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Tag: bat

  • Charts I’m Watching: Dec 6, 2012

    ORIGINAL POST:

    We can’t call the corrective wave over just yet.  There’s still potential to one of those fibs or channels we discussed yesterday before the 3rd wave down gets going.

    But, RSI is still showing no breakout potential on any time frame.

    A 50 – 88.6% retracement is considered “normal” for 2nd waves.  This one had a little reversal at a little over .618 on the largest white scale, which opens up the possibility of a Gartley (which completes at the .786) or a Bat Pattern (completes at the .886.)

    As the chart shows, the .786 is at 1418.27 and the .886 is at 1420.82.  Each of them looks possible, and one of them is very likely if SPX edges up past 1415.56.  If it does, my leading candidate is the .786 at 1418.27 — especially if we get a little reversal at 1413.50 — the .786 of the smallest red pattern.

    That would set up a Butterfly Pattern on the little red pattern which completes at its 1.272 at 1418.27 — intersecting nicely with the white pattern’s .786 at 1418.27.  Such a price point intersects with the channel lines (as drawn, but not yet firmly settled) at the end of the day or very early in tomorrow’s session.

    If SPX can’t get past 1415.56, then the downside harmonics (represented by the small purple grid) are in play, and the initial target is back to the 1398 level (previous low, and a Bat Pattern .886.)  Once prices move past 1398, the decline should accelerate.

    UPDATE:  12:30 PM

    If the analog were to play out exactly as before, with no deviation from the past pattern, we’d not see any higher prices at all.  In fact, we’d be back below 1343 in the next day or so — starting this afternoon.  But, that’s a bit much to expect, given the big deviations we’ve already seen within each wave.

    UPDATE:  3:15 PM

    Lots of excitement around AAPL the past couple of days.   A couple of weeks ago, after AAPL soared 90 points in 7 sessions and was approaching 600, I was a little skeptical [see: AAPL update.]  I posted the chart below, and nervously took a stand.

    Combining all the above, it’s easy to imagine a scenario where prices drop to 500 into the end of the year, but can’t quite seal the deal on the H&S pattern.  A nice bounce there and rally into February would fit nicely with my general equities forecast (see below.)

    AAPL gained 4 more points over the next couple of sessions, then took a swan dive that has seen it lose nearly 75 points in less than a week.  Here’s the same chart, updated for the actual price action.

    Aside from the fact that AAPL did what we expected, nothing’s really changed.  There’s a H&S pattern that would complete at about 504.  Given the number of hedgies and mutual funds rushing for the exits, who could be surprised if AAPL went ahead and completed it?

    But, I’m not beating the table for that scenario, only because a bounce just shy of completing the pattern better fits with my general equity forecast.  AAPL came within 3 points of a .886 retracement of the bounce from 505 today (and 14 pts shy of the H&S completion) so there’s ample reason for a bounce.

    It could easily stay in the little white channel, forming a falling wedge into the year end as the rest of the market melts down a bit.  Personally, I wouldn’t have anything to do with it in my portfolio unless it was an iron condor or the like.  The volatility is too great and I don’t like the odds in either direction.

    More later…

  • DX Update: Dec 2, 2012

    The US dollar remains in a rising channel within long-term channels that point to very different outcomes.

    The rising white channel intersects just ahead with the larger falling white channel upper bound, the rising red channel mid-line and the 75% bound of the falling purple channel.

    Whether the red or purple channel carries the day will depend largely on whether the ECB or the Fed can deflate its currency the fastest.

    But, the intermediate-term picture is clear:  if DX can hold the white channel, the next move should be much higher.

    continued for members… (more…)

  • Stay Groovy

    “It was an expression used by small recon units and sniper teams in hostile terrain in Vietnam. They would tell one another to stay groovy when the danger level was so insanely high they popped amphetamines to stay awake and ready to rock twenty-four/ seven, because anything less would get them all killed. Stay groovy; take your pill. Stay groovy; safety off, finger on. Stay groovy; welcome to hell.”

     The Watchman, Robert Crais

    Those who have been following this blog or its predecessor for any length of time know I’m a big fan of analogs.  I was asked just yesterday why I thought they worked, and found myself fumbling for an answer.

    Like harmonics, I know that they do, because they’ve enabled us to make some nice calls that were accurate as to price and time such as the big downturn in April and the subsequent 1474 top in September.

    The big Kahuna, of course, was the July/August plunge in 2011 that mirrored that of Dec 07-Jan 08.  It’s just plain scary how well that turned out.

    I think analogs work mostly because of channels and harmonics.  In the simplest terms, channels keep prices pointed in a general direction for a noticeable period of time.  They can last for decades…

    a few years…

    or a few days.

    Regardless, I’ve found that most significant moves occur within or interact with channels.  Very often, as in the above chart, they’re channels within channels.  Even big channels that seem to generate their own atmosphere are usually aligned with other big channels.

     

    So, it’s not terribly surprising when moves that bring the market to the brink of disaster or reach ridiculously overbought levels react “just like it did last time!”

    Harmonics, likewise, are usually related.  The easiest example is the 2007-2009 plunge from 1576 to 666 which, when followed by an intial reversal at its .618 Fibonacci level, signaled both a Gartley Pattern reversal at its .786 retracement (the May 2011 high) and a Bat Pattern reversal at its .886 (Sep 2012 1474 high.)

    Combining the two, and tossing in some other chart patterns and traditional technical analysis, it’s easy to see why the market has done what it has most of the time.  If markets move in somewhat predictable and repeatable ways, then analogs can be viewed as a predictable aggregation of those predictable moves.

    Of course, its not always as simple as that sounds.  Even great analogs usually present alternatives. Over the past couple of months, the one we’re following now has hit our primary target at times and our secondary targets other times.

    And, some can be tough to get a handle on.  The one from this past April [see: New Analog I’m Watching] that very capably guided us from 1422 to 1266 and back up to 1474 (the top chart above) worked beautifully from a price standpoint, but was way off in terms of timing (since licked, I think.)

    And, last, there’s one truism that’s the bane of every analyst who charts analogs:

    Every analog works forever…until it doesn’t.

    Even as we’re counting down the last few points to the 10% downturn we charted all those months ago, a well-timed Bernanke comment or Hilsenrath article (is there really a difference?) could nudge the markets just enough to complete a Zweig Breadth Thrust event that ushers in a new high.

    If that happens, never mind.  End of the road.  It’s been a nice ride for the past nine months, but it’s time to change partners.  If it doesn’t, however, and we reverse in the next 10-15 points, it’s just about time for the song.

     

     

    UPDATE: 1:20 PM

    I’ve had several messages asking whether we’ve reached the target or not.  Frankly, I’m surprised.  The answer should be perfectly obvious to everyone:  maybe.

    continued for members… (more…)

  • Charts I’m Watching: Nov 23, 2012

    ORIGINAL POST 9:25 AM

    SPX seems intent on reaching the next Fib level — the .618 of the 1433-1343 plunge at 1398.99 — before embarking on a significant B wave lower.

    But, the top of the new purple channel that’s been guiding us lower since mid-September is up above at 1401-1403, so there’s every chance in the world that SPX will stretch to reach it.  Plus, 1400 is just too tempting a target.   Reversals are attracted to round numbers like moths to a flame.

    The neckline of the H&S that completed back on the 7th is up at 1406ish and would mean a break out of the channel, so I’ll make that a secondary target and would look for a quick retreat back into the channel.  Since the market’s aim here is to give the “appearance” of setting up a Bat Pattern that targets the .886 at 1459.56, a reversal anywhere between the .larger pattern’s .382 at 1393 and .500 at 1408 would suffice.

    SPX just smacked into a bunch of channel lines in this area, and we should see a strong reaction before moving much higher.  But, as we discussed Monday, the general trend remains higher to our forecast target.  Any shorting here would be a short-term trade in conjunction with a long core position.

    DX is closing in on the highest of our proposed Point C’s posted on Monday — the .382 of the 78.725 to 81.515 run since the Sep 14 low.  This is also a .618 of the more recent 79.72-81.515 spurt and a channel line, so a reversal should be imminent.  Remember, the overall trend is higher into the end of the year.

    We’re looking for either a B subwave higher in the C leg (or the main B leg higher itself) of an A-B-C move lower to find a Point C for the Bat Pattern completion up at 83.06 to 83.62.  It could be significant, but it’s a counter-wave in a counter-wave, so don’t get too hung up on nailing it precisely.

    The EURUSD is closing in on the .618 retracement of its recent drop from 1.3138 to 1.2660 — as well as an important channel line.  Look for a reversal around 1.2956 to coincide with SPX’s channel tag discussed above.

    UPDATE:  10:30 AM

    SPX just reached the upper bound of the channel discussed above.  I’m trying a short position here at 1404, with stops around 1407.  Again, general trend remains higher. Targets and charts in a moment.

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  • EURUSD Update: Nov 20, 2012

    Good morning, all.  The markets should get no help from across the pond today.  Though Moodys’ downgrade of France was not exactly news, it should serve to remind investors of the structural issues facing the euro-mess.

    The EURUSD completed a well-formed Gartley Pattern early this morning, reacting off the .786 of the latest move down.  More importantly, though, the pair is bumping up against three significant channel lines.  The Gartley is visible here as the small pattern in purple.

    The dashed, yellow line is the midline of one channel, and the solid purple line is the 25% line of another channel.  They’re both easier to see from further out, and are basically two different ways of viewing the rally from this past July (which happens to exactly parallel the last one from earlier in the year.)

    Note that the pair has also come back to its Point X of a recently completed Crab Pattern that came up a little short of the 1.618 (or overshot the 1.272.)  It’s the small red pattern on the above charts.

    The third channel I referred to above is the daily RSI channel.  The pair broke down from the rising purple channel around Nov 1 while establishing another falling white channel parallel to the last one from Feb-May.

    It’s now back-testing the purple channel — which should ultimately provide resistance that should send the pair down by no later than December 5.  Note this time frame fits with the intersecting price channels as well.

    Bottom line, while the rally could extend a little further after this interim resistance, the next big leg is down.  My money’s on the white .886 at 1.2169 around the end of the year in a plunge reminiscent of the May 2012 move.

    In the meantime, keep an eye on the rising wedge and RSI channels on the 60-min chart.  While the wedge hasn’t yet broken, the yellow RSI channel has.  After a back-test, there is  downside exposure with the falling white channel.

    The Big Picture:

    EURUSD completed a Bat Pattern (purple D) at its .886 in July — also the bottom of the falling purple channel.  This was also a Crab Pattern completion (the small purple grid.)  Many times Bat Patterns go on to become Crabs, meaning the ultimate target of this decline could be .9982.  But, my intermediate-term target is 1.10-1.13 by May of 2013.

    • bottom of the big red channel
    • intersection of the red and purple channels
    • white Crab Pattern completion at 1.618 (1.1342)
    • .618 tag of largest white pattern
    • bottom of large rising yellow and purple channels

     

     

     

     

  • 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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  • Charts I’m Watching: Oct 1, 2012

    ORIGINAL POST:  9:40 AM

    We posted this chart early Friday morning [see: CIW Sep 28]:

    SPX is selling off this morning, but should find support at the purple channel bottom around 1435-1436 and rebound…  If the channel does hold, preferably at the .786 or .886 of the pink pattern, look for the Gartley Pattern we discussed yesterday to complete at 1456.21.  Why?  Yesterday’s high was a perfect Fib .618 retracement of the 1463.20 to 1430.53 drop.

    In fact, SPX reversed at 1435.60 minutes later, starting up right at our Point C.  That left the Gartley Pattern completion at 1456.2 (Point D) as our next target.  Don’t look now, but it’s not all that far away.

    SPX just hit our interim target of 1450 — the upper bound of the channel it’s been in (and fell out of) for the past several days.  This also represents one of the larger red channel lines and is the Sep 27 top, so we should get a reaction here.

    But, we will likely go higher.  Why?

    Note that on the 27th, we reversed at the .618 retracement of the 1463 – 1430 drop.  This set up a potential Gartley Pattern at 1456 or Bat Pattern at 1459.

    In the midst of that range is the .618 of the larger 1474 to 1430 drop at 1457.71. And, the top of the red channel is currently at, drum roll please, 1457.

    In other words, we should get a decent downturn somewhere in the 1456-1459 area — with 1457 being my favored target. We remain long from 1437, but I plan on taking profits and playing the downturn at that point.  I’ll look for a shift in momentum first.

    More in a few…

    UPDATE:  10:10 AM

    That’s close enough for me.  Going short here at 1457, with stops at 1460.

    We could see one last spurt and tag 1459 or so, but I’d rather bank the 20 points we’ve earned in the past week and play the reaction.

    continued for subscribers…

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  • Update on FTSE: Sep 30, 2012

    Since our last post, UKX did reach our 590.04 Bat Pattern target, slightly exceeding it and an important fan line from October 2007 by 3.22 before dropping 3.2% since the middle of September.  But, the correction is likely over — for now.  Why?

    Like US equities indices, the FTSE has been in a long-term channel up since early 2009.  It has also traced out a well-defined harmonic pattern — a Gartley Pattern which completed at the .786 in January 2011.

    Since then, it plunged along with world markets in July of that year and had retraced a Fibonacci .886 of the drop by March 2012, only to plunge again and again retraced .886 of that drop by September 14 (our 590.04 target mentioned above.)

    In so doing, it completed another rising wedge, which led to the latest drop.  Note, however, that it fell to the bottom of a well-defined channel that dates back to June.

    I expect this channel to catch the falling FTSE, and for prices to rebound nicely this week.   But, investors should use tight stops to play this rebound;  a loss of the channel could see a repeat of April 4th — the last time a similar channel was breached.

    There’s still the not-so-small matter of the fan line from 2007 (the yellow trend line above.)  It intersects with our channel just above current prices, meaning FTSE has to decide whether to continue following this steep channel up or, once again, fall victim to the fan line.

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  • Charts I’m Watching: Sep 24, 2012

    The rising wedge we were watching Friday broke overnight and has carried into this morning’s session, with an initial drop to 1452.06.

    This completed a Bat Pattern at the .886 retracement of the 1474 to 1449 drop (also a small Crab Pattern.)  We should thus get a sizable bounce from 1452 — probably at least to the white channel midline of 1456.51 — also the .618 of the small red pattern.

    UPDATE:  10:10 AM

    This morning’s drop to the .886 suggests some interesting moves.  Remember that the .886 not only represents the completion of a Bat Pattern, it is also the Point B of a potential Crab Pattern.

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  • 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.

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