pebblewriter

Tag: crab

  • USDJPY Update: May 8, 2013

    USDJPY has continued to slide since our Apr 8 call for a top [HERE.]   It back-tested the broken purple channel midline on May 6, and is signalling a sell-off to at least the bottom of the purple channel (96.25 – 96.66) where it intersects with the white channel .75 line in the next day or two.

      But, if the most obvious harmonic patterns play out, we could easily see the purple channel break down and the white midline come into play at the intersection of the .886/1.618 at 93.40/93.26 towards the end of May.

    Remember, it was the white channel that confirmed the harmonic pattern reversals at 100 last month.

    “…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”

    April 8, 2013

    continued for members… (more…)

  • The Best Laid Plans

    The best laid plans of mice and men
    Go often awry,
    And leave us nothing but grief and pain,
    For promised joy!

    Robert Burns, 1785

    ORIGINAL POST:  6:45 AM EDT

    The wedges we’ve been watching on DX and EURUSD are playing out.  EURUSD has broken out…

    …and DX has broken down.

    But, it’s the USDJPY that I’m watching especially closely this morning.  It still hasn’t broken 100 since our Apr 8 observation [USDJPY update] that it was running out of steam:

    “…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”

    It topped out 3 sessions later at 99.94, and two weeks later is in danger of a larger pullback.

    Remember, weakening the yen was a critical element of the BOJ’s stimulus program that was supposed to generate inflation, boost Toyota sales and send Japanese investment funds flooding into foreign markets.

    Instead, Japanese investors are repatriating their funds from abroad — a net Y9.5 trillion ($95 billion) since the first of the year.  Why?  As any US investor could tell you, QE might not inflate economies, but it sure as hell inflates markets.

    The Nikkei 225 is up 65% since last October’s lows….

    …and, still hasn’t even recovered 2/3 of its losses from the 2007 crash.  The Dow and the S&P 500, by contrast, have recovered all of them — and, then some.  So, to many, the Nikkei still seems the better value.  It’s hard to argue with success.

    But, I’ll do it anyway.  In reaching 14,020 a few hours ago, NKD tagged the .618 Fibonacci retracement of its 2007-2009 crash from 18,365 to 6990.

    To those not familiar with harmonics, this tends to be a big deal.  When SPX reached the equivalent point in April 2010, it plunged 17%.  The DJIA fell almost 15%.  The USD, represented by DX, soared 9.3%.

    But, the yen positively soared.  USDJPY started a 17-month slide that took the pair down 20% from 94.98 to 75.78.  NKD, which had just reached its .382 Fib, shed 23% over the next 4 months, eventually reaching almost 30% in Nov 2011.

    Could the USDJPY’s failure to break 100 be telling us something?  You better believe it.  I called a top a few weeks ago because the pair had reached several important Fib levels as well as the midline of an important channel (in yellow, below)…

    …that dates back to 1995.

    There’s no guarantee it won’t push through instead of retreating, but the RSI picture supports the danger of a significant retreat.

    Daily RSI has backtested the broken yellow channel twice, but the trend is clearly down — with the latest push being rebuffed by the purple midline.

    And, a close-up reveals that a breakdown has already started.

    Stay tuned.

    UPDATE:  9:25 AM EDT

    With SPX set to open 5-6 points higher, it stands a very good chance of reaching our 1584.23 target. In other words, a pop and drop is very much in the cards.

    If it goes any higher, look for 1590.36 instead.

    UPDATE:  9:40 AM

    That’s good enough for me.  I’m closing my long position and reverting to full short here at 1584.80.  Stops around 1586ish.

    The .25 of the purple channel is right around 1587, so I’d use some discretion around that stop level and look to see if there’s any real strength behind a move higher.

    UPDATE:  10:25

    Getting a push through 1587, so I’ll open an interim long position for what should be only a few points higher to the .886.  Core short remains in place.  Tight trailing stops.

    I wouldn’t start getting nervous about the short position until around 1594 — the trend line (red, dashed) that extends from the 2000 and 2007 peaks.

    UPDATE:  10:50 AM

    I’ll go ahead and close that interim long here at 1590.  While I still think there’s potential to the 2000-2007 trend line, it could easily happen after the correction that should begin in the next hour.

    That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.

    This is a very artfully crafted scenario to justify (from a technical standpoint) a rally above that red TL — which is one of the last remaining technical impediments to a continuation of the rally from 1343 in November.

    Can they pull it off?

    continued for members… (more…)

  • 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…)

  • 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.

    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…)

  • 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.

  • The Big Picture: Apr 11, 2013

    The chart of the day:

    We closed our longs (from 1539) yesterday, but are still a few points south of the market’s upside potential.  While yesterday’s 1589.07 might end up being the top, I rather suspect we’ll move just a little higher.

    Recall that we anticipated being in this situation a week ago [Charts I’m Watching: Apr 4 – 1:20 update.]

    I strongly suspect that any move that’s much higher than 1576 will terminate at the purple midline… On April 11, the midline of the purple channel intersects with the TL connecting the 2000 and 2007 highs (red circle below.)  Also on Apr 11, the .25 line of the same channel crosses 1576 (yellow circle.)  So, take your pick.

    So, we can’t very well ignore it now that we’re here, can we?

    I’ll take a shot at a long position this morning — with tight stops of course.  The bottom of the smallest purple channel (from 1539.50) is currently around 1582 and rising about 2.10 per hour.

    The dollar reached the next lower line on the falling red channel and will likely backtest the broken white channel as seen on the 60-min chart below.

    But, take a look at a daily chart, and it’s obvious that the push lower would be relegated to tail status and the channel would remain unbroken if DX climbs back to 82.515 or so.  Not a terribly difficult feat if equities top out this morning…

    UPDATE:  10:15 AM

    Just tagged the midline of the purple channel that’s guided SPX since 1343 on November 16.  I never dreamed when we went long that morning [CIW: Nov 16 – 10:05 update] that we’d tack on nearly 250 points in the next five months.

    SPX also reached the IH&S target (1591.66) from the small pattern completed on Tuesday.  It wasn’t a very well-formed pattern, but here we are.

    We’ve discussed it many times in many contexts, but completing a tag on even a 13-year old channel top doesn’t guarantee a bear market.  But, the odds of at least a correction are pretty good.

    If anyone’s wondering about the dashed yellow line that intersects with our smallest channel around 1597.68, it’s the TL shown on the first chart up above.  It connects the 1994 low and the 2002-2003 lows. If we exceed the TL connecting the 2000 and 2007 tops, this is also a great target.

    UPDATE:  11:30 AM

    SPX just topped 1597, which is good enough for me.  I’m switching sides here and opening a short position.  Stops around 1605 should work.

    My only hesitation is that we’re sooo close to 1600.  Do we leave a milestone like that for another day or go ahead and add it to the QE trophy case.  Hmmm…

    If 1600 is in the cards, expect a bounce at the red TL (1593.25) which bulls will, quite legitimately, interpret as a backtest of an important broken TL of resistance.  BTW, a bounce there would also be a backtest of the large purple channel midline.

    If we fall back through both, however, this excursion to 1597 will appear as a shooting star at the top of a nice little Crab Pattern (the 1.618 extension of the drop from 1573 to 1539.)

    Next key level below the red TL is the bottom of the little purple channel from 1539 — currently around 1589.  And, of course, the 2007 1576.09 high is awaiting its own backtest.

    UPDATE:  1:40 PM

    SPX has retraced .886 of its drop from this morning’s 1597.35 high.  If it’s going to try for 1600, now’s the time.  For the bears, a drop through the channel bottom at 1589.40 would really help get the downside going.

    UPDATE:  2:15 PM

    Got the reversal almost to the penny at the .886 retracement, completing a nifty little Bat Pattern.  The bottom of the small channel is coming up at about 1590.

    Since we’re dropped back through the red TL and the purple channel midline, the next backtest will be from below.

    I’ll update our forecast if/when SPX drops through the channel bottom.

    UPDATE:  3:25 PM

    Such a simple thing: breaking through a channel bottom.  SPX doesn’t even have to chase it.  The channel is rising up to meet the index.  But, no breakdown yet.  Instead, two well-engineered bounces that came at just the right time and place to prevent more serious damage to the bullish case.

    And, now we’re entering into the last-minute ramp zone — the last 30 minutes of the session where markets are only allowed to go up.  Good thing it’s an efficient market, randomly walking down a present-value path to future cash flows and not some trillion-dollar casino manipulated by rich and powerful interests with unlimited funding.  That would suck, right?

    If the little H&S is permitted to complete, it targets all the way down to 1585 — the neckline of the last H&S that completed but didn’t pay off thanks to a ramp job in the futures overnight.

    The way this market has been going, it’ll close at the neckline — forcing us to choose whether or not to play ramp job roulette with an overnight position.

    continued for members… (more…)

  • 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.

     

  • Charts I’m Watching: Mar 25, 2013

    With Cyprus saved, the sanctity of the EU intact, and a US budget deal passed, we can all go back to watching the market ratchet up 10 points/day, right?

    Here’s the fundamental problem.

    continued for members… (more…)

  • 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.