pebblewriter

Tag: falling wedge

  • 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…)

  • 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.

    continued… (more…)

  • Strange Brew

    If you found yourself scratching your head today, you’re not alone.  SPX finally shed a couple of points — the first loss in seven forgettable sessions.  VIX reacted by selling off by 1.04.  Huh?  DX followed suit, settling  0.18 after being down as much as .66 from Friday’s high.  Come again?

    I wrote about VIX last Thursday: “The smaller harmonic patterns point to potentially lower values, so look for a drop to the mid-13s if the move up is contained.”  But, never in my wildest imagination did I anticipate said drop in the absence of a run up in stocks — let alone a drop in stocks!

    Whenever I’m vexed by VIX, I turn to VIXandMore.blogspot.com.  I have no connection with this wonderful blog, but am frequently impressed by the depth of expertise.  If you’d like the full explanation, click on the link above.  But, the short version is that today was VIX roll day, and the two components of VIX (VIN and VIF — really) conspired to significantly depress VIX.  One mystery solved.

    As for the dollar, it broke the rules Friday — up almost .30 on a day when stocks were also up.  So, today was perhaps a make-up call.  The EURUSD is showing strength after completing a Crab pattern (in red, below) last week.  After retracing .618 of the Jun 29 to July 24 drop, the pair threatens to complete a Gartley pattern (in purple.)  The .786 (1.2552)  intersects with a major channel around the end of August.

    BTW, the Gartley needn’t necessarily pan out.  As I noted a couple of weeks ago, there’s a very strong line of resistance at 1.24 that was broken back on July 5.  Closing up above it again could take some doing (or, at least a favorable decision by the German Constitutional Court.)

     

    I have many more charts to post, but am running out of juice.  I’ll leave readers with one last chart that represents the whole lot of them.  The ETF UKX is approaching its Fan Line off the 2007 high as well as the .886 Fib retracement level.

    Last week, it came to within a very manageable 0.7% of tagging both.  Yesterday, it closed off a bit, so it now needs 1.17% more to complete its Bat Pattern at 590.04.  A number of euro zone countries report GDP tomorrow.  If numbers come in at or above expectations, don’t be surprised to see FTSE go up and complete the pattern.

    More in the morning.

     

     

     

     

  • Why I’m Buying

    ORIGINAL POST: 10:05 AM

    I’m a bit surprised the Plunge Protection Team didn’t protect 1292 (but I imagine it means a Fed governor or the Bernank himself will be making an appearance sometime this morning.)

    I had set a mental stop level of 1295 yesterday, given the ongoing weakness in the euro and inability of the market to close positive on the day.  Two schools of thought going into the NFP release this morning: (1) that they would manipulate it upward, as usual, or; (2) that a brutally honest (hence, depressing) number would clear the decks for QE.

    I think the enormity of the miss (69,000 vs 150,000 expectations) clears the deck — and then some.  From a charting standpoint, it doesn’t hurt that we just completed a bullish Crab pattern at the bottom of a pretty convincing looking falling wedge with the SMA 200 just below current prices at 1284.56.  So, I not only lifted my remaining stops as the market fell this morning, I am buying more here at 1287.

    (more…)

  • A Walk on the Arithmetic Side

    I normally construct charts in log scale.  In general, I regard it as a more legitimate way of viewing time and price relationships.  But, I try to remember to check in on the arithmetic picture from time to time.

    Here are a few arithmetic charts to consider…

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  • Calm Before the Storm?

    Fridays before a holiday weekend have a tradition of being very, very quiet.  Today seems to be no exception.   Unless something weird happens, we’re aiming for a close around 1323, up a few points.

    (more…)

  • Update on NDX: May 8, 2012

    UPDATE:  May 8, 2012

    The past two forecasts are still holding up well. I still believe we’re likely to test the large red rising wedge as detailed below.

    The completed H&S pattern targets 2446, which the large red RW crosses around May 16.  It also permits a wave down that doesn’t overlap with the October highs, which seems the most likely case.

    The RSI falling wedge we looked at last week is still progressing.

  • VIX Ready to Rumble?

    Back on the 18th [see: VIX at a Crossroads] we charted VIX’s future, observing that it had fashioned a perfectly good falling wedge into a downward sloping channel. We talked about how a drop to 16 would be the ideal level for an Inverse H&S pattern to develop.

    Guess what?

    It’s interesting that VIX is reaching its ideal shoulder line just as SPX is reaching its. To make things even more interesting, the RSI channels support the idea of a reversal here.

    Stay tuned.