pebblewriter

Tag: Channel

  • 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…

  • Without a Net

    The toughest moments for those of us who chart publicly are those right after calling a significant top or bottom.  There are some instances when pretty much everyone and their mother can see a turn coming.  Other times, it feels like you’re sailing through the air, frantically searching for the catcher and hoping he hasn’t chosen this moment to take an unannounced coffee break.

    The first wave down after any significant top is just plain fun.  It worked!  Sit back, bask in the glory, etc.  Then comes the corrective wave.  Heart-in-throat time.  You know it’s going to retrace some of that first wave down, but how much?  Most chartists develop sweaty palms around 61.8%.  Your stomach starts churning at 78.6%.  At 88.6%, time for your favorite vice.  And, God help us if it’s a double top.

    Following an analog is generally the worst.  Virtually no one else sees it coming, and there is a long list of reasons you’re probably wrong.  Taking a tour around the net last night, that certainly seems to be the case now.  The euro is soaring, the dollar is tanking, and the market has spurted 80 points in two weeks — only 50 points from a five-year high.

    It’s made even worse if the first wave down didn’t break out/down of whatever chart pattern it was in.  Yesterday’s reversal was impressive — going from up almost 8 points to down 8.But, we never quite reached my 1424.41 target — coming up .68 short — not to mention the Inverted H&S target.

    And, we haven’t yet broken down from the rising wedge. A re-test of the high is officially on the table until that happens — hence the importance of using stops.

    Once the wedge is broken, the next support is usually either an important Fib level or a morphing of the wedge into a channel.  In this case, we have strong horizontal and Fib support at 1400.  If we convert the wedge to a channel, it has a mid-line currently around 1402 and a channel bottom around 1390.

    A rising channel would be bullish, of course.  And, I haven’t a bullish bone in my body right now.  We draw it, though, because we have to try to get inside the head of all the bulls out there and figure out where they’re likely to jump in and buy.  Channel mid-lines and bottoms, as well as important Fib levels, definitely qualify.

    UPDATE:  11:35 AM

    Nice reversal off this morning’s highs again, turning a 4-pt gain into a 4.5-pt loss where SPX bounced off the 10-day SMA (in red below, currently 1405.37.)  The SMA 20 (white) is down around 1392 and, like the 50 (blue, 1419), is due to continue falling. Fifty sessions ago was Sep 20, two sessions post the Sep 14 high of 1474.  So, all else being equal, the SMA 50 should start coming down as those higher components to the moving average roll off.

    The 200-day moving average (thicker red) is down at 1385, so it’ll be a while before the 50/200 cross.  And, we are officially back below the 100-day (thicker yellow) at 1410.59.  Look for the 50/100 cross in the next few days.

    The next battles involving moving averages will likely come at 1380, involving the SMA 200 and the SMA 20 at the intersection of the bottom of the rising white channel and the top of the falling red channel.  The 50% retracement of the 1343 to 1423 rally is at 1383.54, which intersects with both channels on Thursday.

    So, we’ll keep an eye out for a significant bounce Thursday at 1383ish.  Remember, the .786 of the 1576 – 666 crash is right there at 1381.50.  And, bulls will want to limit this “correction’s” downside to the next Fib level lower — on the way to new highs, of course.

    The EURUSD, in the meantime, has reached Sunday’s upside target of the .886 at 1.3084 and has completed a fairly decent looking rising wedge of its own.

    UPDATE:  12:10 PM

    The dollar has reached the bottom of the white channel we charted Sunday [see: DX Update], just beyond a .618 retrace of the move up from 78.725.  It appears to be basing for a move higher.

    I’m expecting a 5% move by around the end of the year.   What does that mean for stocks?

    continued for members…

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  • 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.

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  • 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.

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  • Charts I’m Watching: Nov 26, 2012

    MEMBERSHIP NOTE:  I have set up a Twitter Account (@pebblewriter). I will endeavor to tweet important intra-day alerts within a few minutes of posting them in these pages.  I believe you can arrange to be notified of any updates by text or email.  Alerts will contain a link that directs followers to the pertinent post.  I’m new to this, so bear with me as I get the hang of it.

    Also, last call to take advantage of the Hurricane Sandy membership promotion [details HERE.]  Donations of $100 or more to the relief effort  will earn you $200 off the cost of an annual membership.  It’s a great chance to do well by doing good.

    Last, as posted a few days ago, monthly memberships have been discontinued.  Monthly members who convert to Annual Membership are eligible for a rebate of their most recent monthly payment.  New pricing for all membership categories goes into effect at the end of the month.

     

    ORIGINAL POST:  9:20 AM

    Here’s where we left off Friday.  I’m not thrilled with the idea of adjusting channel lines to fit with an overshoot of a target.  Looks a bit hinky on the 60-min chart…

    …even if it fits fine on the daily.

    But, here’s the chart that really convinced me to stay short (from 1404, 10:30 EST in members’ section) over the weekend, even though SPX slightly exceeded my original stop of 1407.  Remember, this is a short-term trade only.  Our core position remains long.

    The RSI ran into the upper bound of a well-formed channel (yellow) at the end of the day.  So, it’s either break-out or break-down time – regardless of what price was saying.

    And, in the 60-min time frame…

    Meanwhile, the dollar was breaking out of a week-old 60-min RSI channel and appears to be setting up for a back-test of the broken channel and recently broken moving averages (10-day = 80.88, 20 = 80.78, 200 = 80.9).

    UPDATE:  11:30 AM

    SPX broke down through the important 1400 price level, and is likely on its way to completing a proper B-wave for this corrective wave on its way higher.  Friday, I updated the primary forecast to reflect a significant sell-off into the middle of the week, followed by a strong recovery.

    This scenario is in play if we reach the low 1380s in the next day or two — something that seemed unlikely on Friday, but would seem less so if we traded down through the SMA 200.

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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.

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  • Charts I’m Watching: Sep 25, 2012

    ORIGINAL POST:  9:00 AM

    EURUSD running out of steam… Would love to short around 1.2971.

    DX finding support for continued push higher…stands a very good chance of breaking out of the channel today or tomorrow…  I’m an aggressive buyer at 79.33.

    e-minis hitting resistance…

    Fading this rally unless we break out of the triangle… currently ranges from 1454-1464 with apex of 1459 on Friday.  Decent chance we’ll tag the upper bound at 1463-1464 before reversing…

    More after the open.

    UPDATE:  10:20 AM

    Ideal spot for reversal: the .786 and white channel bound at 1463.86.

    UPDATE:  10:40 AM

    EURUSD in the final throws — looking for a butterfly completion at the top of the channel in a rising wedge. Should get a reversal between now and 1:00 PM EDT, ideally at 1.2970.  Immediate potential to the bottom of the channel — currently around 1.28.

    The dollar is similarly working towards a Crab Pattern completion at the lower bound of its channel — while in a falling wedge.  Idealized reversal would be at 79.334 between 12-2 PM EDT.   Immediate potential to the top of the two channels (small purple and larger red) around 80.06.

    SPX is completing a rising wedge at the upper (white) channel bound — harmonic targets for 1.618/.886/.786  patterns between 1463.32-1463.86.

    UPDATE:  11:20 AM

    Any minute now…

    UPDATE:  12:00 PM

    Each of this morning’s targets was reached.  Should get some back tests, but the next move is down.

    The rising wedge on SPX broke down and it just broke through the support I was worried about — the lower bound of a larger rising wedge (purple.)

    The EURUSD rising wedge broke down, peaking within .0002 of our 1.2971 target.

    DX broke out of its falling wedge higher than I anticipated, at 79.375 rather than 79.334.  I have redrawn the channel to reflect the new bottom — ditching the after-hours plunge on the 21st.

    SPX and DJIA should turn negative on the day very soon.

    I hope everyone was able to make a few bucks this morning.  Downside targets coming up in a few minutes…

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  • Update on VIX: Sep 24, 2012

    VIX looks to have completed another falling wedge, falling to 13.51 on Sep 14 — versus the Aug 17 low of 13.3 and the Mar 16 low of 13.66.  The 5-year red, dashed TL is currently around 13.24, but there is no evidence that the TL will be tested again this go ’round.

    One note of caution:  these falling wedges have been busted more times than the Fed’s employment targets.  Virtually every one of them has been followed by a tag of the original apex.

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