pebblewriter

Tag: EURUSD

  • Down the Rabbit Hole

    “In another moment down went Alice after it, never once considering how in the world she was to get out again.”
    ― Lewis Carroll, Alice’s Adventures in Wonderland

    Not quite four months ago, the Fed guaranteed lower interest rates and higher stock prices forever.  At least that was the mainstream media’s take on QE3.  The market shot up about 40 points in a day, then did something rather curious.  It stopped.

    While the rest of the world took advantage of the pause to shift more money in AAPL, those who study harmonics loaded up on shorts in anticipation of the huge Bat Pattern that was completing [see: The World According to Ben.]

    After having reversed at the Fibonacci 61.8% of the 2007 to 2009 crash, SPX had reached the 88.6% level.  Would it be a huge reversal as occurred when the Gartley Pattern completed at the .786 (- 21.6%) or something more modest?

    The fact is, we don’t know yet.  After shedding 131 points (8.9%) from September to November, SPX has retraced 119 points — roughly 88.6% of them.

    This means that SPX has constructed another Bat Pattern over the past 4 months.

    It’s easier to see if we zoom in.

    Like the larger pattern that took place from 2007 to 2012, will this pattern deliver a big reversal or something more modest?  For help, we can examine how SPX reacted the last time it reached a major Fibonacci level — the Gartley Pattern at the .786 in May 2011.

    SPX lost 112 points to 1258.07 before regaining about 88.6% of them to complete a Bat Pattern (the light blue pattern.)  At that point, it did it all over again (the red pattern.)

    In retrospect, the move from 1370 to 1258 was the 1st wave.  The move back up to 1356 was the 2nd, corrective wave.  It was powerful and quick — taking only 14 sessions compared to the 1st wave’s 33.  This fooled a lot of investors into thinking it was a motive wave and was going to establish a new high.

    Note: For those of us following an analog that compared the 2011 top to the 2007 top, it was a fabulously opportune time to start loading up on shorts [see: Why Do Analogs Work?]  Our gains over the next couple of weeks were nothing short of spectacular.

    The same thing happened a second time (the red pattern.)  The wave from 1356 to 1295 took 7 sessions, while the wave back up to 1347 took only 3.  Again, this suggested higher prices, not the powerful reversal that slashed 246 points in only 13 sessions.

    Are there any parallels between the market’s reversal at 1370 and its reversal at 1474?  As regular readers know, I am tracking a new analog [see: A New Old Analog] that suggests there are.  But, there’s a line in the sand at current price levels.

    We can argue all day about whether the pathetic fiscal cliff deal, combined with the latest QE incarnation, should mean higher prices.   But, if the latest Bat Pattern doesn’t hold, and prices ramp up past 1474, I’ll consider the analog broken and start charting upside targets.

    But, it won’t be because the Transportation Index just made a new high.  It simply completed a Crab Pattern (on negative divergence I might add), imbedded in the tail end of a large Bat Pattern that it’s been trying to complete since February.

    And, it won’t be because the Russell 2000 just made a new high — which can also be viewed as a quadruple top (dashed purple TL) that coincides with: (1) a Butterfly Pattern completion (in purple); (2) a Crab Pattern completion (in red); (3) a back-test of a well-formed rising wedge; and, (4) the .786 time fib of the wedge.  All of this, of course, is on negative divergence.

    It would be in spite of a dollar index that just broke out of a channel that dates back to May (red), after testing the bottom of a channel (in white) that dates back to Feb 2011.

    It broke out of and back-tested the latest channel on the hourly chart, too.

    I’ve always wondered what would happen when The Powers That Be threw everything they had at the market and it yawned.  Might that be a rabbit hole from which there is no easy escape?

    Between QE3, ESM, Congressional Kumbaya singing…the market should be hitting new highs.  So, why is it mired at the same point (metaphorically, at least) that preceded the last big correction?

    The market is currently frozen in headlights, wondering whether to respect the latest Bat Pattern or not.  So, I’m going to take the opportunity to review our analog and general forecast.

    To be continued…

  • Cliffhanger: Dec 31, 2012

    ORIGINAL POST:  9:25 EST

    We remain short from SPX 1447 on Dec 18.

    The dollar is either finding support at a channel midline or about to find it at the bottom of a channel, depending on which channel ultimately holds.

    DX RSI shows great channel support either way.

    The EURUSD is still hanging in there, backtesting the red channel midline again in the midst of the major white channel back test that’s been going on since Dec 18, and post the rising wedge break of Dec 19.

    As Reeodd mentioned in a question Friday, the H&S pattern that completed (see the 2:50 entry) would look better formed if the right shoulder were a little higher.  This is definitely true, though the past six months has seen many very lopsided H&S patterns play out perfectly.

    Bottom line, the pattern completed — but it didn’t close beneath the neckline.  We saw a bounce right at the close that allowed it to remain above — just as we suspected [Winding Down — 3:55 entry.]

    This correlated perfectly with the VIX reversal at a key Fibonacci .618/1.618 level we were expecting.

    I don’t usually count H&S patterns as “in play” until a close below the neckline.  But, in this case, I think that rule is mostly academic.

    The reality is that the market will move today in accordance with the news out of Capitol Hill, which might be in keeping with normally reliable chart patterns — or not.

    I have no inside knowledge of the goings on in Washington.  But my view has always been that Congress, while recognizing the need for Fiscal Cliff-type changes, cannot ever be expected to commit political suicide by actually voting for them.

    Old guys in strongly partisan districts might be the exception, and we’re seeing olive branches extended (even aisle-crossing) by some.  But, young turks whose anti-establishment vitriol got them elected are unlikely to fall in line — as happened with Plan B last week.

    And, if that sounds like I’m hedging my bets, it should (metaphorically, anyway.)  Betting on the outcome of the political process is a crap shoot, pure and simple.  I express an opinion because that’s what members expect.  It should, in no way, be considered as fact until after midnight tonight.

    Our forecast still calls for much lower prices in the next 9 sessions.  Thus, I remain short. But, anyone uncomfortable with the very real risk of a short position imploding as the result of a last minute political stick-save should really be on the sidelines until all the dust settles.

    By the way, we have a number of new members with us.  For those who are scrambling to get up to speed, let me recommend a couple of posts.  The last update I made to our current forecast/analog was on December 17.

    https://pebblewriter.com/forecast-update-dec-17-2012/

    And, if much of that post sounds like an obscure, ancient language, I recommend you take a few minutes to peruse the following pages:

    Also, if you did not receive an email announcing the publishing of this post at around 9:30 EST, please let me know.  I’d like to make sure everyone’s preferred email address is in our distribution list.  While you’re at it, check out your profile and make sure there’s a phone number or alternate email address listed in case of problems.

    Last, take a minute and sign up to follow pebblewriter on Twitter.  On a couple of occasions, email has been out of commission, and this is a good alternative way of communicating.  I continue to explore using it as a means of communicating intra-day posts of any importance.

    UPDATE:  11:15 AM

    I’m going to take the next hour or so and update the forecast/analog charts from Dec 17. Unless something happens, I won’t post again until then.  In the meantime, keep an eye on SPX’s falling white channel.

    The upper bound is currently around 1412.44 — the .618 retracement of the latest leg down from Thursday’s high of 1421.29 to Friday’s 1398.11 low.  A break-out would be significant, and cause for a short-term hedging position.

    In the absence of any news by 4pm EST (regular hours today, folks – bah, humbug!) I imagine enough prudent investors will choose fear over greed that we’ll get another sell off anyways (as always, subject to PPT action.)

    UPDATE:  12:40 PM

    SPX just tagged that .618 level we discussed earlier.  It’s close enough to the channel line to be considered still within, but I’d look at any move higher as a reason to take a protective long position.

    UPDATE:  12:45 PM

    Just got the second push through.  I’ll take a protective long position here at 1413, with stops initially at 1412.  Core shorts remain in place.

    The 60-min RSI channel (since Dec 18) shows a breakout.

    UPDATE:  1:25 PM

    SPX has bounced back and forth a couple of times as news reports hint at a possible deal on part of the agreement needed to avoid sequestration.  I’d continue to keep a protective position in place, just in case.  Obama to speak at 1:30.

    The latest push was to the .786, which opens up a potential Butterfly Pattern (1427.59 or 1435.62) IF prices surpass 1421.29.  Note that 1427.59 would intersect with the upper yellow channel bound as well as a shoulder line that parallels the latest H&S pattern neckline.

    This also would mark a full back test of the rising purple channel and the midline (dashed) of the white channel guiding prices higher since 1343.  Also note that 1425.68 is the .618 of the 1448-1398 drop, and 1424.41 is the .618 of 1474 to 1343.

    On the downside, keep an eye on a drop back through the white channel line — currently around 1410.50.

    UPDATE:  1:47 PM

    Despite Obama’s jovial tone, this doesn’t sound like an agreement is any closer.

    UPDATE:  2:30 PM

    Prices have yet to drop back through the white channel — meaning any trading above 1411 could be written off as an intra-day blip.  SPX came very close to, but didn’t quite tag the .886 of 1421-1398 at 1418.65.  Completing that little Bat Pattern could easily be the extent of this intra-day rally.

    But, the risk is still to the downside.  If we muddle on through and close above the white channel line, I’d leave the protective long position in place.  If we fall back through, I plan on lifting it.

    As detailed above, a push above 1421.29 opens up 1424-1435.

    UPDATE:  3:00 PM

    McConnell says there’s a deal on taxes, but last I heard there needs to be some agreement on spending, too.  And, I’d be surprised if the House would agree to such a deal.

    We’ve reached the bottom of the target area for this rally, so a turn anywhere in here would be reasonable.  But, there remains potential to the 1429-1435 range, with best guess being 1429.

    I hesitate to take profits on intra-day longs just yet, but would reassess at 1417.

    UPDATE:  3:45 PM

    Looking good for that 1429 level on mostly negative divergence — wouldn’t surprise me to close there.  I think I’d unload those intra-day longs in a heartbeat if we tag it.

    UPDATE:  3:55 PM

    The news reports are getting just plain silly.  But there’s no deal prior to the close, and the House won’t even vote on anything the Senate might pass today.  I’m closing out the longs here at 1426.

     

  • Winding Down

    Beware the Fee-scal Cliff

    Today’s post concludes a week of publicly available intra-day posts, my little gift to those considering a pebblewriter membership.  Sorry, but the forecast is for members only.

    As announced on Monday, subscription prices will increase on January 1.  In keeping with the concept of paying for performance, the annual rate will be about $10 for each percentage point of return since the new site’s inception on Mar 22, 2012.

    We’re up about 95% over those first nine months [SEE DETAILS HERE] so the new rates will be as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    The first fifteen to sign up for an annual membership at the current rate of $800, however, will be granted Charter Member status.  Charter Member rates are locked in for the life of the site, so you’ll never pay more — no matter where annual rates end up.

    If we are fortunate enough to continue averaging a little over 10% per month, annual memberships would be $1,200+ in March.  So, locking in current prices is a no-brainer.

    Sign up HERE.

    *  *  *  *  *  *  *  *

    ORIGINAL POST: 9:30 AM EST

    I remain short from 1447 on Dec 18.  Time is running out for our heroes on The Hill.  Market corrections don’t require that everyone turn bearish — just the handful in the middle whose selling turns the tide.   Those investors who have been wondering, waiting hopefully for a fiscal cliff deal to emerge from Washington… might at least a few of them decide to rein in their equity exposure today?

    Watch this morning for the Chicago PMI — due out at 9:45 EST.  Last month, it turned up slightly, but was considered bearish due to the decline in new orders.  From Briefing.com:

    Briefing.com puts out great graphs, such as this one on the relationship between pricing and the PMI itself.  Not a terribly bullish looking chart.

    UPDATE:  9:44 AM

    RSI has a long ways to go before finding any channel support…

    Why am I always talking about RSI? It might be the fact that it’s helped me call almost every major turn the past couple of years.  As regular readers know, I employ a deceptively simple-looking practice of channeling RSI values in different time frames.

    Combined with Harmonics and other chart patterns, it has been very effective in forecasting.  Consider the past six months alone…

    April 2 — Shorted:  SPX completed a Butterfly Pattern at a channel top at 1421.05.  It was also the third lower RSI value in a row on higher prices (negative divergence) after RSI tagged a channel midline.  See: All the Pretty Butterflies.

    June 1 — Went Long:  SPX reached the bottom of an RSI channel, back-tested a falling wedge and found harmonic support — all at the price levels forecast by an analog that had been going gangbusters since April 9.  See: Why I’m Buying.

    September 14 — Shorted:  SPX had completed a Bat Pattern that dated back to October 2007, tagged RSI and price channel lines.  VIX and DX RSI channels also indicated impending reversals. See: The World According to Ben.

    November 16 — Went Long:  SPX had reached three important harmonic targets, reached a H&S Pattern target, tagged RSI and price channel bottoms — all at a price level forecast on October 31.  See: CIW Nov 16.

    December 18 — Shorted:  Prices overshot our forecast target by 6 days and 10 points, completing a Gartley Pattern set up by the 1474 – 1343 drop. But, in the process, daily RSI completed a perfect back-test of the recently broken channel that had governed the rally since June.  See: CIW Dec 18.

    Together, these major moves accounted for returns of about 40% since the new site’s inception on March 22.  The other 55% came from interim swings ranging from an hour to a few weeks.  But, all of them were influenced by RSI channels, which frequently provided a signal quite contrary to popular thinking.

    I don’t know of any analysts who use RSI channels.  In fact, a Google search for the term “RSI channel” shows a whopping 3 hits in the past month — two of them from this site.  Have folks tried them and failed, or are they just too complicated?

    Though they’re almost always obvious in the rear-view mirror, RSI channels can be very difficult to use in forecasting.  Charts drawn in different time frames can suggest very different results.  They’re tough to use in choppy, directionless markets.  And, divergence is always a challenge.

    In short, RSI channels aren’t for everybody.  It helps if you enjoy staring at charts for hours at a time, and can pick out patterns in a jumble of seemingly random lines.  It also helps to understand higher math, as RSI is essentially a derivative of price movements (magnitude and velocity of price changes.)

    If you’re thinking about using RSI channels, you might want to start with an aptitude test — available here.  Or, just tune in each day and I’ll let you know what I think.  After a year of practice and a few thousand charts, I view them as an indispensable secret weapon.

    UPDATE:  12:20 PM

    Chicago PMI [download here] actually increased from 50.4 to 51.6 this month — though it would still have been below 50 if not for the always handy “seasonal adjustment.”

    The increase again conceals a troubling development: employment and capital spending are both sliding.  New orders rebounded almost to October levels, but CapEx hit a new 28-month low, while employment plunged from 55.2 to 45.9 — the lowest level in three years.

    Lest my bearish leanings sway you, here’s how ISM itself assessed the report:

    The Business Barometer was guided higher almost exclusively by a sizable advance in New Orders.  In spite of the rise in the Chicago Business Barometer, five of the seven business activity indexes declined in December, most significantly the Employment Index.

    In other words, any decline in New Orders — the big “winner” this month — and the whole index will head south for the winter.

    UPDATE:  2:50 PM

    The market continues the kind of slow-motion shuffle to the exits you might see in a crowded movie theater when that first whiff of smoke is noticed.

    Note the impending H&S Pattern (in yellow) completion at 1402 — a scant 4 points below today’s low.  It targets 1354 — right at the Fib .886 of the 1343 – 1488 rally.  We’ve laid the proper groundwork for Bat, Butterfly and Crab patterns in the 1355-1368 range.

    But, of course, this refers to the next leg down — not the entire move.

    I don’t know whether the fiscal cliff will be deemed “solved” in the next hour or not.  I think we can all agree that whatever deal the combatants strike (if any!) the MSM will herald it as the greatest thing since tranched bread.

    If so, and if it gets the right spin, the market is bound to jump.  That’s why we always, always use stops.  Always.  Stuff happens.

    As regular readers know, however, I don’t think it’s going to happen.  IMO, nothing has changed in the past two weeks since I posted:

    …clearly we are slipping closer to the point where a budget deal can’t/won’t be done — assuming the dem’s were ever willing in the first place.

    Given the current political climate, going over the cliff might be the only way possible to reduce spending and raise taxes.  There are many in both parties who openly support the idea, and probably many more who secretly support it.

    It makes sense.  Politicians know we need to balance the budget.  But, they also know their careers will be damaged if they vote for tax increases or spending cuts.  Could be that all the negotiating back and forth is for show, so neither party can be blamed for the hit to the economy that a balanced budget will necessitate (or both will be blamed, depending on your POV.)

    As I’ve posted ad nauseam, any deal means higher taxes, lower government spending, or (almost certainly) both.  We can debate whether this might be good for the country’s economy in the long run.  But, there’s no question that it will stymie growth in the here and now — at the very least.

    Bottom line, I don’t believe there is a “good” outcome to this mess — regardless of what the talking heads report.

    UPDATE:  3:55 PM

    How about a close right at the neckline?  Don’t be surprised.  VIX is getting so very close to tagging that important 22.23 level.  Five minutes left…  where’s the Plunge Protection Team?

    UPDATE:  EOD

    Sometimes — not often enough — Mr Market can be a little predictable…

    Another 3.1% for the week since our 1447 short on the 18th.  Not too shabby.  If anyone’s interested, there are still a few of those Charter Memberships left.  Click HERE.

    I’ll post more later tonight.  Have a great weekend everyone!

  • Charts I’m Watching: Dec 27, 2012

    The dollar broke down from its steepest channel (in white) as I suspected, settling into a consolidation that might flesh out the larger purple channel today or tomorrow before breaking out of the yellow channel it’s been in since Nov 12.  My target remains the .618 at 79.319 on the purple grid.

    I say “might” because the 60-min RSI features a well-defined channel (rising, white) that could legitimately continue to nudge prices upward at a more modest clip now that RSI has lost the purple channel.

    The EURUSD, in the meantime, reversed right at its .618 as expected, but then broke out of its falling channel overnight to extend just beyond the .786 at 1.3275, completing a Gartley Pattern (white.)  With the .618 reversal, it could also be working on a Bat Pattern that completes at the .886 of 1.3290.

    Note, however, that it has already reached the .886 of a pattern drawn from Dec 20 instead of Dec 19 as shown above; so, there is potential for a reversal without any additional upside first.

    A little more negative divergence would help sell me on this being a top for the pair.  Once it does reverse, there is ample downside.  We’ve yet to see a significant sell-off since it broke down from the rising wedge last week.

    In equities, my core position remains short since 1447 on Dec 18, but we concurrently played an expected bounce from the completion of a Crab Pattern yesterday at 1416.43 with stops at 1415.

    UPDATE:  10:30 AM

    SPX just broke down through the bottom of the white channel that’s carried prices higher since the 1343 low.  The next potential support is the .500 Fib of the 1474 to 1343 drop at 1408.93, which intersects with the .382 of the 1343 to 1448 rally at 1408.02.  It’s also the 25% line of the falling channel from Dec 11 (yellow, below.)

    The dollar poked up above the top of the yellow channel and is testing yesterday’s 79.81 high.

    This is also the mid-line of another channel I’ve been watching, shown below in purple — an area of potential resistance for the dollar, support for equities.

    A sustained push through 1408 leaves little in the way of channel or Fib support until 1393.45 (the .382 of 1474-1343, white below) or 1395.68 (the .500 of 1343-1448, purple.)

    But, there’s not much else there to recommend this for a substantial bounce.  We might  get nothing more than a back test of the DX yellow channel, then off to the races.  The concurrent move for SPX might be a backtest of the broken purple channel and white channel midline at around 1420-1422.  But, I’m not inclined to play that bounce.

    There are only 10 sessions left before our target of 1284-1290 on January 11.  That’s roughly 12 points per day, so drops like today’s will be the norm — not the exception.

    The only other potential support I see is the bottom of the white channel, currently at the purple .618 (1383.33) and the red .786 (1381.50.)   Bulls will want to defend 1381.50, as it was a Bat Pattern completion at the next higher Fib level (the .886 at 1472.43) that got the correction started in the first place.

    Remember, 1474 is where we sold our QE3 longs and went short back on Sep 14 [see: The World According to Ben.]  The bullish case would benefit most by painting a drop to the next lowest Fibonacci Level (the .786) as a little correction on the way to new highs.

    If SPX is very oversold at that point, I’ll consider playing a bounce.  But, as of right now, there’s no positive divergence to support catching this falling knife.

    UPDATE:  2:50 PM

    We’re getting a decent bounce here at 1401.80.  Nothing special going on in terms of Fib levels, but some channel action and a nice round number bounce are playing into it.  Worth a short-term long, IMO.

    It’s likely the market is getting a lot of help from AAPL — which is just a breath away from completing its H&S pattern again.  Recall that since we called the top back on Nov 27 [Update on AAPL] it went down and bounced at its neckline as expected — tagging 501.23 on the 17th.

    It was a nice 33-pt bounce, retracing a Fibonacci 38.2% back to a purple channel line.

    Today, AAPL came dangerously close to completing the pattern yet again — putting in a 504.66 low versus the neckline’s 502.90.  In so doing, it completed a little Bat Pattern on the 60-min chart which should get a reaction back up to 512-515 or so.

    After that rally fails, however, we’re left with a Crab Pattern (smallest pattern in red) that points the way to 480.42.  Note that this is in the same vicinity as a .786 (in white) at 480.65 and a Butterfly Pattern completion at 481.59.

    If 480 can’t hold, there is another Crab Pattern completion waiting below at 446-452 (red 261.8, white 161.8 and 88.6.)

    If/when the H&S pattern completes, it targets the June 2011 low of 310.  But, don’t be surprised if we get a very strong backtest — even a breakout — of the neckline first.  There are a lot of players with a lot of money who understand full well what a close below 500 means for this stock and the overall market.

    UPDATE:  3:30 PM

    SPX continues its back test of the recently broken channel lines.  It would have to break up through 1422.58 before the acceleration channel is endangered.

    As of now, it looks like a parallel of previous steep plunges such as that of November 2012…

    …as well as the one in April – June 2011.

    12:40 — getting close…

    UPDATE:  3:45 PM

    That should about do it.  SPX just tagged the upper bound of the white channel…

    …and, DX just completed a back test of the yellow channel.

    I would be very leery of playing the bounce any further than right here at 1421 — the .886 retrace of the drop from yesterday’s 1423.97 and the .618 of the drop from Dec 21’s 1432.78.

     

    More later.

  • Charts I’m Watching: Dec 24, 2012

    Strange things have happened around holidays this past year.  Though this is a short day (equity markets close at 1pm EST) it’s best to remain vigilant.  Equity futures have recovered most of their overnight losses, and TPTB would love nothing more than to undo the gains we’ve racked up (since shorting on the 18th) while no one’s looking.

    Keep an eye on the proposed channel for the dollar for any signs of weakness…

    …as well as the EURUSD, which is trying to stage a comeback.  A move through 1.3232 would signal 1.3265 — 1.3238.

    UPDATE:  10:15 AM

    As to SPX, any push beyond 1432.78 carries the risk of a Bat completion up at 1441.27.  Though, there would no doubt be a reaction at the .618 of 1435 first.

    Since the 1432.78 high on Dec 21 stopped just shy of the 1432.82 low the day before, it might mark the completion of a Wave 4 in the first subwave of whatever degree wave down we’re currently in.  Thus, the bulls might attempt to throw this most obvious bearish wave count into disarray by overlapping 1432.82.

    It would then be easier to characterize the 1448-1422 slide as a normal A-B-C corrective wave rather than a bearish impulsive wave.  Regular readers know that I don’t use Elliott Wave for predictive purposes, but it’s good to be aware of what Wavers might be thinking — since breaking through key EW levels will likely get them moving one direction or the other.

    Our bearish case would benefit most by a reversal right here at the midline of the proposed white channel.

    More later.

    UPDATE:  11:45 AM

    SPX just completed a small H&S pattern (below, in purple.)  If it plays out, it will negate a potential IH&S pattern (in yellow).  If the purple pattern plays out, it targets 1417 or so, which is around the bottom of the little white channel that’s tracking pretty well so far.

    If the yellow pattern completes with a return to the dashed yellow line at Friday’s 1432 high, it would target somewhere in the vicinity of the .886 retracement of the 1443-1422 drop at 1441.

    A low-volume, holiday-shortened feel-good day like today would be the perfect time to execute a ramp job.  As discussed above, keep your guard up.

    UPDATE:  1:00 PM

    Things remain on track here at the end of the holiday-shortened equity trading day.  Any fireworks will have to wait until Wednesday.

    BTW, I finally updated the RESULTS PAGE for those who follow such things.  Friday marked the end of the third quarter since the new site went live on Mar 22.  After Dec 31, reports will be based upon calendar quarters.

    Since inception last March, we’re up about 95% as compared to 3.7% for SPX (without dividends.)  I don’t have figures for the same time period for hedge funds, but according to HSBC’s Dec 13 Hedge Fund Weekly [available on Zerohedge.com] the average ytd performance for all equity hedge funds was 5.15%.  The top-performing fund (BTG Pactual’s Distressed Mortgage Fund) returned 39.91%.

    *  *  *  *  *  *  *  *

    POTENTIAL CHANGES:

    A couple of weeks ago, I mentioned I’ve been considering some significant changes to this site.  Although our results have been above-average, I’ve debated whether the current format is the best way of delivering value to members.

    It’s challenging, for instance, to convey information in a way that serves the needs of both long-term investors and day-traders.  It’s also difficult to strike a balance between providing timely trade information to those who don’t require a lot of explanation and educating those who are new to my process.

    Also, from a purely mercenary standpoint, I’d like the site to make financial sense for me and my family.  I realized when I began the site that it would take some time for word to spread.  My goal was that by the end of the year I could cover my nut while putting in only 40-50 hours per week — leaving me enough time to hang out with the family, coach a little basketball, travel some.

    Nine months later, membership has grown to a point where it almost pencils out — but, not quite.  I can’t yet justify hiring a proper web developer and administrative staff to handle membership issues, accounting, loss prevention, so I’m putting in 60-80 hours week on average — which, of course, leaves less time to chart, write and sleep — not to mention my family and other business interests.

    It seems I have two choices: grow the site or convert it.  Growing it should be simple but, in all my years as a stockbroker and later in asset management sales, I have come to realize I don’t really enjoy sales.  And, of course, devoting time to shameless promotion takes away from charting and writing — which I do enjoy.

    Converting the site would mean setting up a hedge fund.  Several friends have expressed interest in seeding a small fund that would ultimately grow to about $100 million. I would continue to do exactly what I’ve been doing — identifying major and interim tops and bottoms — and execute unleveraged long or short positions in major markets on behalf of the fund.

    It would be run from my small, but lovely town (also an internationally renowned vacation destination) on the Central California coast with an assistant and a trader.   Custody, administration, etc would be handled by name brand entities elsewhere.

    As I envision it, current members would have the option of investing in the fund or continuing to simply receive research until their membership expires. Current members would, of course, have their pebblewriter.com fees applied to fund management fees — which would be discounted for current members who are involved from the start.

    One member has also suggested a chat-room type system whereby fund trades could be communicated in real time to members who want to continue trading their own accounts as well.  I am fine with this idea, as long as we’re not giving away research to our competitors (one of the problems with the current site, where we get 20-30 login attempts daily for every active, paying member.)

    I have a lot of homework yet to do, beginning with a survey of current members I had planned on sending out regardless.  In the next couple of days, I will be seeking your opinion on both the current site and the proposed fund.  There is no fund yet, so I am not soliciting investments at this time; but, it would be very useful to get a sense of members’ potential interest.  Please watch for an email.

    NEW FEE SCHEDULE:

    In the meantime, membership fees for pebblewriter.com are slated to increase on January 1, 2013 (regardless of what happens with the fund, I need to purchase some new computers, backup systems and communications.)  In keeping with my practice of tying fees to performance, the new rates are as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    I recognize this is a significant increase, so I am offering existing members the opportunity to lock in current rates through December 31.  Also, as a bonus, the first 15 annual memberships will be granted Charter Membership status.  In other words, your annual rate will never rise above $800 for the life of the site.  As those who joined last Spring for $500 will tell you, that’s pretty cool.

    This offer won’t be opened up to the public until December 26th.  And, as always, if you currently have a membership, we’ll tack your new one on to the end of your current one.  That way, you won’t get stuck with even higher prices when your existing membership expires in a few months.

    Again, if we move forward with the fund, current members will receive a full offset for any pebblewriter.com fees paid from this date forward, and will also receive a meaningful discount on any fund fees charged.  I strongly believe in rewarding those who’ve stood by me on this adventure.

    If you’ve read this far, thanks!  I had no idea when I started pebblewriter last year that it would grow into something so rewarding and enjoyable.  I’ve learned a lot, and I hope most of you have, too.

    *  *  *  *  *  *  *  *

    Christmas Eve is always bittersweet for me.  I love being with family, singing Christmas carols and seeing the excitement on my children’s faces as they rush downstairs to see what Santa brought.  And, it seems most people are just a little bit nicer to one another.  But, it’s also the day when, at age 15, I lost my mother — my one remaining parent.  So, for me, it’s a reminder to reach out to loved ones and tell them how much they mean.

    It’s also a reminder of the importance of helping those who are struggling.  These are challenging times.  If you’re anything like me, the events of the past year have caused you to take stock of the world and your place in it.  Between wars, famine, financial distress, political and religious division and, yes, shootings — we need this holy day now more than ever.  And, regardless of what church, synagogue, temple or mosque we attend, we need to look for opportunities — every day — to minister to those around us.

    My family and I wish you all a Merry Christmas and a blessed New Year.

     

  • Still Groovy: Dec 19, 2012

    A quick plug: for anyone doing any last minute holiday shopping, I recently found a wonderful online shop that carries very cool shabby chic, french country and vintage decorative goodies.  After looking everywhere, I snagged some vintage champagne flutes at a very reasonable price.  I also understand the proprietor lost a loved one in the Sandy Hook shooting. Take a peek: here.

    *  *  *  *  *  *  *  *

    This Just In!!!

    The Orange One delivers a 60-second pep-talk on his cordial and highly productive talks with President Obama.

    ORIGINAL POST:  3:00 AM

    I have a confession to make.  Two weeks ago, I plagiarized the title and intro of the post: Stay Groovy.  Okay, so technically I plagiarized myself.  I originally used it the morning of June 1, 2011 on the old Blogger site to describe a situation that seemed pretty dicey.

    On May 31, after 3 straight daily gains, SPX had tacked on an additional 1.1% and appeared to break out of a well-formed channel.  Rumor was the Greece debt crisis was nearly resolved (glad we don’t have to worry about that anymore) and financials partied like it was 1999.  From the CNBC daily recap:

      

    Most everyone, it seemed, was suddenly bullish.  Truth be told, even I still had one foot in the bullish camp, wondering if SPX still might go up and tag the .786 of the 1576-666 crash at 1381.50.

    I posted the following commentary:

    There are plenty of tripwires ahead in the economic data due out this week.  Will they blow up the market, or simply result in another QE airstrike?   May as well call your bookie and bet on whether QE3 is coming….While I think there’s some upside potentially to the 1380 level, I wouldn’t bet the farm — especially from these levels.  I remain much more concerned about the downside.  Stay groovy.

    Here are the vitals from the end of the day, May 31, 2011:

    • SPX nearing the Fib 61.8% retracement from the 1370 top, still down 1.9%
    • every bank stock shown above gapped up on the day
    • an established channel had been broken in a way that surprised vis-à-vis 2007

    Turns out that the channel in question could be interpreted two different ways.  The red channel was indeed broken, but the purple one was still intact, thank you very much…

     

    …which meant that the channel break-out everyone expected was quickly and painfully reversed.

    “Okay” you say, “lots of nice information.  But, why do I care?”  Let’s examine yesterday’s vitals:

    • SPX reached the Fib 78.6% retracement from the 1474 top, still down 1.8%
    • every bank stock shown above (except HBC) gapped up on the day
    • an established channel was broken in a way that surprised vis-à-vis 2011

    Reaching the 78.6% Fib retracement yesterday wasn’t a huge surprise — after all, S&P upgraded Greece (at least we don’t have to worry about that anymore.)

    Like May 31, 2011, every bank stock (except HBC) gapped up on the day.  But, although SPX is up over 100 points (nearly 7.5%), most of the banks are still sitting at or below their May 31, 2011 price levels.

    BAC and WFC are the exceptions, but they are rapidly running out of real estate.  Most of the other charts look something like the following:

    How about the broken channnel?  Until last week, the red channel was apparently in control.  SPX pushed up through it, then back-tested and took off.

    But, suppose it’s the white channel that really matters?  Suppose the fiscal cliff solution (that seemingly everyone expects) never materializes, or housing starts are horrid, or the euro zone suddenly lands back on our collective radar?  Suppose DX and EURUSD both complete their Bat Patterns tonight or tomorrow?  Suppose the recent break-out…wasn’t?

    When I start asking rhetorical questions in the middle of the night, it’s probably time to turn in.  I’ll leave readers with one last chart that anyone who’s been following our analog might find interesting.

    continued for members… (more…)

  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Charts I’m Watching: Dec 12, 2012

    In widespread anticipation of the Fed broadening its accommodative stance, the dollar poked down through its proposed (white) channel overnight.

    While the EURUSD is back-testing its recently broken rising channel.

    With expectations high that the Fed and Congress (some of you might have heard recent talk about the so-called “fiscal cliff”) will deliver, the cost of any disappointment could be very high indeed.

    The Fed is expected to replace the upcoming expiration of Operation Twist with new bond purchases, bringing the monthly total to $85 billion (including MBS.)  Whether QE was worthwhile or not is a question for future history books.

    But, there’s no question that each round has resulted in diminishing returns for the market — witness QE3’s paltry 40-pt gain on SPX.  Unfortunately for the Fed, they were up against a worthy foe — a well-established Bat Pattern that snuffed out the rally as we expected [see: The World According to Ben.]

    After the subsequent 130-pt decline, SPX is almost back to its pre-QE3 price level. I find it interesting that, yesterday, 60-min RSI tagged the top of the channel line formed from that brief rally.  It’s all the more interesting that it did so in the form of a back test of the channel that contained the rally from 1343 — and failed to break the previous (Nov 2) high of 1434.27.

    continued for members… (more…)

  • Charts I’m Watching: Dec 11, 2012

    Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.

    The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target.  Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time.  With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)

    The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched.  I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.

    The slope of the white channel could potentially be shifted, as illustrated by the above chart.  But, it would take a break out to reach the next higher Fib levels.

    A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)  In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher.  If it can hold the channel, the next move up should be explosive.

    continued for members… (more…)

  • 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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