pebblewriter

Tag: Channel

  • Chart Patterns and You

    ORIGINAL POST:  9:15 AM

    Last night, the dollar tagged the .786 Fib retracement of its decline from Apr 4.  It subsequently sold off almost to the .618 but, so far, is hanging in a rising wedge.

    The EURUSD re-tested the .500 Fib of its rise from Apr 3, and snapped back into its falling wedge and the (purple) channel that’s guided prices since then.

    The e-minis tacked on a few points overnight — almost reaching the .786, only to give them all back with this morning’s underwhelming Durable Goods report.  The H&S Pattern that was looking pretty good at yesterday’s open is now looking a little ragged, with a right shoulder that’s already 15 points higher than the left.

    UPDATE:  9:45 AM

    SPX continues trudging toward the .786 retracement (1584.23) of its decline from 1597 to 1536.

    After plunging beneath the channel that’s guided it from 1343 to 1597 on Apr 17, SPX rallied and re-joined the channel yesterday.  This was a very bullish development, as long as SPX remained in the channel all the way to the closing bell.

    Despite a five minute thrill ride from 1578 to 1563 (the channel bottom) and back, SPX managed to regain and hold the 2007 high of 1576.09 into the close.

    It now sits perched on the neckline of an Inverted H&S Pattern which has either completed or not, depending on whether a 5-minute plunge qualifies as a shoulder.  Short answer — I have no clue.

    Here’s what we do know:

    1. Prior to Apr 17, SPX had been locked into that purple channel below since 1343 on Nov 16 — an 18.9% gain in five months
    2. SPX barely paused when it completed two big Crab Patterns — the 1.618 extensions of the 1370-1074 decline and the 1474-1343 decline (purple and white below)
    3. Instead, SPX exceeded the Oct 2007 high of 1576.09 (yellow)
    4. SPX reversed at 1597.35, almost precisely at a trend line drawn between the 2000 and 2007 highs
    5. SPX fell 3.8%, making a lower low, dropping out of the channel mentioned above and suggesting a H&S pattern that targets 1474 — the Sep 2012 high (white pattern)
    6. It roared back into the channel, retracing almost 78.6% of its drop
    7. In the process, it topped the 1576.09 high and the 1553 and 1555 Fib levels and almost reaching the 1583 target of an IH&S Pattern
    8. Depending on your interpretation, it might also have completed an IH&S that targets 1621.

    What Does It All Mean?

    When I forecast markets, I look for lines in the sand.  I try to determine price levels that, if crossed, would signal a change in trend.  When that trend switches from bullish to bearish, I want to be short.  When it switches from bearish to bullish, I want to be long.

    A channel is one such method that features boundaries rather than absolute price levels.
    As long as prices remain in a rising (or falling) channel, we can expect prices to continue to rise (or fall.)  It’s rather simplistic, but it usually works.  We can make educated guesses as to future price targets based on where the channels point.

    Of course, even well-formed channels (multiple tags on the top and bottom and over a sufficient time period) can’t go on forever.  I look for moments when prices have to choose whether to remain in or leave the channel.  A tag of a top or bottom bound or midline usually create opportunities, though other lines can as well.

    The Real World

    Recall that we shorted SPX at the 1597 high on the 11th [see: Big Picture], riding down to the channel bottom where I went long at 1554, expecting at least a bounce.  We got one on the 16th with SPX rallying up to 1575 — the channel .25 line.

    We closed our long position, going short the following morning for the trip back to the channel bottom at 1555.  We tried another long position there, but were quickly stopped out as the channel was broken — signalling a bearish trend change.

    So, we shorted again, playing quite a few bounces down to 1540 where we eventually went long in anticipation of establishing a H&S Pattern neckline [see: Dollar Daze.]

    At that point, I expected a back-test of the broken channel.  We got it, reaching 1565 on the 22nd but closing beneath the channel’s lower bound.  Note that this move completed 5/6 of a H&S, but the right shoulder was underdeveloped relative to the left.

    Anticipating an intra-day retracement to 1567 (the .500 Fib) or 1574 (the .618) the next day (yesterday), I stayed long — trying without much success to anticipate the top.  Since SPX topped the .618, the next up on the chart is today’s target: the .786 at 1584.23.

    Going Forward

    With all that as preamble, here’s what I expect going forward.

    continued for members… (more…)

  • Charts I’m Watching: Apr 22, 2013

    Looks like we’re getting some follow-through this morning on Friday’s technical rally.  But, this doesn’t appear to be one worth chasing unless it can push up strongly through 1560.

    I’ll play along on the opening with an interim long position, with tight stops for the fizzle that could come quite quickly.  If 1560 is exceeded, look for 1573 or so.

    The dollar pushed above the TL from the prior highs as well as its .618 Fib of the Apr 4 high.  This bodes well for a run to at least the purple midline — probably at the .786 or .886 (83.258 or 83.446.)

    UPDATE:  9:35 AM

    There’s 1560.10, I’ll close the interim long here and revert to full short unless SPX can push higher.

    UPDATE:  9:39 AM

    Got a pullback to the neckline of the small https://pebblewriter.com/inverted-head-shoulders-pattern/ (in yellow, below) completed on the opening.

    I’ll try another interim long position here at 1554, with very tight stops (1553ish) in the event SPX pushes down through the neckline.

    The IH&S targets 1574 — which is also roughly the .618 retracement of the 1597-1536 decline.

    UPDATE:  9:50 AM

    I’m going to allow a little more wiggle room on the stop, as this setup is too good for the bulls to waste.  Hanging in there for 1574.

    UPDATE:  10:00 AM

    The existing home sales won’t make it any easier for more upside, here.

    Pulling the plug on the interim long unless it can push back up through 1555.

    As we discussed Friday, the right shoulder formed thus far is sufficient for the H&S Pattern proposed on Apr 16 to play out.  All we need now is a drop back to 1535 or so.

    But, getting SPX up to 1474 would be a coup for the bulls.  At that point, it would have formed 2/3 of another larger IH&S that targets 1610.  So, don’t expect them to give up this seemingly insignificant pattern easily.

    UPDATE:  11:55 AM

    SPX just shot through 1555 on weak technicals.  I’ll add an interim long position, but wouldn’t get excited about this move just yet.

    It’s questionable whether can push through 1558.74 — the .886 of this morning’s decline.  I’d have to classify it as corrective unless it can break out of the falling white channel.

    UPDATE:  12:15 PM

    Just reached 1558.53, pushed above the channel upper bound for about 3 1/2 seconds, and retreated.  I’ll hold on to the long, but raise stops to 1556ish.  The bulls really need a breakout here.

    *   *   *

    A quick shout-out to John Lounsbury, Managing Editor over at Global Economic Intersection.  He’s celebrating three years of fine reporting on economics and market analysis.  He’s a darn smart guy and fine writer in his own right, but also features some terrific guest writers on a regular basis (they’ve even been known to post occasional pebblewriter.com stuff when they’re desperate.)  Check it out HERE.

    * * *

    UPDATE:  12:40 PM

    SPX just burst through our channel line mentioned above.  This puts the red .786 at 1566.94 on the table — a Gartley Pattern.  Note that this is also roughly the level of the .500 retracement of the 1597 – 1536 decline.

    Assuming SPX will push through 1560 this time (the RSI chart below suggests it will) we’ll look for signs of weakness between 1567 – 1574.

    UPDATE:  2:35 PM

    SPX making nice headway toward our interim target range of 1567-1574.  I’ve had a chance to fine tune some of the charts; and, this move is shaping up pretty much as expected.

    Recall that we shorted at 1597 back on Apr 11, and held went long again at 1541 last Thursday.  SPX is coming up on the .500 retracement (in white, below) of that decline, which is a common enough corrective wave move.

    Note also that the red .786 and light blue 1.618 are very close to that same price level.  While the coincident Fib levels concur on the importance of 1566-1567, it’s the chart patterns that will likely determine the next 100-point move.

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  • The Storm Before the Calm

    I’ve been quite bearish since going short on April 11 at 1597 [Big Picture: 11:30 update.]  Yesterday, though, SPX reached our initial downside target of 1540 and, as expected, paused.

    As we’ve discussed, this was an important points for bulls to take a stand.  It was also the ideal spot from which to launch the right shoulder of a Head & Shoulders Pattern as I posted on the 16th.


    So, we closed our short position late yesterday [Dollar Daze: 3:45 update in members section] and played “catch the falling knife” with a long position at 1541. This morning, we’re being rewarded with a nice bounce that should have legs.

    Whether it will form the right shoulder we’ve been expecting, or resume its QE-fueled race to the moon is open to debate.  But, for now, the trend is higher.

    Note that SPX formed a nice little falling wedge (in yellow above) that, if it plays out, supports the idea of a return to the idealized right shoulder height represented by the dashed yellow TL.

    The falling white channel I’ve slapped on the chart, as regular readers know, probably won’t last.  It’s rare for the initial slope of a decline to be maintained through the series of rallies and sell-offs that comprise a major move.  But, it’s a good initial fit, so it will do for now.

    UPDATE:  10:30 AM

    The ideal right shoulder in a H&S Pattern is the same height as the left.  But, it needn’t be in order for the pattern to play out.  The high so far for the day is 1549.63, which represents a 14 point bounce off the neckline — compared to the left shoulder’s 33 points.

    UPDATE:  12:15 PM

    SPX has reached the important Fib levels of 1553 and 1555 (the Crab Patterns from 1370-1074 and 1474-1343.)  This would be a natural place for prices to reverse, so I’ll close my long position here at 1554 and go short.

    This constitutes a 20-pt rise off the neckline, so it’s technically enough of a right shoulder for the pattern to play out.  And, the bears could really use a H&S Pattern completion to keep the downward momentum going.

    A good reversal here – or, at least by 1574 – and we can write off the 1576-1597 rally as a prank, a juvenile burst of irrational exuberance.

    Bulls, on the other hand, would greatly benefit from a push through the Fib lines that they completely dissed the first time around.  And, they should have mattered.  Take a look at yesterday’s Dollar Daze for a discussion of how the dollar confirmed the sell signal that a few good overnight ramp jobs were able to beat.

    There are other logical turning points as well.  This could quite likely be a short term trade to score a quick 10 points or so — unless 1535 is taken out and the H&S completes.

    Choices, choices.  We’ll take a look at different scenarios below.

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  • AAPL: Is it Safe?

    Owning AAPL shares these past seven months would have been about as much fun as having your annual cleaning done by Nazi war criminal with a penchant for pain and a disdain for novocaine.

    It might seem like it’s been in a free fall, but AAPL’s tumble from 705 has been very aptly guided by a well-defined channel, a few chart patterns and, to some extent, harmonic patterns.  The channel that’s been eating away at AAPL is shown below, along with two recent Head & Shoulders Patterns that helped it on its way.

    But, it’s the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce.  Whether it turns into something more than that will depend on whether it break free of the falling channel from hell.

    This is the set of major channels I’ve used for the past several months of charting AAPL.  Note that the purple channel broke down a few weeks ago, prompting the latest plunge.

    But, AAPL should find support at the .75 line of the white channel around 380-385.  This is an equally well-defined channel that dates back 20 years.   Because channel placement is as much an art form as science, I like to have confirmation from other sources.

    In this case, the harmonic picture is also quite bullish, at least in the short term.  There are quite a few potential patterns from which to choose.  But, note how the overlapping of several key Fibonacci retracements in the 391-395 range.

    This group, seen better in the close-up below, includes the purple .786, the white .618, the yellow .500 and the red .886.

    AAPL pushed down through them like they weren’t there yesterday, prompting many to wonder if it was heading much lower.  But, the channel lines mentioned above should provide the bounce that will bring them back into focus.

    As to the purple channel, it’s done.  I’ve added a new, red channel that should take over going forward.  If we get the bounce I expect at 380-385, it will have been proven.

    Where does AAPL go from here?  There’s still the not-so-small matter of the large H&S pattern that completed back in December (in white, above).  Recall that it targeted around 305.

    If the large white channel shown above should fail, that’s a distinct possibility.  The falling white channel from 705 has shown remarkable staying power. And, the next lower gathering of key Fib lines is at 307-317.

    But, I suspect the big white channel will provide a significant bounce before any new lows occur.  The top of the falling white channel is currently around 435 (though obviously dropping daily), and at 380, AAPL will have nearly met the price target of the latest H&S Pattern to complete.

    If the overall market rebounds Friday as I expect, look for AAPL to perk up and participate.  A H&S pattern that’s brewing on SPX could easily take prices up to the 430 range.

    If the overall market continues past 1597, AAPL could finally break out of its funk and — more importantly — that falling white channel.  Another backtest of the broken purple channel at 466ish would be a great initial objective.

    Stay tuned.

     

     

     

     

  • 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?

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  • Update on Gold: April 15, 2013

    Gold continued to melt down today, shedding another $126 and continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.

    Gold had a nice bounce from 1539 to 1590 after reaching the bottom of the channel and the horizontal support of several prior bounces on Apr 4.  In a dramatic demonstration of what can happen when channel support is lost, it has since shed almost $270/oz.

    The red channel below represents my best shot at the new operative channel.  It supports the idea of a bounce at the Jan 2011 low of 1309 — 3rd on our list of potential bounce spots during today’s onslaught.

    The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.  If those levels should fail to hold, the next major support levels are 1309 and 1155.

    We got good bounces earlier today at the first two: the Fib retracements at 1359 and 1379  But, along came the CME with announcements of increased margins and that was the end of that.

    Please note, I am not a gold bug.  I don’t advocate the purchase of gold. I shy away from most assets that increase exponentially in price — especially those backed with the kind of religious fervor as is gold.

    The time may come when inflation is taking hold and it makes sense to switch everything you own into the metal… but, we’re not there yet.  It’s a crowded trade, and IMO, today’s price action underscores the risk.

    So, the following is offered in the same spirit as my picks for NCAA champion, Best Picture, and  Westminster Best in Show (the affenpinscher, really!?)

    There’s another channel (below, in purple) that kinda sorta supports the first, but shows the potential downside in the event that 1300 can’t handle the pressure.

    It’s speculative, for sure.  But, I like the fact that it crosses the white .618 at a key point in time, so I’ll leave it up for now.What’s interesting to me is the Fibonacci Fans that can be drawn on this chart.  The ones from 681 low (yellow) have done a pretty decent job of guiding the bounces on the way down.

    And, the ones from the 1923 high (red) have done well at halting several attempts at a breakout.

    I could almost believe we’ve seen the worst of the drop, but I wonder about this potential channel…

    …and, the daily RSI — which suggests at least a little more potential downside any way you slice it.  The bottom of the purple and red channels probably correlates to 1309, while the bottom of the gray channel represents something much more ominous.

    So, where do we go from here?

    I believe we’ll get a nice bounce here to backtest of one of the broken channel lines — say the white midline around 1410 or even the 1450 level.  But, it probably wouldn’t happen anytime soon.  After that, the downside risk is to 1155 or so.

    Of course, if the FBI were to announce irrefutable proof that the North Koreans were behind the Boston bombing, or the Iranians launched a Rahd SAM at an F/A-18, or [insert your favorite catastrophe here], it’s a whole new ball game.

    GLTA.

  • USDJPY Update: Apr 8, 2013

    The largest channels are all pretty loose fits, with plenty of incursions that make forecasting with them iffy at best.

    But, the smaller channels and Harmonic Patterns have been pretty effective.  Even though USDJPY has been running like a 燃える尾を持つ猫, there is growing risk of a downturn as it approaches 100.

    Consider the new channel constructed by today’s high.  It lines up with the Oct 31, 2011 and Mar 14, 2012 highs.  It would carry more weight if there were more than one tag on the bottom, but we shouldn’t ignore the potential for a correction.

    Given the tear the pair has been on lately, it would probably be motivated more by a weak US dollar than a strong yen.

    The pair put in a decent correction at the red .786 (of the decline from 101.44 in Apr 09), hinting at a future Butterfly Pattern.  The 1.272 is at 108.47 and the 1.618 is at 117.43 — right next to the large purple .886 at 118.59.

    There’s also a small Crab Pattern (white, above) completion at 99.26.  So, though I wouldn’t necessarily put money on it (the trend is your friend), it appears the pair might have hit at least interim resistance at today’s high.

    A failure to reverse here will likely mean a trip to the purple .618 (at least) at 105.57.

    But, that would mean barging back into the daily RSI channel (in green below) that broke down in mid-Feb and is undergoing its 2nd back test.  It’s certainly not impossible, but it would be easier after a pullback to reset RSI to lower levels.

    Stay tuned.

  • Natural Gas: Apr 8, 2013

    I’ve been watching natural gas for the past few weeks, an interesting chart as suggested by a member.  One quick caveat: I don’t follow the industry, nor do I have an opinion on the fundamentals.  This is simply a read of the current charts as I see them.

    NG has been exceptionally volatile over the years.  As seen in the chart below, there are a few key channels that have guided prices over the longer term.  Since the 2005 peak, the most influential candidates appear to be the well-formed falling red and yellow channels.

    Regardless of which channel ultimately holds, NG has clearly broken above the red midline, the yellow .75 line,  and a trend line (yellow, dashed) connecting several important lows.  For this reason, NG appears to have continued strong upside potential in the near term — perhaps another 10% or so to the 4.50 – 4.69 range.

    Note the tight cluster of Fib levels there: the purple .886, the white .618 and the yellow .236.  They intersect with the yellow channel top later this year (beginning around September.) So, either the torrid pace of the past two months will ease, or — more likely — NG will trace out a more complex path between now and then.

    NG has completed a 1.272 extension of the drop from 3.93 to 3.05 (Nov 12 – Jan 2) right at the rising purple channel midline.  The prior reversal (Point B) came near the .618, so NG will likely form a Crab Pattern at the 1.618 extension (4.48.)

    If I’ve charted the purple channel correctly, look for it around May 24 following a pause that could range anywhere from the bottom of the purple channel (3.50) to a more likely back test of the red midline (around 3.83) or prior high (3.93.)

    Traders would do well to watch the small, rising white channel for an indication of which.  If it breaks down, the purple channel bottom or .25 should provide key support.  But, that could mean a substantial drop from current prices.

     

  • Brave New World?

    I updated the charts for NDX, NYA, DJIA, RUT and COMP in the past few days.  The picture is mixed at best, with RUT, for instance, looking quite overripe, and COMP looking like it’s seriously considering 3343.  The DJI is happy as a lark making new highs, while NDX is coming up on all kinds of resistance at 2834.

    I suspect they’re all taking their cues from SPX right now.  And, SPX is still intent on joining the new all-time high club at 1576.10.  I see no reason why it can’t reach it, though we went to cash over the 3-day weekend just in case.

    The world didn’t come to an end over the weekend, so I’ll stay cautiously long with tight stops during the trading day and hope SPX doesn’t close at 1576.08.

    UPDATE:  10:03 AM

    The ISM’s Mfg PMI just came out and it’s a stinker.  SPX just backtested the yellow TL and quickly caught itself.

    Employment growing faster, while new orders and production are off?  No problem there.

    The small red Crab Pattern targeting 1576.46 is very much intact, so I see no reason to panic now.  Eye on the prize, eye on the prize…

    UPDATE:  10:40 AM

    Pretty sure this is an effort to shake out the longs, but a drop through 1564 means 1555-1560 is in the cards, so I’m switching sides here.  Charts in a few…

    UPDATE:  10:50 AM

    Here’s the bulls’ short-term problem…though it’s not insurmountable.  Note the loss of momentum (white channel) on the 30-min RSI…

    …and 60-min RSI…

    The daily RSI also lost the purple .75 line and the bottom of the little red channel.  But, the .25 of the yellow channel dating back to the Nov bottom is right here around 1560 and could provide a floor.  If not, the white  midline is just below.

    We obviously have negative divergence on the daily chart, but that’s been going on since Jan 25.  It’s hard to ignore, however, the potential for the purple channel to take over from the yellow, and that could mean increased odds for downside here to the intersecting white/purple midlines at 55ish.

    From a price standpoint, SPX could find support at the white 1.618 of 1559.32, but the stronger support is at the .25 purple channel line at 1555-1556 — also the vicinity of the 1.618 extensions of the much larger Crab Patterns at 1553.39 and 1555.57.

    Bottom line, while the chop that began several weeks ago continues, SPX is growing technically stronger with these tiny little pullbacks that reset RSI.  It doesn’t mean we will top 1576, but it continues the theme of TPTB being very, very careful to lay all the necessary groundwork.

    The alternative, a sloppy, enthusiastic ramp like last September’s 2-day post QE3 rally to 1474, is less sustainable to be sure.

    UPDATE:  3:10 PM

    SPX got as low as the upper end of our target range from earlier, and has since melted back up to just below the 1564 trigger point.

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  • Anatomy of a Top: 2000

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

    SPX had zoomed from 442 to 1478 in about 5 years, a not-too-shabby 234% gain for an annually compounded 27%.

    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.  And, 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.

    On Mar 21, 2000 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.  Can it happen again?  Stay tuned.