pebblewriter

Tag: bat

  • Say What!?

    I wasn’t sure what to write about today until I got a great question from a reader, who hopefully won’t mind my reposting it here:

    Pebble, I enjoy your analysis, but are you really saying you bought at the low on Friday and you sold at the exact high yesterday?

    “After scalping a quick 36 points (going long Friday at 1292, selling at yesterday’s high of 1328.49) I got a little cocky and went long again at yesterday’s low of 1310 — even though it didn’t quite reach my 1309 target.  I got stopped out on the opening and am looking for a good re-entry point — probably just above 1300 from the looks of the 15-min chart.”

    DeMark 15 min is saying we will have a bottom shortly in the SPX.

    Lately I’ve been very, very fortunate in my forecasts and trading.  As readers know, I’ve been calling for a decline to 1288-1323 since April 9 [see: New Analog I’m Watching].  On May 6 [see: So Far, So Good], I refined it to 1295 and wrote:

    Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective;  i.e., I think they’ll pull out all the stops to avoid it.

    In between, the market hit my upside target of 1415 on the nose, and just about every interim target on the way down.  We arrived at 1295 only two days later than my forecast from six weeks earlier (the purple line below.) So, trust me when I say I was fairly confident going into last Friday’s session.

    We were completing a Butterfly pattern at 1289.14, a Crab pattern at 1288.69 and were approaching a Head & Shoulders target of 1289.  And, a number of other indicators I watch were all screaming “here comes a bottom.”  I really, really expected a bounce.

    I had orders ready to go when we hit 1295. I drew a little trend line coming down the face of the RSI on the 5-min chart (purple dotted line, arrow A on chart below) and waited for it to be broken.  When it did, I started selling short positions (at around 1295.)  When RSI back-tested and showed positive divergence, SPX was around 1292; so I took a deep breath and started loading up longs (albeit with fairly tight stops, in case I was massively wrong!)

    Was I nervous?  Enormously.  In my nervousness, I devoted practically an entire post [see: Message in a Bottle] to the fact that I’d written myself a note in an April 12 post [see: Analog Details] to bolster my confidence in what I knew would be a very nervous moment a month later.  But, yes, after catching the very top, I caught the very bottom.

    As to 1328, that was much easier. As I wrote yesterday morning [see: On Track] my 1330 target was based on the previous H&S neckline.  But, I was also watching the Fib levels (red Fib lines above) and RSI activity — which was flashing overbought from the word go.

    The rise started slowing as we approached the .500 at 1328.82.  I felt we would probably build a Bat or Crab pattern to the upside, so a turn anywhere between .382 – .618 made sense.  Here we were, slowing at the .5000.  Hmmm…

    I went to the shorter term charts (5-60 minutes) to see what they were doing and noticed a trend line was in danger of being broken on the 5-minute RSI (note the red dotted line that runs roughly from A to B.)

    Within the next 15 minutes or so, that trend line was broken, and back-tested (the yellow arrow.)  That was all I needed to confirm a good entry point; so, I went short — with stops a little over 1330 just in case.

    And, it worked out pretty well — except that I got cocky and traded at the end of the day yesterday when SPX very nearly hit my 1309 target (it was my birthday, I was loopy on pineapple upside-down cake.)  Had I looked at the 5-min chart again, I would have waited.

    So, I got stopped out this morning at around 1305 and sat out until 1296-1298 (discussed at 10:40AM, occurred at 12:25PM) which so far is looking like the right move.  Note the back test of the channel — setting up more positive divergence.  I have stops in just below 1292 just in case, and still believe we’re in for lots of chop.

    With respect to DeMark, I know a lot of folks who follow him, and it seems we’re often of the same opinion.  But, I’ve never studied his methodology and don’t really keep track of his forecasts.  I do take some comfort — especially when taking a contrarian view — when smart people express concurring opinions.

    I sat watching my daughter play volleyball all weekend and ran into another dad who’s very smart and also in the investment management biz.  He asked how I’d done in the markets lately, and I started to tell him about catching the rise to 1422, the decline to 1357, the rise to 1415, and the decline to 1292.

    As I went on, I could see the word “bull****” forming on his lips.  I stopped talking and went back to watching volleyball.

    Good luck to all.

     

  • Bet Your Bottom Dollar: Part Deux

    UPDATE:  10:30 AM

    Last night’s call on the dollar was timely.  Check out the candle on the daily chart — the completion of both a Bat and Butterfly pattern.

    EURUSD also seems to have put in a bottom, though as mentioned earlier it’s going to take ein Akt des Bundestages (literally) to save the euro now.

    ORIGINAL POST:  2:00 AM

    Back on April 30, I held my nose and plunged head-long into the dollar, also shorting the euro.  I’m pretty sure I invoked that age-old expression of confidence: “here goes nothing.” Hopefully, lots of pebblewriter members went along for the ride.

    In that night’s post [see: Bet Your Bottom Dollar] I put up the following chart:

    I immediately regretted sketching out the forecast in such detail; and, in fact, I caught a lot of guff from a few readers for so recklessly calling the bottom (you know who you are, wretched givers of guff!)

    I didn’t look at the chart for a few days, but knew things were going my way.  I just didn’t realize how well things were going my way…  Here’s the same exact chart two weeks later.

    It deserves a close up…if only to show how spooky a forecast it turned out to be.

    Throwing caution to the wind, I also posted the EURUSD chart below and wrote:

    Meanwhile, the EURUSD shows signs of finally breaking down.  Both the pair and the RSI action show a rising wedge that’s bumping up against a well-established channel.

    Note Point D — the completion of a Bat pattern — sitting down there all by its lonesome.

    It now looks like this:

    Yikes!  Harmonics don’t always work as well as they have this past month.  But, when they do, man is it fun!

    ************

    As far as the road ahead, EURUSD crossed a incredibly important fan line today.  It’s either fallen off a cliff, or it’s doing that roadrunner-running-in-mid-air thing.  On the other hand, it has completed a Bat pattern (as has DX) that should mean a reversal. The next 24 hours are critical.

    If I had to guess, the RSI leads me to believe we’re going to see a big bounce.  But, I’m taking my profits and sitting this one out.  If it plunges below the fan line, there’s plenty more downside where that came from.

    If it doesn’t, it’ll be because Merkel and Hollande are caught on video, breathlessly moaning “long live the troika” while mending post-election relations.

    Seriously, though, a stick save would almost certainly entail a commitment to all things Greek, Portugese, Spanish, Italian, etc. and more LTRO — lots and lots more LTRO.

    Stay tuned.

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    For the last several weeks I’ve been double-posting pebblewriter.com stuff on the original blog and holding this open for former followers.  This website has been up for nearly a month now, and it’s time to start winding the other one down. [why?]
    If this blog is helpful to you, jump on the introductory prices while they last.  I’ve extended the 10% off discount for all new members through this Friday, the 18th.

     

     

  • Update on AUDUSD

    AUDUSD can be viewed as having dropped into a long term channel back in 1997.  As its 2011 efforts to break out indicate, any significant upside will be limited by that channel.

    It now sits at a critical juncture —  the last fan line coming off the 2008 lows is the only thing standing in the way of a plunge to the midline currently around .85.  A hard bounce on this fan line, on the other hand, would buy it some time.

    From a fundamental standpoint, AUDUSD is probably as good a canary in the inflationary/deflationary coalmine as there is.

  • New H&S Pattern

    Nothing to do with markets per se, but this kind of story really makes you stop and think…  Anyone who thinks the same couldn’t be done just as easily with a FAB-250 from a Skyhawk is deluding themselves.

     

    UPDATE:  3:40 PM

    The H&S neckline back test we discussed in the 2:20 post below is likely complete.

    Note that the head of this little H&S pattern came at the 1.618 extension of last week’s 1392-1358 decline — in other words, a Crab pattern (drawn in yellow.)  And, it’s nestled in the C and D legs of the Bat pattern that completed at 1415 (the purple pattern.)

    After weeks/months of normally reliable patterns busting left and right, it’s so nice (not to mention profitable) to see patterns play out the way they should.

    UPDATE:  2:20 PM

    SPX traded through the small neckline and seems quite content to pause at the small fan line I posted about this morning.  It’s line k-4 on the chart below, and just so happens to correspond to the SMA 10 on the daily chart (1390.81.)

    In H&S patterns, neckline breaks are often followed by a back tests.  If the NFP print in the morning is lousy, we should head down to 1372 pretty quickly.  If the numbers are great (or the market perceives them as guaranteeing another round of QE), the pattern will bust.

    UPDATE:  1:15 PM

    Be cautious with this smaller pattern, though.  The 60-min chart shows a distinct possibility of a bounce at the neckline (as happened with the larger pattern.) Focus on the bold, yellow TL on the RSI below.  I would suggest anyone considering piling on shorts protect themselves, as always, with tight stops.

    UPDATE:  12:30 PM

    Over on the right shoulder of the Head & Shoulders pattern we’ve been watching is a… H&S pattern.  It would complete somewhere just below 1394 and targets 1372 — the (wait for it…) neckline of the larger pattern.

    Ever get the feeling the market is just toying with you?  Seriously, though, this fits rather well with the RSI indicators, which as I posted earlier, support the idea of another test of the neckline.

    If we get crazy positive non-farm payroll numbers in the morning, all bets are off.  Barrons is reporting consensus estimates of 165,000 (below), while Briefing.com estimates 140K.

     

  • To Scalp or to Swing?

    Yesterday’s Bat pattern reversal we expected has confirmed this morning.  SPX, currently down 7.42, was off as much as 11.90 just after the opening.

    Bat patterns complete following a .886 Fibonacci retracement of a significant move — in this case, the 1422 to 1357 drop from April 2 to April 10.  88.6% of that drop was 1414.97, and we exceeded it just slightly before the market reversed course (at 1415.32.)

    Cash short positions established at 1415 were up almost 1% this morning.  At-the-money puts bought when SPX hit 1415 were up at least 100%.    If you bought a few, congratulations!  Your pebblewriter membership just paid for itself.

    The tricky thing with harmonic patterns is how much of a reversal to expect.  Some harmonics traders, therefore, practice scalping — establishing a position just before the expected reversal (with appropriate stops) and taking a profit shortly after.  This can be very profitable and, if done properly, entails little risk.

    The other method is to use these reversals to establish longer-term swing or momentum trade positions.  This method works well if there is a reason to believe the position has more room to run; i.e., other chart patterns or technical analysis hint at a continuation of the new trend.

    If you’ll indulge me, I’ll walk us through my thought process.  It doesn’t always work, but it provides a useful framework for the scalp/swing decision.

    In this case, the dominant chart pattern is the H&S pattern that completed but didn’t play out back on April 23.  We would expect a busted H&S pattern to go up and take out the head — 1422.  But, this pattern has continued to loiter, and now reverse, at the shoulder line already established.

    For that reason, it’s quite possible we’re establishing a complex H&S pattern, which simply means there are more than one shoulder on each side.  There are two shoulders on the left, although they’re not perfectly formed.  But, good enough?  Probably.

    We can’t put a number on it, but I did observe the other day that the pattern would be balanced time-wise by today.  While not an absolute requirement, balanced right and left shoulders contribute to a more reliable pattern IMO.  In other words, if the pattern is going to play out, it had better get on with it.  A substantial delay increases the odds that the alternate path to 1462 plays out — without a trip to the low 1300s.

    The other chart pattern I’ve written about a lot these past few days is the RSI channel.  Along with the Bat pattern, it correctly forecast yesterday’s turn as a back test of the major trend line (yellow, dashed) running through the middle of the chart.  Note that it can be viewed as a system of fan lines originating from August 8 when SPX had nearly completed its initial 246-point plunge [see: Analog.]  We’ll label this point “a.”

    Point “a” was just a point until the Oct 4 1074 bounce.  With the addition of a “b”, we had a trend line/fan line.  The bounce at “c” more or less confirmed it.  Shortly after, we broke the fan line and fell to “d.”

    Line a-d now becomes a new fan line, though SPX would go back up and back test line a-b starting at point “e” and continuing for months — until point “g” in February.  Along, the way, a new line was established at “f” — which correlated with the 20-point Dec 19 plunge.

    Point “f” established both a new channel (line d-j) and would also serve as the origination point for new fan line f-g that, together with a-g, would form a rising wedge within RSI.  The break and back test (at the apex) of that rising wedge would mark the topping out of RSI, and thus the beginning of the serious divergence that would begin to drag on the bull run.

    Note that the 1422 high didn’t occur when RSI peaked at “g” or even later at “j.”  It came at “1” — 4 little peaks later.  Of course, “j” wasn’t just another little peak.  It was a back test of the channel created by d-j and followed a major dip to “i” that correlated with a 23-point drop on Mar 6 — further defining the SPX rising wedge.

    Point “i” also helped establish the downward-sloping channel (red, dashed) on which I’ve been so focused lately.  The dashed fan line from “i” to “1” (the SPX high) provided a clue as to the drop to come — since “1” was established during a back test of that line.  When fan line i-2 was broken, it was followed by a 65-point drop in SPX.  And, the corresponding “k” in RSI helped validate the current channel.

    Note that i-3 is a third fan line and is simply a segment of the major a-i fan line.  Its back test is what we’re trying to complete right now.  Will it be a short, sweet back test like point “j”, or a long, drawn-out affair like the period from “e” to “g”?

    All channels work forever…until they don’t.  So, there’s no guarantee that this one will contain SPX’s moves going forward.  The key points I’ll be watching are the fan line k-4, which was established by the Apr 23 neckline tag (and H&S completion.)  A break of this fan line would really help the bearish case — while a RSI move up through “3” would be bullish, establishing k-4 as the lower bound of a new upward sloping channel.  In fact, a break up and out of the channel at any point would be bullish.

    If we do break beneath k-4, the next major fan line is a-k.  Both prior major fan lines got two bounces before they gave way — a common occurrence, so it’s entirely possible this one will, too — especially if it’s still within the channel.

    So, which is it?  Will the new channel hold, or will the alternate case play out?   The bulls have their work cut out for them, as an upward move to the apex means not only breaking out of the channel, but through the solid, purple trend line that dates back to November of 2010.  This same TL (or its lower parallel) figured into the reversals on Feb 18, May 2, July 7 and Oct 27 in 2011 — some pretty good company.

    The break above it from Jan 9 to April 4 2012 ushered in the 1280 to 1422 melt up.  We broke below it on April 4 — the SPX high — and have back tested it twice in the past week (the highlighted area.)  All things being equal, I suspect it would be much easier to break out of the red, dashed channel than above this TL.

    If I haven’t put you to sleep yet…

    Therein lies the reason I’m still clinging to the analog as my top scenario and the alternate case as just an alternate.  I think the bullish case is stretched very thin, meaning SPX needs to pull back and gather momentum if it’s going to take a run at 1462-1472.

    At these levels, it would have to bull its way through that purple TL in an already extended state.   The much easier way of achieving a higher high would be to go down and bounce off line a-k — corresponding to the low 1300s in SPX — and zip back up to the purple trend line.

    A new high on SPX at the century mid-line around 1462-1472, combined with a lower high on RSI would establish another significant divergence that just might unravel the bull run in a much bigger way.  More on that later.

    Conclusion:

    We started off with the question of whether to scalp or swing.  It’s largely a matter of wits and nerves.   The market is consolidating now, trapped in the channel created by the shoulder line and neck line of a H&S pattern — which is the perfect environment for day trading and/or scalping.

    But, one of these days, it’ll break out.  If it’s to the upside, that’s 60-70 points of swing trading that could be very profitable.  If the downside, I expect a swift 80-100 points.  When it does, swing traders will be very happy campers.  Scalpers will be kicking themselves for settling for a lousy 100% return.

    Either way, these are the charts we’ll be watching.  It should be exciting!

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    BTW, there are still about 12 hours left until the introductory pricing on pebblewriter.com runs its course.  Current Followers get $100 off the price of an annual membership.  And the first 100 annual members, regardless of whether they’re a Follower or not, will have their current annual subscription price grandfathered for the life of the site.

    For full details, click here.

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    P.S.  I promise not every post will be this dense.  Some of you want to know what time it is, not how a watch works.  But, there are plenty of guys out there who, for a small fee, will tell you whether the market’s going up or down.   My goal is to teach you why and, together, to discover new ways to make sense of it all.

    Good luck to all.

     

     

  • A Swing and a Hit!

    We didn’t have to wait long for the Bat pattern I posted at 11am to play out.

    The .886 target was 1414.97, and we reversed at 1415.32 at 11:50am — closing just a fraction above the subsequent low for the day of 1405.25.

    I was disappointed to be stopped out of my short position early this morning, but more than made up for it by establishing new shorts at 1415.  I enjoy 60% intra-day profits as much as the next guy, but what’s really cool about the way the day closed is the effect on the RSI channel.

    I posted yesterday about the RSI channel that was setting up on SPX.  I added another post late last night (early this morning?) showing essentially the same pattern on all the other indices I watch.  It strongly suggests that the rise since 1357 is nothing more than a back test.  Here’s the view at yesterday’s close.

    This morning’s elevator ride sent RSI right through that dashed, red line — making the channel look about as valid as a $3 bill.  In fact, RSI spent most of the session ignoring my channel line. But thanks to the Bat pattern reversal, at the end of the day (literally) the channel held.

    And — wouldn’t you know it — SPX closed right at the shoulder line (white, dashed line) where it can torment us with uncertainty for another day.

    For a peek at the other indices and their channels, check out New Charts! posted last night.  Also, each index has its own page under the MARKETS menu, and will be updated at least weekly.  SPX, DX and VIX are typically updated intra-day on the main page, depending on market conditions.

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    While you’re poking around, consider signing up.   Current pebblewriter followers who join by midnight tomorrow are entitled to $100 off an annual membership.  Also, the first 100 annual members who sign up by tomorrow will have their membership rate grandfathered for the life of the site.  No increases, ever — which will be pretty cool when it costs $500 just to fill up your Suburban.

    Over the next day or two, this website will be password protected, so those of you who have already subscribed (thanks!) will enjoy first dibs on the latest and greatest.  If you haven’t subscribed yet, might as well do it now and save yourself $100.  If you bought a dozen at-the-money puts at 1415 today, you’re already up more than the cost of an annual membership.

    Good luck to all.

  • Update on EURUSD: April 24, 2012

    April 24, 2012

    From both a fundamental and technical standpoint, the long-term, medium-term and short-term pictures are all negative on the EURUSD.  Yet, it keeps hanging in there, the beneficiary of a great deal of ECB and, yes, Fed intervention.

    Here’s the long term picture as of this morning.  EURUSD has been stuck in that purple channel for years, and isn’t likely to break out anytime soon.  Note the fan line off 2000-2002 coming into play again soon.

    From a harmonic standpoint, the purple pattern calls for a trip to the .886 at .9115, but not anytime soon.  The red pattern has more immediate import.  There are plenty of candidates for a Point B — near the .382, the .618 and the .786.  While it’s possible we’ve completed a Gartley, it normally requires a bit more precision than this, so I’m assuming that was a near miss.

    There’s a good chance we’ll target at least a Bat pattern with completion at the .886 of 1.2226 — spitting distance from the larger (purple) pattern’s .500.  But, to get there, we’ll have to continue following the red dashed channel and not be waylaid by the fan line.

    The channel is fairly strong — in place for over a year.  And, there’s a fan line just above current prices for reassurance purposes.  The close up picture below gives us an idea what to expect in the near term.

    This potential Bat pattern calls for a move lower, to at least the .886 level at 1.2721 — which, coincidentally, is right at that fan line.  We can also see that the last fan line off the presumed Point X leaves a rather narrow margin of safety for the next move down.  A break of 1.3110 would start the ball rolling.

    The H&S pattern we’ve been watching for what feels like forever has resisted playing out, though the channel will force its hand soon enough.  It’s mirrored by an RSI trend line which is there for the breaking after another crash into the upper TL.

    Investors who play the EURUSD would be wise to use stops.  The ongoing problems in Greece, Italy, Portugal, Ireland, etc. have been exacerbated by election angst in France and the failure of the Netherlands government.  But, the ECB has learned much from the Fed about propping up markets.

    While their efforts don’t promise of a return to prosperity anytime soon, they’ve grown very fond of the stick save press release.   They’ll be using it a lot in the coming weeks.

  • Bottom Fishing

    EOD:  2:25 AM

    SPX overshot the Crab’s 1.618, whichever Point X we use.   The next major lines of harmonic support are are the red pattern’s 2.24 at 1342, correlating with the purple pattern’s 2.618 at 1341.

    Given the level of oversold on the day, here’s an alternative view.

    UPDATE:  11:55 AM

    The Crab Pattern I posted about earlier pulled a fast one on us.  It either busted, or I drew it wrong.

    Technically, it’s forbidden for Point C to exceed Point A — kind of like Wave 1/Wave 4 overlaps in Elliottworld.   But, it happens.   I’ve redrawn the Crab to begin with the March 23 1386 low instead of the March 29 1391 low — which means that the 1.618 extension is 1364.92 instead of 1372.51.

    Note the daily RSI tag on the same trend line (red, dashed) that stopped the Oct 4 and Nov 25 declines. The previous tags are highlighted in light blue.   This decline is picking up momentum, so the RSI TL and the Crab pattern might get mowed down.

    But, be cautious.   Like any trading system, once you start bending the rules in Harmonics, it opens up a can of worms.  Markets frequently overshoot logical targets, and it’s no cause to discard the methodology.

    I’m taking some profits off the table at these levels, and will let the rest ride essentially risk free.  Note that 1364 is the .707 of the 1340-1422 move.  If it doesn’t hold, the next support is at the .786, which would equal 1357.  An intra-day push to 1357 and close at 1364 would be interesting.

     

    ORIGINAL POST

    After yesterday’s close below the rising wedge, we can safely consider it officially broken.  Now, the question is whether SPX will freefall in an epic fail of the bull market, or find support at some interim level for another leg up.

    In the near term, we’re approaching a potential Crab Pattern turning point at 1372.51.  We might have reached it yesterday but for the little acceleration channel SPX has been in since 1422.  Today, the channel passes right through 1372, so we could get a good test.

    This isn’t a big pattern, so we might not see earth-shattering results, but it should be good for at least a nice bounce if not an outright reversal.

    I think an outright reversal might be in the cards, though.  The hourly RSI shows positive divergence with this morning’s leg down, and daily RSI shows a tag of an important internal trend line.  But, it’s the weekly RSI chart that, as a bear, really gives me pause.

    Expanding the RSI chart gives us a clear view of a trend line that might provide significant lift at these price levels (ignore the compressed upper chart.)

    I’ve also been watching VIX’s price action, constructing some probable channels months ago: the yellow channel guiding the downside, transitioning to the red channels for the subsequent rise.  Since then, I’ve barely adjusted them.

    Note how well they’ve called the turns.  At this point, they hint at a likely breather for VIX.  All things considered, I think we’re likely to see a backtest of the VIX falling wedge that will correspond with a return to the other side of the red channel.  It could happen any time, but might well occur coincident with the afore-mentioned bounce in SPX.

    All this begs the question, what kind of bounce will we see?  As we discussed the other day, this rising wedge is a reasonable facsimile of the 2010-2011 one [see: Analog Watch.]

    The most likely drawing of the current wedge puts the apex around 1460-1470 somewhere around May 7-11, meaning we reached only 88.6% of the potential in both time and price at the recent 1422 high.  [see: Was That It?] If we repeat the pattern, we’ll head back up to tag that apex — exactly as we did in May 2011 at 1370 (note the dashed white line that connects the March 2011 apex to the May 2011 top.)

    More importantly, however, we’d tag the upper bound of the huge rising wedge (red dashed) that dwarfs the rising wedge (yellow, solid) that just broke down.

    I’ve drawn its upper bound as the biggest, boldest red line I can muster on the above chart.  Why?

     

    Stay tuned.

  • End of the Line

    JPM has had a phenomenal run of late, but a long term fan line off the Mar 24, 2000 all-time high should put an end to all the fun.

    It doesn’t help that JPM also just completed a bearish Bat pattern and is back-testing an internal TL that dates back to 1996.

    And, that over the last week, JPM has completed a Crab pattern way up in the tip of the Bat.

    Dimon’s pulled off some pretty slippery tricks in his tenure; we’ll see if he can beat the odds this time.