granted Charter Member status.  Charter Member rates are locked in for the life of the site, so you’ll never pay more — no matter where annual rates end up.

    If we are fortunate enough to continue averaging a little over 10% per month, annual memberships would be $1,200+ in March.  So, locking in current prices is a no-brainer.

    Sign up HERE.

    *  *  *  *  *  *  *  * 

    We remain short from 1447 on Dec 18.   Per the 1:10 post in the members section:

    SPX just tagged the .786 mentioned above, pushing just beyond 1446.44.  I’m closing my intra-day longs (again) here at 1447 and will see what kind of reaction we get here.  Charts in a few.

    But, I’ll repeat my warning from Monday: bulls will be looking for opportunities to shift momentum, and it could be especially easy with low volume and the inattention that comes with a holiday week like this.

    Keep an eye on the dollar index and the little H&S patterns on SPX this morning.  Some strength is to be expected early in the session, but there is the risk of a small breakout.

    As we discussed Monday, the key SPX level to watch is 1432, which would take prices out of the proposed falling channel as well as complete the lopsided little IH&S that targets a Bat Pattern completion at 1441.  I’d put the odds at 50:50.

    SPX’s bearish H&S pattern has picked up a new neckiline — the bottom of the purple channel above.  The neckline is rising, but it currently completes around 1425.

    The EURUSD is coming up on its .618 at 1.3250 — also the top of a well-formed channel.  The rally should fail at that point, with the key level to watch afterwards being the recent bottom at 1.3157.  Charts later.

    UPDATE:  10:50 AM

    SPX just broke below the neckline of the bearish H&S pattern (in purple below.)  If the pattern plays out, it targets about 1416 — which intersects with a little Crab Pattern at the purple 1.618 at 1416.28.  The key level for bulls to hold is 1422.58.

    A drop to 1416 would very likely see a decent bounce, as it also represents a Bat Pattern completion at the Fib .886 of the 1411 – 1448 rally between Dec 14 and Dec 18.

    The slightly less likely target is the 1.272/.786 intersection at 1419.61-1419.81.  Either level marks an important channel midline, which — combined with the harmonic pattern completions — could elicit a strong bounce.

    A drop through 1411 means much more immediate downside.

    UPDATE:  12:00 PM

    We reached our primary target, reversing at 1416.43.  If SPX can break back through the white channel midline at around 1422, the top case is a bounce to the .618 just formed at 1426.53 (also a white channel line) or the .786 at 1429.28 (the top of the white channel.)

    This is a short-term trade only, and is likely to complete by Friday.  As always, stops are strongly recommended — so, 1415ish should do the trick.

    Any breakout from the channel has upside potential to 1436.

    UPDATE:  12:30 PM

    DX tested the bottom of the little white channel I posted earlier, then zipped right back to its midline with the equities sell-off to 1416.43.

    It has now tested the upper bound of the yellow channel twice in the past two sessions, and must either commit to the rapidly rising white channel  — breaking out of the yellow — or  consolidating further.

    A break out of the SPX white channel would likely equate to a breakdown of DX’s white channel.  If stocks get a rebound to 1436 as discussed above, look for the dollar to flesh out the proposed purple channel to around the .618 at 79.319.

    UPDATE:  3:10 PM

    SPX just pushed through 1422.58, raising the odds that this is more than just a bounce in the current primary wave down.  I never use Elliott Wave to forecast (it either doesn’t work or I’m just lousy at it) but the move down from 1448 to 1416 looks like 5 waves to me.

    If so, the bottom of the 3rd wave down was that 1422.58 level, and breaking that level means we’re probably going to work on retracing the overall move now.

    updated 3:30 PM

    The first big wave down, of course, was 1474 to 1343 from Sep 14 to Nov 16.  Wave 2 was back up to 1448 — a Fib 78.6% retrace. SPX has dropped 32 points since, back to just beyond the .618 retrace of 1474-1343 and only about 30% of the 1343-1448 rally.

    So, technically, we might have just established a Point C for a Butterfly Pattern pointing to 1510 or 1555 (the 1.272 and 1.618, respectively.)  But, that doesn’t fit with our primary forecast, which is that 1474 was an important top which will stand for many, many months (at least.)

    The more likely scenario is that 1488 was the end of the 2nd wave, with 1448-1416 serving as the 1st of the 3rd wave down.  If so, and if SPX holds 1416.43, we should expect a 2nd wave up to retrace anywhere from .382-.886 of the drop from 1448.

    The potential Fib targets (the white grid) are:

    • .382:  1428.49
    • .500:  1432.22
    • .618:  1435.94
    • .786:   1441.24

    A 2nd wave up could stay within the small white falling channel only up to about the .382 at 1428.49. But, even that is pushing it.  In other words, any move higher means a break-out of the channel.

    On the other hand, a reversal at the (red) .618 at 1426.53 means the current wave down isn’t quite done.  This also intersects with the small purple .786 (1426.64) and the small pink .382 at 1426.84.)

    That’s probably about as clear as mud, but suffice it to say there are many harmonic scenarios in play in the small, intra-day scale — even though the larger scale still points down.

    I see absolutely no reason to get bullish at this point, and look at this as nothing more than a bounce.  Those of you playing the bounce at 1416 should keep stops where you’re comfortable, with the understanding that the risk is still to the downside.

    As discussed in the performance update a few days ago, I will occasionally keep a core position in place (in this case, short) while playing a contrary wave for a bounce.  This is one of those situations.  More later.

  • Charts I’m Watching: Dec 24, 2012

    Strange things have happened around holidays this past year.  Though this is a short day (equity markets close at 1pm EST) it’s best to remain vigilant.  Equity futures have recovered most of their overnight losses, and TPTB would love nothing more than to undo the gains we’ve racked up (since shorting on the 18th) while no one’s looking.

    Keep an eye on the proposed channel for the dollar for any signs of weakness…

    …as well as the EURUSD, which is trying to stage a comeback.  A move through 1.3232 would signal 1.3265 — 1.3238.

    UPDATE:  10:15 AM

    As to SPX, any push beyond 1432.78 carries the risk of a Bat completion up at 1441.27.  Though, there would no doubt be a reaction at the .618 of 1435 first.

    Since the 1432.78 high on Dec 21 stopped just shy of the 1432.82 low the day before, it might mark the completion of a Wave 4 in the first subwave of whatever degree wave down we’re currently in.  Thus, the bulls might attempt to throw this most obvious bearish wave count into disarray by overlapping 1432.82.

    It would then be easier to characterize the 1448-1422 slide as a normal A-B-C corrective wave rather than a bearish impulsive wave.  Regular readers know that I don’t use Elliott Wave for predictive purposes, but it’s good to be aware of what Wavers might be thinking — since breaking through key EW levels will likely get them moving one direction or the other.

    Our bearish case would benefit most by a reversal right here at the midline of the proposed white channel.

    More later.

    UPDATE:  11:45 AM

    SPX just completed a small H&S pattern (below, in purple.)  If it plays out, it will negate a potential IH&S pattern (in yellow).  If the purple pattern plays out, it targets 1417 or so, which is around the bottom of the little white channel that’s tracking pretty well so far.

    If the yellow pattern completes with a return to the dashed yellow line at Friday’s 1432 high, it would target somewhere in the vicinity of the .886 retracement of the 1443-1422 drop at 1441.

    A low-volume, holiday-shortened feel-good day like today would be the perfect time to execute a ramp job.  As discussed above, keep your guard up.

    UPDATE:  1:00 PM

    Things remain on track here at the end of the holiday-shortened equity trading day.  Any fireworks will have to wait until Wednesday.

    BTW, I finally updated the RESULTS PAGE for those who follow such things.  Friday marked the end of the third quarter since the new site went live on Mar 22.  After Dec 31, reports will be based upon calendar quarters.

    Since inception last March, we’re up about 95% as compared to 3.7% for SPX (without dividends.)  I don’t have figures for the same time period for hedge funds, but according to HSBC’s Dec 13 Hedge Fund Weekly [available on Zerohedge.com] the average ytd performance for all equity hedge funds was 5.15%.  The top-performing fund (BTG Pactual’s Distressed Mortgage Fund) returned 39.91%.

    *  *  *  *  *  *  *  *

    POTENTIAL CHANGES:

    A couple of weeks ago, I mentioned I’ve been considering some significant changes to this site.  Although our results have been above-average, I’ve debated whether the current format is the best way of delivering value to members.

    It’s challenging, for instance, to convey information in a way that serves the needs of both long-term investors and day-traders.  It’s also difficult to strike a balance between providing timely trade information to those who don’t require a lot of explanation and educating those who are new to my process.

    Also, from a purely mercenary standpoint, I’d like the site to make financial sense for me and my family.  I realized when I began the site that it would take some time for word to spread.  My goal was that by the end of the year I could cover my nut while putting in only 40-50 hours per week — leaving me enough time to hang out with the family, coach a little basketball, travel some.

    Nine months later, membership has grown to a point where it almost pencils out — but, not quite.  I can’t yet justify hiring a proper web developer and administrative staff to handle membership issues, accounting, loss prevention, so I’m putting in 60-80 hours week on average — which, of course, leaves less time to chart, write and sleep — not to mention my family and other business interests.

    It seems I have two choices: grow the site or convert it.  Growing it should be simple but, in all my years as a stockbroker and later in asset management sales, I have come to realize I don’t really enjoy sales.  And, of course, devoting time to shameless promotion takes away from charting and writing — which I do enjoy.

    Converting the site would mean setting up a hedge fund.  Several friends have expressed interest in seeding a small fund that would ultimately grow to about $100 million. I would continue to do exactly what I’ve been doing — identifying major and interim tops and bottoms — and execute unleveraged long or short positions in major markets on behalf of the fund.

    It would be run from my small, but lovely town (also an internationally renowned vacation destination) on the Central California coast with an assistant and a trader.   Custody, administration, etc would be handled by name brand entities elsewhere.

    As I envision it, current members would have the option of investing in the fund or continuing to simply receive research until their membership expires. Current members would, of course, have their pebblewriter.com fees applied to fund management fees — which would be discounted for current members who are involved from the start.

    One member has also suggested a chat-room type system whereby fund trades could be communicated in real time to members who want to continue trading their own accounts as well.  I am fine with this idea, as long as we’re not giving away research to our competitors (one of the problems with the current site, where we get 20-30 login attempts daily for every active, paying member.)

    I have a lot of homework yet to do, beginning with a survey of current members I had planned on sending out regardless.  In the next couple of days, I will be seeking your opinion on both the current site and the proposed fund.  There is no fund yet, so I am not soliciting investments at this time; but, it would be very useful to get a sense of members’ potential interest.  Please watch for an email.

    NEW FEE SCHEDULE:

    In the meantime, membership fees for pebblewriter.com are slated to increase on January 1, 2013 (regardless of what happens with the fund, I need to purchase some new computers, backup systems and communications.)  In keeping with my practice of tying fees to performance, the new rates are as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    I recognize this is a significant increase, so I am offering existing members the opportunity to lock in current rates through December 31.  Also, as a bonus, the first 15 annual memberships will be granted Charter Membership status.  In other words, your annual rate will never rise above $800 for the life of the site.  As those who joined last Spring for $500 will tell you, that’s pretty cool.

    This offer won’t be opened up to the public until December 26th.  And, as always, if you currently have a membership, we’ll tack your new one on to the end of your current one.  That way, you won’t get stuck with even higher prices when your existing membership expires in a few months.

    Again, if we move forward with the fund, current members will receive a full offset for any pebblewriter.com fees paid from this date forward, and will also receive a meaningful discount on any fund fees charged.  I strongly believe in rewarding those who’ve stood by me on this adventure.

    If you’ve read this far, thanks!  I had no idea when I started pebblewriter last year that it would grow into something so rewarding and enjoyable.  I’ve learned a lot, and I hope most of you have, too.

    *  *  *  *  *  *  *  *

    Christmas Eve is always bittersweet for me.  I love being with family, singing Christmas carols and seeing the excitement on my children’s faces as they rush downstairs to see what Santa brought.  And, it seems most people are just a little bit nicer to one another.  But, it’s also the day when, at age 15, I lost my mother — my one remaining parent.  So, for me, it’s a reminder to reach out to loved ones and tell them how much they mean.

    It’s also a reminder of the importance of helping those who are struggling.  These are challenging times.  If you’re anything like me, the events of the past year have caused you to take stock of the world and your place in it.  Between wars, famine, financial distress, political and religious division and, yes, shootings — we need this holy day now more than ever.  And, regardless of what church, synagogue, temple or mosque we attend, we need to look for opportunities — every day — to minister to those around us.

    My family and I wish you all a Merry Christmas and a blessed New Year.

     

  • Still Groovy: Dec 19, 2012

    A quick plug: for anyone doing any last minute holiday shopping, I recently found a wonderful online shop that carries very cool shabby chic, french country and vintage decorative goodies.  After looking everywhere, I snagged some vintage champagne flutes at a very reasonable price.  I also understand the proprietor lost a loved one in the Sandy Hook shooting. Take a peek: here.

    *  *  *  *  *  *  *  *

    This Just In!!!

    The Orange One delivers a 60-second pep-talk on his cordial and highly productive talks with President Obama.

    ORIGINAL POST:  3:00 AM

    I have a confession to make.  Two weeks ago, I plagiarized the title and intro of the post: Stay Groovy.  Okay, so technically I plagiarized myself.  I originally used it the morning of June 1, 2011 on the old Blogger site to describe a situation that seemed pretty dicey.

    On May 31, after 3 straight daily gains, SPX had tacked on an additional 1.1% and appeared to break out of a well-formed channel.  Rumor was the Greece debt crisis was nearly resolved (glad we don’t have to worry about that anymore) and financials partied like it was 1999.  From the CNBC daily recap:

      

    Most everyone, it seemed, was suddenly bullish.  Truth be told, even I still had one foot in the bullish camp, wondering if SPX still might go up and tag the .786 of the 1576-666 crash at 1381.50.

    I posted the following commentary:

    There are plenty of tripwires ahead in the economic data due out this week.  Will they blow up the market, or simply result in another QE airstrike?   May as well call your bookie and bet on whether QE3 is coming….While I think there’s some upside potentially to the 1380 level, I wouldn’t bet the farm — especially from these levels.  I remain much more concerned about the downside.  Stay groovy.

    Here are the vitals from the end of the day, May 31, 2011:

    • SPX nearing the Fib 61.8% retracement from the 1370 top, still down 1.9%
    • every bank stock shown above gapped up on the day
    • an established channel had been broken in a way that surprised vis-à-vis 2007

    Turns out that the channel in question could be interpreted two different ways.  The red channel was indeed broken, but the purple one was still intact, thank you very much…

     

    …which meant that the channel break-out everyone expected was quickly and painfully reversed.

    “Okay” you say, “lots of nice information.  But, why do I care?”  Let’s examine yesterday’s vitals:

    • SPX reached the Fib 78.6% retracement from the 1474 top, still down 1.8%
    • every bank stock shown above (except HBC) gapped up on the day
    • an established channel was broken in a way that surprised vis-à-vis 2011

    Reaching the 78.6% Fib retracement yesterday wasn’t a huge surprise — after all, S&P upgraded Greece (at least we don’t have to worry about that anymore.)

    Like May 31, 2011, every bank stock (except HBC) gapped up on the day.  But, although SPX is up over 100 points (nearly 7.5%), most of the banks are still sitting at or below their May 31, 2011 price levels.

    BAC and WFC are the exceptions, but they are rapidly running out of real estate.  Most of the other charts look something like the following:

    How about the broken channnel?  Until last week, the red channel was apparently in control.  SPX pushed up through it, then back-tested and took off.

    But, suppose it’s the white channel that really matters?  Suppose the fiscal cliff solution (that seemingly everyone expects) never materializes, or housing starts are horrid, or the euro zone suddenly lands back on our collective radar?  Suppose DX and EURUSD both complete their Bat Patterns tonight or tomorrow?  Suppose the recent break-out…wasn’t?

    When I start asking rhetorical questions in the middle of the night, it’s probably time to turn in.  I’ll leave readers with one last chart that anyone who’s been following our analog might find interesting.

    continued for members… (more…)

  • Charts I’m Watching: Dec 17, 2012

    We got the bounce we talked about Friday afternoon, coming at the .618 of the last move up (the Crab completed Wednesday, in red) as well as the last wave down (in white, below.)

    We discussed not playing this bounce until SPX has cleared 1420, which it did this morning.  Even so, I would be cautious in chasing after it.  While the potential is to 1429-1435, as detailed Friday, this is almost certainly just a bounce — nothing more.  And, the next wave down will be swift and severe — particularly if AAPL continues to show weakness this morning.

    For those who opened a small protective position as we discussed Friday, the two most likely upside targets are a yellow channel line or a significant Fib retracement of the last wave down.

    The tightest version of the yellow channel is shown below.  This version ignores the last 10 points of the mid-November plunge.  A stop at the 25% channel line would mean a bounce to only around 1423 — not much of a back-test for the just broken white channel or rising wedge (in purple, below.)

    But a better fit, IMO, would mean including all of the mid-November bottom.  Under this scenario, the yellow channel midline at around 1428 (the purple .618) would be the more likely lower end of the range for the bounce — with a full .786 or .886 (1432-1435) retracement representing the upper end of the range.

    If AAPL gets a bounce at 500 this morning, look for this scenario to play out — with SPX’s bounce forming a nice A-B-C wave into the shaded area below.  A stop in the shaded target area would get the downside going, with the next stop around the white .886 around 1402.

    continued for members… (more…)

  • Forecast Update: Dec 17, 2012

    April 11 seems like a long time ago.  It was then that I laid out my forecast for the top we’ve formed [see: New Analog I’m Watching.]  As regular readers know, it was based on a combination of channels, harmonic patterns in price and time, a huge rising wedge, and a promising-looking analog.

    I made several adjustments along the way — revising the 1314 downside target to 1295, for instance.  However, on June 1, when the SPX surprised me by dipping below 1292, I posted that the bottom was at hand — but that the analog was probably broken [see: Why I’m Buying.]

    SPX did indeed bottom the next day, but the chop over the remainder of June convinced me I was probably right about the analog being broken.  We saw no such chop in the comparison period of Mar-Apr 2011, which was a fairly orthodox A-B-C pattern higher to an unorthodox 1.272 extension of the previous decline.

    But, as SPX approached the key 1472 Fib level (88.6% of the 1576-666 2007-2009 decline), it occurred to me that:

    1. SPX would naturally reverse at this Bat Pattern completion [World According to Ben]
    2. This reversal would intersect with the 1.272 extension of the previous decline.

    Despite the huge differences in form between the Spring of 2011 and Summer of 2012, the ultimate price movement was shaping up to be the same.  And, it was happening without a Point B reversal at the .786, which is required of an ordinary Butterfly Pattern.

    This was enough to get me wondering if I’d given up on the forecast too soon.  Sure enough, we nailed the 1474 high on Sep 14 which, after nailing the Apr 1422 high and nearly so the June 4 1266 low, boosted performance to over 60% in less than six months.  The move down after 1474 played out very much according to plan.

    So, by the time I posted A New Old Analog on October 26, I had discovered why the forecast seemed off track in the first place.  It was a great help in forecasting the remainder of the year.  Here’s the forecast from that Oct 26 post, with alternative prices at each turn:

    And, here’s the actual price action overlaid on that same forecast.  We’ve tagged Point A of the first turn, Point B of the second, and overshot Point B by 10 points on the third.

    Does last week’s overshoot of the most recent target spell trouble for the forecast?

    continued for members… (more…)

  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Charts I’m Watching: Dec 10, 2012

    The market continues to walk a tightrope between another leg up and a very significant tumble.  We’ve been here many times before in the past year, and it isn’t getting any more fun.  To recap…

    We remain short from 1423 on Dec 3 [see: Without a Net].  This was target A established in our Oct 26 forecast [see: A New Old Analog] and can be seen in the original chart below.

    Note that 1423 was very close to the .618 retracement (1424.41 on the white grid below) of the 1474 – 1343 decline.  Prices reversed there as we expected, shedding 25 points to 1398 in its first wave down (in line with our forecast of 1400.)

    That .618 retracement of the 1474-1343 wave down portends one of three outcomes:

    1. the bearish case:  a corrective wave 2 which sets up a more powerful wave 3 down
    2. the bullish case:  the first of a series of impulsive waves to new highs
    3. the middle case: the “A” subwave in an A-B-C corrective wave that points higher before wave 3 down.

    The first case is pretty clear cut, and has been detailed in prior posts.

    The third is also pretty clear, as the .618 retracement to 1423 could be merely a Point B in a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)

    If SPX blows through 1425, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    The big imponderable is case #2.  The top question I’ve received over the past week is whether a fiscal cliff deal would result in such a move.  It’s pretty easy to imagine that sort of a market reaction, even though — like last year’s debt ceiling compromise — it would hardly be justified.

    One thing is indisputable:  deal or no deal, we’ll get higher taxes and lower government spending.  Any combination of the two will negatively impact GDP.   By the same token, though, any deal would almost certainly mean a bump in prices.

    UPDATE:  11:50 AM

    Last Friday, SPX came within 48 cents of retracing .886 (1420.82) of its 1423.73-1398.23 decline.  This morning, it sealed the deal, reaching 1421.64 and completing the Bat Pattern.

    In the process, though, it tagged the neckline of the potential Inverted Head & Shoulder pattern we discussed Friday.   The pattern, if it plays out, targets 1507ish.  For the pattern to play out, we’d (at least) want to see a close above the shoulder line at 1420.80.

    But, it’s important to point out that not every IH&S pattern plays out.   Sometimes, it’s just market makers trying to shake things up a little bit.  Here’s one that didn’t play out last year, for example.

    Suppose we went up and tagged the actual .618 at 1424.41 for instance.  It’d be easy to see it as the bullish case playing out, what with a higher high and all.

    continued for members… (more…)

  • Update on Financials: Dec 7, 2012

    The last time I devoted an entire post to financials [June 5: So Crazy, it Just Might Work] XLF was down nearly 19% from its March highs.  I held my breath and made some ridiculously bullish predictions.

    But, all good things must come to an end, and I think the tide is turning for financials.  Don’t get me wrong…I still think they’re dead meat in the longer term.  I just think we’re looking at a sizable bounce here and now if — and let me be clear, it’s a very important IF — the rumors are true and Kumbaya Banking and Quantitative Whatever are back.

    If not, this entire exercise isn’t worth the bytes it’s written with.  The financials, along with just about everything else Bloomberg quotes, will roll over and die.  OK, with that huge caveat out of the way — and before you laugh me out of cyberspace — here are my targets:

    JPM:  today’s close = 31.99, price target = 38.69 (+21%)
    C:       today’s close = 25.75; price target = 34.79 (+35%)
    BAC:    today’s close = 7.10; price target = 11.34 (+60%)

    Turns out that was the low for both JPM and C.  JPM reached our target on Sep 6 and tagged on an additional 5 points by October 17.  Citi reached its target on Sep 14 (same day SPX peaked) promptly dropped 10%, then rallied another 3.5 points to form a nifty little double-top on October 18.

    BAC was my one disappointment.  It had achieved a nice 38% return when it peaked at 9.79 on Sep 14, but had fallen short of my price target — a Fibonacci 61.8% retrace of its 68% 2011 plunge.  Apparently I had been too optimistic.  Or, so I thought…

    Don’t look now, but in the past couple of days BAC has shaken off its laggard status and is once again spiking higher — trading within 66 cents of my June forecast.  As has been widely reported, call option buying is going through the roof.

    Sadly for those speculators, though, it’s going to take lots of unicorns farting rainbows for those calls to pay off very big.  Why?

    Reason #1:  Yep.  Two Crab Patterns pointing to the same conclusion — a reversal near current prices.

    Reason #2:  Uh-huh.  Rising wedge, plain as the note on your place.

    Reason #3:    Bad channel karma everywhere.  Maybe those call buyers don’t look at charts much?  Yikes!

    Reason #4:  How about a Fib .382 reversal?  It’s not usually the end of the world, but it is a Fib. And, it’s surrounded by a bunch of little channels that are about as cute as a pack of Dilophosaurus.

    I’m not going go all negative and start talking about the massive fundamental problems BAC faces — as do most other banks.  But if BAC hasn’t done its thing by the time the market does its mama bear crash here over the next few weeks, it’ll be a couple of months before it gets another shot.

    If it’s lucky, the sell-off will only be to 9.12.  But, it the white channel mid-line doesn’t hold, you could through another point or so on the fire.

    What does this mean for the rest of the financials?  Think in terms of a downdraft on Monday.   XLF needs 8 cents to reach its .786 (or .21 for the .886), which ought to get the party started to the downside.

    JPM needs .47-.61 to reach a prime target for reversal — either 43 or 43.14.

    And, C has about 44 cents of life left in it;  38.19 oughta do it.

     

    When it comes to significant moves, financials often lead the broader markets.  Fortunately for our forecast, they are only one good pop away from being ready for a slide.  Having them on board in the next session or two should get us where we want.

  • Last Call: Dec 07, 2012

    Feeling pretty jazzed, as things should finally get underway today.  Today’s theme music from the late jazz great Dave Brubeck, the last of his kind.  This track features Brubeck, Paul Desmond, Eugene Wright and Joe Morello doing what they did best — laying down some hot licks.

     

    ORIGINAL POST:   9:15 AM

    Though the jobs numbers will give a boost to the market this morning, it shouldn’t be enough to break to new highs.  SPX should come within a few points of completing an inverted H&S pattern, but ultimately fail near the .786 or, more likely, a little Bat Pattern at the .886 (1420.82)

    For anyone who missed the opportunity to go short when SPX nailed our upside target [see: At Last] on Monday, this could be your last chance.

    The rally from 1343 has felt strong, but it’s no more than a back test of a broken channel. The next major move should be much lower.

    As always, stops are advised in the event the pattern completes.  Though this analog has worked beautifully since last April, they all fail eventually.

    BTW, the jobs numbers from BLS weren’t quite as fab as they would have us think (I know — I’m shocked, too.)  In the last four years, those over 55 have scored decent job growth.  Younger workers and those in their earnings prime — not so much.  From Zerohedge:

    UPDATE:  11:45 AM

    The dollar has been a veritable billboard for harmonics lately.  It completed a Bat Pattern back on Sep 14 (red pattern), retracing .886 of its rally from February to July.  Since then, it’s retraced 50% of the drop (not shown, but a Bat Pattern from Aug 28 channel mid-line break.)

    It then proceeded to complete a Crab Pattern (in yellow), reversing at just beyond the 1.618 of 81.138 in mid-November.  Since then, DX formed a nice falling wedge that saw it complete a Gartley Pattern on the 5th (in white.)

    Some might see the purple and red patterns as having further downside potential.  The red Bat could go on to form a Crab down at 74.335 (which would line up nicely with the purple .886 at 74.158.  If our analog/forecast busts, I’d say that’s a good possibility.

    But, it’s hard to ignore the recently broken channel for EURUSD.

    UPDATE:  1:20 PM

    Stocks reversed nicely from this morning’s high, which came within  48 cents of our 1420.82 target — good enough for government work.

    Lots of excitement about financials the past couple of days.  It was certainly one of the hot sectors today, offsetting generally poor results from services and, of course, AAPL.  When it comes to significant moves, financials often lead the broader markets.

    So, in a period when we’re looking for a sizable sell-off, it would be helpful to have the financials on board.  Fortunately for our forecast, they are only one good pop away from being ready.

    For more, check out today’s Update on Financials.