pebblewriter

Tag: Channel

  • Charts I’m Watching: Sep 21, 2012

    It appears my idea to close out longs because the bounce was done at yesterday’s close was premature dead wrong.  SPX looks like it’ll break out of the little channel on the opening bell.

    We might get a back test as in the past, but it’s difficult to say for sure.  Today is OPEX, so the safe play for traders is to close any shorts on the open and play along on the upside.

    UPDATE:  9:40 AM

    The market broke out of the channel we were watching.  As I mentioned yesterday afternoon, the upper bound is parallel to that of a similar pattern from earlier in the month.  When that TL was broken, SPX tacked on 30 points.  I don’t think we’re looking at the same thing here, but I can’t be sure.


    OPEX warps everything.  If we can drop back into the channel instead of just to its upper bound, then I chased after the upside for nothing.  But, watch for a back test right around 1463.

    I still believe we’ll get more of a reaction off of all those key Fib levels we just reached — chiefly among them the .886 retracement of 1576-666 at 1472.  Twenty-four points just doesn’t seem enough after an 808-pt climb.  On the other hand, after that long/strong a rally, it’s not so easy for the market to stop on a dime — especially after the supposedly game-changing QE3.

    The RSI picture shows a clear break out on the 15-min chart.  Normally, we will get  a back-test of the broken TL, which will also affect prices.  As the chart below shows, we broke through the initial white channel line and are bumping up against a higher, parallel one.

    Note that we’re also testing — for a third time — the yellow channel line (the thin yellow line rising through the middle of the chart.)

    If these levels can hold — and, by the way, they represent no special Fib level — then this morning’s rally will be contained at a 65% retracement of the 1474-1449 drop.  Given that it’s OPEX,  we could bump along the red channel line until EOD, at which point we’d be close enough to tag the .786 (small purple grid) at 1469.28 — call it 1470 (i.e. water torture for any remaining put holders, but no reward for the call holders.)

    But this would definitely be a breakout of the little white channel.  Can we do that without signalling higher prices to come?  The white channel is currently at 1467 — only a couple points below the .786. Is it worth playing the breakout for 2 points?

    Probably not.  But a breakout is a breakout.  And, there’s no guarantee SPX will continue to respect the big yellow channel.  If the rally extends into Monday, the .886 intersects the yellow channel line at 1471.71 — a relatively deep retracement for a corrective wave.

    Bottom line, I’ll likely put on more short-term longs if we break out convincingly above the small white channel — currently around 1467.  But, if we do, I’ll probably look to close out before the end of the day.  I just don’t have that much confidence in breaking the yellow channel line.

    If we reverse off the channel line instead, then we should at least head down to test the just-broken white channel line at 1463, or the bottom of a larger rising wedge (chart below, in yellow) at 1460-1461.

    A break there would open up the possibility of a trip back to the white channel bottom and our 1444 interim goal.

    I remain short, but will dump that position if we break above the top white channel line/yellow rising wedge/yellow channel line.  I chased after a few calls this morning (mostly as a hedge) for nothing, as the market hasn’t been able to seal the deal.  Those are on the chopping block unless we can move convincingly through the resistance mentioned above.

    UPDATE:  3:55 PM

    Market finally shaking loose.  VIX argues for lower prices ahead.

  • Charts I’m Watching: Sep 20, 2012

    ORIGINAL POST:  10:00

    The logjam finally broke.  We slightly exceeded yesterday’s 1464.50 target — topping out at 1465.15.  This morning’s action reached the downside target “A” we established on Monday [see: The Hangover.]

    We got a bounce at the bottom of the red channel — which should reach the 1454-1455 area — the recently broken red channel line and the midline of the white channel. But, I don’t think this move is finished (keeping in mind tomorrow is OPEX.)  More in a few minutes.

    continued… (more…)

  • Update on Oil: Sep 20, 2012

    Oil has tumbled the past few days, begging the question “what about QE3?”  It was supposed to prop up commodity prices.  There are many competing theories as to the influence of elections, Saudi assistance, etc.  But, the bottom line is CL had tagged some important channel lines and simply corrected.

    There are some pretty obvious long-term channels, as well as two huge rising wedges. The first one broke down only 50% of the way to its apex in price, and 61.8 of the way in time, yet — as is often the case with early breaks — prices came back to tag the apex in time (as well as a major channel line.

    The latest RW broke much later — .707 in time and .786 in price — and is already beyond the apex in terms of time.  The apex is around 144 — close enough to the all-time high of 147 to be considered a double-top were it to come into play.

    To do so, however, CL would have to break through a fan line from that 147 high.  As the following chart shows, the fan lines have been pretty effective at signaling major moves.

    The next such potential support is just below at around 88.  But, this line has been broken twice before on strong plunges, and CL seems determined to make another tag on the long-term support represented by the solid yellow channel line below at 78.

    But, to do so, it’ll have to break through triple harmonic support.  CL is also nearing the largest pattern’s .500 Fib at 90.24, which corresponds with the .382 on two smaller patterns at about the same price.

    It’s easier to see on the close-up.

     

     

     

     

  • The Waiting Game: July 31, 2012

    ORIGINAL POST:  11:30 AM

    SPX might be tracing out either a flag or pennant pattern on the 15-min chart.  While either could portend higher prices (2/3 of the time), a flag would mean lower prices first — probably down into the mid 1370s.

     

    At first blush, the market seems to be respecting the last high of 1380.39 on July 19.  I suppose it makes for a more positive wave structure.

    But, I suspect the bigger worry for bulls is the Fib .786 at 1381.50 (in yellow).  This retracement from the 1576 to 666 plunge (Oct 2007 – Mar 2009) was only recently exceeded again, and a real, live bull market shouldn’t have any difficulty retaking and defending it.  Here’s the big picture, again:

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  • Charts I’m Watching: July 23, 2012

    Looks like I jumped the gun Friday, getting back in too early after scoring 15 points on the downside.  We have a substantial cushion, being up 626 points/45% since inception on March 22, but I really hate giving any of it back on a off-hours dump like this.

    As I posted Friday:

    If you didn’t get short ahead of time, the likely downside of this push is the small channel bound at around 1364.  I don’t think it would be worth jumping in at this point.  Of course, if we break 1360, it’s a different story.

    Having a stop at 1360 doesn’t help much when the market gaps open down 20 points.  So, we’ll focus on where we’re likely to end up today.

    While the upper bound of our rising wedge has been pretty clear, the bottom has so far refused to present a crystal clear picture.  Whether or not to include which tails has left the exact slope muddled, which means it’s difficult to anticipate the probable low this morning.

    There is a trend line (yellow, dashed) in the daily RSI that indicates a bottom is already in, but it’s not a TL or channel line I’ve been following, so it warrants further study.

    It caught the tumbles on Apr 10 (-28.25), June 11 (-42.25), June 25 (-24), July 12 (-19.75) and is thus skilled at putting a stop to big drops.  It has just been tagged this morning. (more…)

  • Update on the Dollar: July 17, 2012

    We’ve been keeping a close eye on the US dollar, which as a safe haven, continues to move inversely to equities.  I remember reading Aftershock a couple of years ago.  It made the very convincing argument that the US dollar would be destroyed by disastrous fiscal policy and runaway debt.

    The advice was to dump everything into euros and ride out the coming storm.  Needless to say, this otherwise terrific book demonstrated the risk of putting any investment advice into writing — a fear I battle on a daily basis.

    DX has been in a huge falling channel for years — a fact many dollar bears have duly noted.

    Since 2005, however, the major direction within the channel has been a slightly downward sloping sideways movement (the white channel lines.)  We’re currently working on our third thrust up within that system — shown by the small purple channel over the past 2 years.

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  • Update on VIX: July 17, 2012

    Regular readers are well-acquainted with one of the tools we frequently use in forecasting VIX: the channels on its daily RSI chart.  On April 18, with VIX at 18.70, RSI channels helped me forecast a high of 27.13 [see: VIX at a Crossroads.]  VIX reached its yearly high of 27.73 on June 4.

    Being able to accurately forecast VIX enabled us to capture most of the downside from 1422 to 1266, and most of the upside since.  On June 2 [see: Channeling VIX] I reiterated VIX’s impending high and called for a reversal to 16.84.

    An ideal .618 retracement of the difference between A and D indicates a downside of 16.84, realistic if stock market takes off again.

    Earlier today, in addition to reaching this target we spelled out six weeks ago, we had an important development that strongly supports our latest equity forecast.

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  • Update on EURUSD: July 6, 2012

    The euro is again hanging by a thread.  Recall it already broke down from and is back-testing a big channel (solid red, below) that dates back to 1997.  Its weekly RSI, however, looks like it could have some life left in it.

    First, I should make clear that I think the euro zone is toast.  The only thing holding it together right now is Germany’s indecision as to whether it’ll save money in the long run by going its own way.

    But, one of these days, investors will turn their attention back to the US dollar.  When that happens, there’s a fair chance that the American problems will be judged to be every bit as serious as the EZ’s.  In the end, it’s a dirty shirt contest and either currency could take first prize — especially if everything starts melting down — stocks, bonds, metals alike.

    With that said, let’s look at the charts.  (more…)

  • Charts I’m Watching: July 6, 2012

    ORIGINAL POST:  9:15 AM

    The ugly NFP has been called “not ugly enough” to bring on more QE immediately.  Let’s look at how the current 10-pt ES loss might shake out on the opening.

    continued…

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  • Going For It

    ORIGINAL POST:  11:15 AM

    In something akin to a recess appointment, the market is making a run for our target area (the rectangle in the chart below) during a holiday-shortened trading session.  We’ll look at the chances it has of getting there and the most likely impediments.

    First, the little pullback we had to the midline yesterday was the 10-15 points I’d been discussing.  I wondered whether we’d get something bigger, but this morning’s action lays that option to rest.  It does, however, open the door to a bigger pullback at the 1.272 coming up.

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