pebblewriter

Tag: butterfly

  • Update on XLF: Jul 8, 2013

    XLF spent about 6 weeks dallying around the .382 retracement of its fall from 38.15 to 5.88, finally squirting through in late April.

    Like SPX, it peaked on May 22 — only to tumble 8.6% (versus 7.5% for SPX.)  The Jun 24 bottom wasn’t particularly motivated by a harmonic pattern or channel; it simply turned with the rest of the market.

    Close up, there’s a potential IH&S that targets 21.50 or so that completes around 20.00 — otherwise, no remarkable patterns.  The Jul 1 high was a .786 retracement of the May 22 high.

    So, odds are we’ll see either a Butterfly Pattern (20.83 or 21.44) or a reversal to test the purple channel bottom (late July, 18.05.)

  • Update on Gold: May 15, 2013

    Our last update [Apr 15] devoted to gold came in the midst of a huge meltdown.  Gold had lost channel support, horizontal support at the psychologically important level of 1500 and was dropping like a rock through 1335.

    Never one to shy away from an opportunity to embarrass myself, I gave my best guess:

    we [should] get a nice bounce between here [1337] and 1309 and a backtest of one of the broken channel lines — say the white midline around 1410 or even the 1450 level.

    GC shed another 14 points to 1321 the very next day, then rebounded strongly to 1404. Another two weeks on, GC nearly reached 1500 before fading once again.

    Now, at 1373, it has reached a critical juncture that should result in either a sharp rally to 1560 or a plunge to 1141 in the coming month or so.  If that sounds like an impossibly wide margin of error, there is a way to invest without getting fleeced.

    GC has risen via the giant red channel since 1999. The plunge to 1321 took it to the brink of another $200 breakdown.

    It bounced at the channel bottom, though, and made a nice comeback… until May 3, that is.  At that point — having retraced a Fibonacci 61.8% of the damage done by the fall from 1590 — it did another about face.  It’s now only $11 from tagging the .786 retracement (1357) of the rise off the 1321 bottom.

    The Harmonic Pattern could go either way.  The 1487 high on May 3 came at the .618, so a Gartley, Bat, Butterfly or Crab Pattern could result in a climb back to 1532 – 1756.   Though, that would mean a breakout of the falling channel its been in since last September (in white, above.)

    Long positions could be played from the .786 (1357) or .886 (1340) as long as stops are watched very carefully and updated frequently.

    The downside case is probably stronger.  If the current plunge continues past 1321, there are only a few key levels of support before things get really nasty:

    • horizontal support at 1302-1309
    • potential Fib targets of 1276 (the 1.272) or 1219 (1.618)
    • Fib support at 1141-1157
    • Fib support at 947

    I don’t have a dog in this fight.  But, if I did, I’d be watching very closely to see if GC can catch a bounce north of 1300.  If not, it might easily form an inverted cup and handle and continue to be a great shorting opportunity.

    If that should happen, look for the large white channel to influence the drop. The white .618 at 1155 is tantalizingly close to the bottom of the channel in mid-July.

    GLTA.

  • Charts I’m Watching: May 10, 2013

    The market bounced back a little into the close yesterday, and recovered further overnight.  ES retraced a Fibonacci .886 of the initial plunge, and is hanging in the small channel established over the past week.

    We shorted SPX at 1635 yesterday, but weren’t sure whether or not the upside was completely done. This morning, there’s still some question.

    The dollar, which we remarked yesterday morning looked “ready to rumble” did just that — completing its largest move in the last 16 months.  It retreated just a bit off the .786 before zooming up to tag our .886 target at the purple channel midline.  How it handles this price level will determine whether or not we see any follow-through on equities this morning.

    We would normally see a pull back at the .886 — a Bat Pattern.  But, Bats can and do go on to become Crab Patterns — which would mean a move up through the channel midline to the 1.618 extension at 84.522.

    Daily RSI arrived at a 4-way “stop sign” overnight — three channel midlines and a channel top.  Though it might ultimately push through, this supports the idea of at least a pause and more likely a pull back, meaning stocks should rebound from here.

    The question, of course, is “how much?”  The EURUSD, which we remarked yesterday was “hanging by its fingernails,” wasn’t able to hold the purple channel.  It completed the small scale Bat Pattern we were expecting overnight (purple), and has potential to the red .886/purple 1.618 down around 1.28.

    The daily RSI supports this move, as it fell right through its nearest support overnight.

    All eyes are on Bernanke this morning, as he speaks at the Chicago Fed.  Evans and Plosser’s semi-public debate regarding QE has ratcheted up a notch the past couple of days. It’ll be interesting to see whether Bernanke can reassure the markets that economic conditions remain “just right” for continuing to pump $85 billion monthly into the markets: getting better every day, but not able yet to stand on its own two feet.

    The other big story, of course, is the yen. We discussed yesterday how it was a moment of truth for the USDJPY.  It was threatening an Inverted H&S Pattern, but had run into an important channel line.

    The pair sliced through it like it wasn’t there, completing the IH&S, then reaching the IH&S target and a Crab Pattern near 102 in one fell swoop.  In the process, it reaffirmed the dominance of the rising purple channel from 75.56 in October 2012.

    A quick pullback could reassert the white channel; but, if not, the next stop is 105.57-106.98 as soon as May 21.

    But, the daily RSI suggests a very good chance of a quick pullback.

    The Nikkei 225 has loved the yen implosion, zipping through the .618 retracement of the 2007 crash and a well-defined channel top on May 3 and threatening to top the Dow.

    But, the collapse in JGB (and spike in yields) gives one pause.  This is what Abe wanted, but is he prepared for the currency wars he’s unleashed with neighboring Asian countries?  Sri Lanka, Vietnam, Thailand and South Korea have all either cut rates or are about to.

    I wonder whether Japan, with government debt at 240% of GDP, will survive the cure for its economic malaise.

    UPDATE:  9:30 AM

    I’m taking an interim long position on the opening, but will be watching to see what happens at 1631.  My core short position will remain in place unless we get a push up through the red channel midline. Stops on the long at 1626ish.

    I would have been more than content to close out the short at yesterday’s close, but the low for the day was slightly lower than the previous “bottom” of 1623.30, leading me to believe we might see another leg down.

    We’ll see what Bernanke has to say, then check back in.

    UPDATE:  10:00 AM

    A bit of a snoozefest in Chicago.  Bernanke’s giving a history lesson, not saying anything yet about the topic on everyone’s mind: QE.

    SPX just reached the red channel midline mentioned at 9:30, just shy of the .786, and is deliberating next steps.

    The dollar continues to strengthen, making a series of smaller waves higher while remaining above the .886 Fib discussed above.  And, the EURUSD continues to leak lower — just reaching the .236 of the 1.37 high In Feb.

    UPDATE: 11:5 AM

    I’ll be closing the interim long here at 1626 due to the triangle breaking down. Full short for  1613-1617 (favored target about 1614.) Confirms with a drop through 1623; should get a bounces around 1624 and 1622.

    60 min RSI shows a little room to run.

    Watch out for a possible backtest of the triangle to around 1627.75.  Stops on the short at the top of the triangle, currently about 1629.

    If there’s something that could derail any further downside, it’s the EURUSD.

    It reached the .618 of the 1.2743 to 1.3242 rise this morning (small red pattern), and can be expected to bounce.

    It’s also getting dangerously close to the bottom of the light blue channel that rises from July 2012.

    Technically, the .618 is enough of a retracement for this wave to be finished.  But, it certainly doesn’t look finished.  I think it’s more likely we’ll get an intra-day push down to the red .786 (1.2850) or even .886 (1.28) before all is said and done.

    A sustained break of the channel bottom, needless to say, would be exceedingly bearish for the euro and for equities.

    UPDATE:  1:30 PM

    Based on my best stab at placing the falling white channel, I believe SPX just topped out on the day.

    Next stop should be around 1622 at the midline, but ultimately the green 2.618 should come into play where the white channel bottom and red channel bottom intersect — probably around 1614 on Monday.

    The next major support would be the purple midline — around 1593 on Monday — and then the previous high and purple .25 of 1576.

    If I’m wrong, stops at around 1630 ought to do it.  I have to run out till 3PM ET, but will post more when I return.

    GLTA.

    UPDATE:  3:44 PM

    SPX just moved up past my comfort zone — not to mention out of the channel — so I’m switching sides here at 1630.  Next stop 1641-1642?  It’s the 1.618 extension of the fall from 1635 to 1623 and the approximate level of the IH&S.

    Best of all, it will happen on the 13th, which is when we originally had the interim top scheduled.  All is right in the world again.

    Legible chart coming up…

    I wouldn’t normally stay long over the weekend, but I imagine we’ll gap up to 1641-1642 Monday morning, so it’s worth a shot.

    Looks like we’ll probably close at the .886.  We might get a small reversal just ’cause, but Point B in this case was almost the .786, so that technically rules out a Bat Pattern.  Instead, it’s a Butterfly/Crab that should extend to the 1.272 or 1.618.

    Of course, things don’t always go according to plan; but, I like where the currencies are finishing up.

    More in a few…

    UPDATE: EOD

    The revised view from the treetops:

    And, a little closer in…

    “D?” doesn’t work as a Bat Pattern because “B” is higher than the .618.  We could use the reversal at the .500, but “A” is the lowest low, so that doesn’t work.  That leaves a Crab Pattern with roughly a .707 Point B — if it follows the rules.

     

     

     

     

  • Anticipation

    It certainly looks like we’re almost there.

    The eminis seem to be already there…

    The EURUSD is clinging by its fingernails…

    The dollar looks ready to rumble…

    The USDJPY is making a bid for an IH&S, but has run smack dab into that yellow channel midline again…moment of truth for the yen…

    This morning’s dip in SPX is appealing, but look how many times over the past several sessions the red channel midline (now around 1627.25) has come to its rescue…

    A break below 1626.46 and it’s probably game-on.  But, we haven’t quite hit our 1635+ target.  I’m inclined to believe this is a fakeout to buy a little more time, shake out a few weak bulls before the final thrust.

    UPDATE:  12:25 PM

    SPX continues to bump along.  It recovered from the first plunge down to the red midline, and is back at it only 2 hours later.  This time, however, there’s a small Head & Shoulders Pattern at stake.  It would complete at 1627.33 and target around 1621.30.

    Remember, we’ve seen more than a normal number of H&S Patterns not play out over the past couple of months.  So, odds are that this is another shakeout brought to you by your friendly neighborhood market makers.

    As always, use stops — and update them frequently to keep them where you’re comfortable.

    continued for members… (more…)

  • XLF: Playing Catch Up

    On April 2, 2012, SPX completed a Butterfly Pattern at 1421 — the 1.272 extension of the July – October 2011 plunge.  It provided a great entry point for the fledgling pebblewriter.com’s first major short position.

    We scored over 20% in about 2 months [see: All the Pretty Butterflies] trading the 11% decline.

    XLF hadn’t done as well up to that point.   It had only retraced a Fibonacci 78.6% of its 2011 decline from 17.2 to 10.95.  So, no surprise that it sank by a whopping 18%.

    In response to a consulting client who was bottom-fishing for financials, I discovered they were probably bottoming in early June.  I posted my results in the appropriately titled:  So Crazy It Just Might Work.  If anything, my estimates were conservative.  XLF has soared 41% since that low (turns out it was the day before.)

    And, wouldn’t you know it, XLF has gone and formed its own Butterfly Pattern — just like SPX did in Apr 2012.

    continued for members… (more…)

  • Charts I’m Watching: Apr 16, 2013

    We’re set to get a nice bounce here at the bottom of the purple channel — as revised in last night’s last post.

    Based on where the futures are pointing, I’m not sure whether it will have legs or not.  But, I’m inclined to play along on the upside, but with relatively tight stops in case it peters out.

    The EURUSD has rebounded nicely as we anticipated, but has reached a point of resistance at the midline of the rising channel at a price level that’s proven difficult to exceed since early March.

    The daily chart shows a bounce off the bottom of the purple channel as expected, but plenty of overhead resistance in the 1.33-1.34 range if it’s able to break through 1.316 or so.  The .618 is up at 1.3341.

    The dollar continues to tread water.  I’ve drawn a tentative new wider channel that might represent the expected range now that the rising white channel is officially kaput.

    Remember, this decline is a backtest of the broken red .25 channel line.  If the decline continues on track, we could reach that channel line (at about the .red .382) in very short order.  It’s currently at about 81.74.

    But, there’s no reason DX must retrace all the way to that line.  It has already back tested the purple .618 — a reasonable pullback after the Bat Pattern that completed at our 83.616 target back on Apr 4.

    The daily RSI, in fact, shows strong support from the bottom of the rising purple channel and the .25 of the rising white channel.

    The yellow midline on the RSI chart represents that dashed white channel midline cutting across the middle of the price chart above.  A thrust up through it should accompany the next big equities dump.  And, to my eyes, that’s the next major move.

    Though SPX is safely back in the purple channel, it can’t go on forever — right?  Even if our most bullish scenario plays out, there would need to be pauses of more consequence than the past two sessions.

    In that pullback, SPX reached the .786 of the 1539 – 1597 rally between Apr 5-11 (1552.36 vs 1551.88.)  The bullish case will consider that reversal as the full extent of the pause — a proper corrective wave that reversed at the bottom of a very well-defined channel dating back 5 months and 230 points.

    If so, SPX should head up and push through the trend line extending from the 2000 and 2007 tops — currently around 1593.50 — on the way to its 1823 target.

    The bearish case suggests we slap a Point B on that reversal and call it a Butterfly Pattern that targets 1523 or 1503.

    So, which is it going to be?

    continued for members…

    (more…)

  • Charts I’m Watching: Mar 20, 2012

    The ECB will do “whatever it takes”, which I guess now translates into strong-arming the Russians into bailing out Cyprus.  Still no break out on the EURUSD, though.

    It makes sense to play along with the upside, but keep stops close.  It’s questionable whether this rally will have any legs. The dollar looks like it’s finding support here.

    UPDATE:  09:33 AM

    Looks like a pop and drop by SPX standards.  That was the .786 of the move down from 1563.62 (purple) and the .886 of our proposed path to 1576 (white.)  Full short again, stops at 1561ish.  Revised charts in a few minutes…

    UPDATE:  09:55 AM

    The daily chart tells the picture well.  I need to redraw some channels, but the prominent features are:

    • large 1474-1343 Crab Pattern completion at 1555.57 (yellow)
    • large 1370-1074 Crab Pattern completion at 1553.39 (red)
    • small 1530-1485 Crab Pattern completion at 1559.32 (white)
    • small rising wedge broken at 1563 top
    • long-term TL and channel top at 1560

    UPDATE:  11:10 AM

    SPX continues to position itself for a run at 1576.  The 5-min chart shows a small potential Crab Pattern with a 1.618 at 1577 and a Flag Pattern targeting 1576.

    It has broken back above and backtested the purple channel midline and retraced nearly .886 of its drop from 1562 and a little more than .786 of the drop from 1563.62.

    While it’s positioned for 1576, there is no more certainty than when we first broke 1555 on the Mar 14 overnight ramp job.  The large, bearish patterns listed above have still not produced the kind of sell-off they normally do.

    And, it’s all because of the cheerleaders’ determination to be able to tout a new all-time high for the S&P 500.

    In addition to the little Crab Pattern (purple) that targets 1577 and the flag pattern targeting 1576, there’s an obvious effort to construct an IH&S pattern targeting 1580.  It could benefit from a lower right shoulder, but bulls must beware of crossing back beneath the purple channel midline.

    The S2 shoulder isn’t quite legit, BTW, as the neckline doesn’t quite connect on the left side.  But, the S1 shoulder is quite a ways down there.  So, if the pattern plays out, be prepared for some serious chop.

    UPDATE:  1:00 PM

    With the FOMC announcement a little over an hour away, let’s resume our chat about the big picture.  If it seems like we’re “lost in the reeds” as one reader so aptly put it, it’s because we are.

    The large Crab Pattern completions promised a good-sized dump last week at 1553/1555.  Instead we’ve inched higher.  Why?  These patterns completed in the middle of harmonic no-man’s land: the gap between an .886 retracement and a double-top.

    The .886 retracement (of the 1576-666 crash) produced a 9% reversal back on Sep 14.  Since then, SPX came screaming back to retake the 1576 all-time high — but slammed into the Crab Patterns and a very important channel line along the way.

    Now, it doesn’t know what to do.

    Double tops usually produce reversals, too — sometimes meaningful ones as we found out on October 11, 2007, when SPX scooted up past the 1552 top from 2000 by a whopping 24 points before dropping 58%.

    The 2000 top itself shows just how “messy” tops can be.  Here’s the finished picture in perfect hind-sight.  It’s a very crowded chart, but every pattern on there had a say in how the top unfolded.

    Once SPX broke out of the falling purple channel, it had “permission” to pursue several harmonic patterns in the works.  SPX shot up 66 points in that one day — blowing through every Fib level between .618 and 1.000.

    It finally came to rest at 1458, completing a Bat Pattern at the purple .886.  But, the small white 1.272 was just above at 1477, as was the rising purple channel midline and the 1.272 from a much larger pattern seen below.  An IH&S target waited at 1497 – tantalizingly close to a nice round number of 1500.  The all-time high of 1478 from two months earlier beckoned.

    SPX got up to 1477.33 before reacting, falling to 1466 over the next two days.  Close, but not quite.  Someone watching closely might have noticed the Flag Pattern it constructed, targeting 1562.  Someone else probably pointed out the biggest Crab Pattern target of all — the 1.618 extension of the 13% correction from 1420 to 1233 from Jul-Oct 1999.

    I don’t know what the catalyst was, but on Mar 21, 2000 (that date sounds awfully familiar) SPX shot up through the channel midline, the cluster of Fibs around 1477 and, importantly, the 1478 high and raced up toward those higher targets.

    On Mar 24, it reached 1552.87, which cleared the IH&S target at 1497, the purple 1.272 at 1519 and the last remaining Crab Pattern at 1535.  What ultimately stopped it?  The .75 line from the big purple channel dating back to Jul 1999 — almost to the penny.

    Total move: 17% and 227 points in 20 sessions.  Could it happen again?

    continued for members… (more…)

  • Update on Bonds: Mar 07, 2013

    If rates really are heading back up in the near future, we’d expect to see bonds take a hit (and stocks, too, but that’s a different post.)  Back on Jan 21, we focused on the 10-year treasury (ZN.)

    We observed that ZN had just completed a large Crab Pattern and broken down from a rising wedge, and appeared to be due for a “significant retreat.”

    The chart below shows a big Crab (grey), followed by another Crab (red), a Bat (white) and another Crab (purple.)  Each previous Crab Pattern completion has been followed by a significant retreat, so we might suspect one here with the purple pattern completion.

    Since then, both the purple and white channel lines have broken down, suggesting more downside ahead. The intersection of the white channel bottom and purple channel midline is coming up in early April, and prices have fallen from 132’160 on Jan 21.  But, where’s the “significant retreat?”

    Shifting focus to the 20-year as represented by TLT (just for grins), the charts show continued weakness over the next couple of months — provided TLT can push through some important support.

    The harmonic picture is negative enough – given the potential Gartley or Bat Pattern in play. But, the white and red channels have both recently surrendered a support line.  Backtests are complete, and the next support is down around the .786 at 114.5 — though I suspect the .886 at 112.26 will get the nod.

    Note that it intersects with the falling white channel midline, the falling red channel bottom and the large white rising channel midline — all around late May-June.

    A slight overshoot would tag the .500 at 110.18 on a larger harmonic grid (purple) and establish a Point B for a pattern that might lead prices back down below the white midline.

    The fly in the ointment?  Check out the dashed red trend line cutting across the middle of the chart. It has influenced a few turns, and is just below current prices at around 115.60.

    Stay tuned…

  • Interest Rates: Breaking Out?

    With the usual caveat that I’m not a bond guy (seriously, what’s the point?) I took a fresh look at interest rates on the 10-year note.

    The obvious downtrend over the past 15 years is well-captured by the purple channel below.  It has been marked, however, by a series of rising white channels, some of which I have charted.

    When rates fell below the channel bottom last May, it might have ushered in a new, steeper decline suggested by the falling red channel.

    However, since bottoming in July, TNX regained the purple channel bottom, backtested it, and has put in a series of higher highs and higher lows that precisely echoes the slope of the previous channels.

    Its latest feat is pushing up through and backtesting both the red channel .75 line and the purple channel .25 line.  In the process, it has climbed back above the white channel midline and faces the psychologically important 2% mark yet again (the red, dashed TL.)

    From a harmonic standpoint, TNX looks well-positioned to test 2.28% in the next month.  Note that the July lows completed a Butterfly Pattern at the 1.272 on the purple grid and a Crab Pattern on the 1.618 on the white grid.

    Note the precise turn at the .500 Fib level, hinting at a Bat Pattern completion at the .886 of 22.83.  The .886 intersects with the purple channel line late next week — though the precise placement of such a long-term channel is always subject to some interpretation.

    To get there, however, TNX will have to push back through 20, the .618 Fib line at 20.14, and the top of the red channel – currently around 21.34.

    The RSI picture is promising.  The weekly chart shows the positive trend, regardless of whether you subscribe to the pessimistic (yellow channel) or optimistic (purple channel) view.

    A close-up of the above chart shows steadily improving relative strength since April 2011 and an important reversal at the midline.  The intersection of the white and yellow channel tops looms out there around April 3.

    The daily RSI, in addition to showing a steadfast refusal to become overbought, shows the recent break above the yellow channel’s 25% line.  Provided RSI can push through the dashed red trend line (corresponding with the .618 and 2% price levels discussed above), there is plenty of room to run.

    The intersection of the yellow midline and the purple channel top is around March 20.

    Like many markets, TNX is at a critical juncture.  It’s put up or shut up time.  A push through 2% would likely usher in 2.28% in short order, followed by a backtest of the red channel and subsequent push higher.

    If we expand the white channel (yellow, above) we get a glimpse of what the upside case looks like.  A turn at the red .886 would intersect with the .382 Fib of a harmonic grid drawn from the Feb 2011 highs.  The .618 of that pattern — not all that distant from the red 1.618 — would intersect with the midline of the yellow channel at 28.46 around the middle of August.

    A return to the top of the purple channel, currently around 3.4%, could come as early as July, but a more moderate case would be between Oct 2013 and Jan 2014.

    GLTA.

  • RUT: End of the Line?

    RUT has reached the upper bound of a well-defined channel that dates back to 1998.

    It could leak slightly higher in reaching for the top of the large rising wedge and some key Fib levels, but I suspect RUT has reached a turning point.

    continued for members… (more…)