pebblewriter

Tag: fibonacci

  • RUT: How it Got Here, Where it’s Going

    About a month ago, as part of the series of charts inspired by our latest analog [see: Analog Details Feb 7, 2018] I hazarded a forecast for RUT that called for a rebound to the rising white channel (which had recently broken down) by Feb 14, a retracement on Mar 1, and a subsequent rally back into the rising white channel. The only serious uncertainty at the time was whether ES’ tag of its SMA200 was sufficient — or whether SPX would need to follow suit.

    In any case, SPX did go on to tag its own SMA200 the following day, meaning RUT posted a slightly lower low before rebounding.  It reached the white channel on Feb 14 as expected, but continued leaking higher for several days before putting in a low as scheduled on Mar 1.Since then, it has nonchalantly rejoined the rising white channel as though nothing was ever wrong.  It has done this many times in the past, of course.  So, that’s not terribly noteworthy.

    What is interesting is that the Feb 9 plunge facilitated an important backtest that should help determine whether it has further upside ahead.  What’s fascinating is the extent to which nearly every one of RUT’s twists and turns has been driven by algos.

    The precision of these moves leaves little doubt that they’re by design.  No random walk, here.

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  • A Break or a Breakdown?

    The 10Y yield has clearly broken trend as expected, with a couple of Fib tests the only things standing between it and our downside targets.  Our 28.56 upside target from Jan 10 [see: China – It’s Not Me, It’s You] has officially yielded. This is what stocks were waiting for — a sign that interest rates’ climb past 3% wasn’t as certain as most analysts suggested.  ES broke out of its slump and pressed on to new highs, finally joining SPX in regaining its 2.24 Fib extension.

    This leaves our analog on track with our next targets easily in reach.  It also confirms the time adjustment that was suggested by the most recent dip and the redrawing of VIX’s (and everything else’s) path for the next six weeks.

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  • Bullard!

    I remember Oct 15, 2014 like it was yesterday.   SPX had risen sharply on the back of the yen carry trade, popping through important Fib resistance at 1823. But, it had just broken trend line and channel support.  To make matters worse, it had just dropped through its SMA200 at 1905.The culprits? USDJPY had reversed off heavy resistance and its 10-week rising channel had broken down.  And, equally concerning, the bond market signaled more stock carnage to come.

    As we noted at the time:

    The more troubling development for Mr. Market is the bond market. The 10-yr note futures shot through the previous high overnight, complicating the prospects of a quick resolution to the market’s correction.

    Note that while we might see a reversal today on the white Fibonacci grid — the .786, .886 or the 1.272 itself — we still have to deal with the grey grid, which suggests the possibility of a drop to the .786 at 1798 or the .886 at 1770.

    A drop to 1800 would have meant giving up that important Fib support at 1823.  More importantly, a 10% correction would occur with a drop to 1817.33 or lower.  Who needed those headlines in the middle of spectacular rally to new all-time highs?

    The solution?

    SPX’s plunge halted at 1820.66 — 3.33 points above what would have been an official correction.  No fuss, no muss.  The Fib line which had once loomed as formidable resistance could now be reclassified as support.

    What has been is what will be,
    and what has been done is what will be done,
    and there is nothing new under the sun.
     Ecclesiastes 1:4-11

    As I went to sleep last night, marveling at how SPX had taken a rather circuitous path to our 2703.62 target,I wondered whether the 2.24 Fib would hold.

    I found myself thinking back to 2014.  Maybe Fed President Bullard would make another appearance.  I didn’t have long to wait.

    On CNBC this morning…

    click to play video

     

    Futures are currently up 27 points off their overnight lows (bounced at the 10-day moving average, probably about 60 seconds after Bullard was booked on CNBC.)  At least we weren’t kept in suspense too long!

    Oh, and for those wondering why/how yesterday unfolded as it did, take a look at VIX.  See that little dip (yellow arrow) below the trend line from Jan 26?  Yep, that’s all it took.

    When VIX climbed back above the yellow trend line, SPX promptly gave up all its pre-minutes ramp job.VIX has obviously proven it’s still incredibly powerful.  Who needs a 40% spike when a 20% one can put on the brakes so effectively?  The flipside, of course: if VIX decides to pop up to 26 anyway, SPX will likely ignore Bullard and also test its SMA10.

    Bullard might be able to divert attention from the interest rate problem.  But, it clearly hasn’t gone away.

    This time, it’s a spike in rates rather than a plunge.  So it’s a different kind of interest rate problem.  As a result, this one might be tougher to rectify.  And, the implications for the overall economy are much more serious.

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  • That Escalated Quickly!

    It was just last Tuesday we asked “where’s the bounce?”  SPX had gapped lower and failed to rebound the way it always seems to has for the past year.

    We had watched a trend line dating back to Dec 29 (below, in red) break down, and were wondering about the small, white channel.  From Where’s the Bounce?

    After that, it gets a little messy. ES has an important backtest at 2773, which would be 2730 on SPX — nothing all that important in the vicinity. Below that, however, the white 2.24 at 2703.62 remains very interesting. It would be a hell of a drop from here: 117 points or 4.1%.

    The closer we got to 2703, the more plausible it seemed.  When we reached it today, though, SPX leveled off for only about 10 minutes before plunging lower.  Why?

    There are two primary reasons.  The first, of course, is VIX.  Was there a single session this past year when I didn’t bitch about the degree to which timely beatdowns in VIX were triggering algos to bid up stocks?  Doubtful.

    After VIX broke out of the falling channel on Friday, Our charts suggested it would reach 16.29 and, if/when that broke, 25.65. 

    When 25.65 broke, at approximately 11:48 this morning, it triggered an additional wave of selling from those very same algos which have learned so well to take their clues from VIX’s every twitch.  Live by the sword…

    The second reason was USDJPY and the ubiquitous yen carry trade.  As we noted in our last update [see: Jan 24 Update on USDJPY], the pair reached a channel bottom which represented important support.

    We’ve reached the bottom of the rising white channel which has held on four previous occasions since its origin in late 2012…Bottom line, USDJPY isn’t necessarily done until DXY is done. We had bounces at the .500 and .618, so an overshoot to the .786 at 108.90 or even the .886 at 108.16 is a distinct possibility.

    As it so happens, the white channel bottom didn’t hold.  Despite Kuroda’s desperate jawboning, USDJPY has continued to falter.  It backtested trend line resistance yesterday — all well and good.

    But, instead of catching support as it almost always does, it broke down.  At 11:56, it dropped through a tiny trend line of support.  Seconds later, when that TL broke down……it broke down through a larger TL of support.

    Bottom line, VIX and USDJPY are the two most powerful drivers of algos there are (oil occasionally takes the lead.)  When they were going strong…melt up.  The slightest hint that they’re not…melt down.

    SPX bottomed out yesterday at 2638.17 and closed a good 55 points below the 2.24 Fib.  While it’s always scary to see major Fibonacci support fail, there was an obvious effort to keep the uptrend alive.  Note the SMA100 crosses the bottom of the rising channel which was established with the Feb 11, 2016 lows.  In other words, it’s important.

    Significantly, the channel bottom was defined by the Nov 9, 2016 lows.  If that date sounds familiar, it was the election night in the US.  And, it was the last time a major effort was made to salvage important Fibonacci support. [see: Why the Trump Rally Is a Fraud.]

    It worked spectacularly, resulting in a 38% rally.  All it took was a 17% spike in USDJPY, a 55% rally in oil, and a 63% collapse in VIX.

    How about now?  The algos are primed and conditioned to respond.  I’m sure Jim Bullard still knows his way to Bloomberg’s studios.  Can TPTB manufacture another recovery?  For the answer, we need only to examine two similar, previous meltdowns: the night of the US election in Nov 2016, and August 16, 2007.

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  • The Rally That VIX Built

    As discussed yesterday, stocks spent the night building a cushion based on VIX (currently off 5.4%) in preparation for tomorrow’s FOMC announcement.  It started just before the close, yesterday, and has built to a 6-pt gain in the futures.Actually, it’s been less of a rally, lately, and more of an effort to maintain ES at levels above its IH&S Pattern target reached back on Jun1.  Remember the mantra “stay fully invested, because you never know when a sudden rally will appear out of nowhere and you can’t afford to miss it”?  These days, it’s the corrections that pass in a flash, like Friday’s 31-pt plunge which was reversed so quickly that it won’t even register on daily charts.

    But, I digress.  Today’s action is all about putting more distance in between SPX and the Support Below Which it Must Not Go in the wake of the FOMC meeting.

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  • Pulling Out All the Stops

    When unexpected unpleasantness unfurls, you can count on central banks to pull out all the stops. Such is the case with the British election results which, like Brexit, have wreaked havoc on FX markets.

    EURGBP, having broken down from its rising red channel dating back to mid-2015, was well on its way to a perfectly nice backtest at .80ish. Instead, it’s backtesting the broken red channel itself. Hence…the stop pulling.It should start with nice bounces from USDJPY and CL — which, as discussed yesterday, have already reached interim bottoms — and, of course, a sharp plunge by VIX.

    Look for USDJPY to pop through its SMA200 for good measure… …and CL at least hold its own in the midst of strong selling pressure.

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  • The Same, but Different

    Yesterday started out with a VIX-driven pop that quickly fizzled and nailed our downside target before rebounding and hitting our upside target.  Since SPX closed right at resistance, it needed a boost overnight.  So, why not go back to the same clever trick that worked the day before?

    Yes, VIX’s red channel has broken down again.  And, the algos are eating it up… to the tune of +5 on ES.

    Will it pop and drop, again, or will this one take?

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  • Striking Distance

    This is day 8 of our membership promotion, running now through the end of the month for members and non-members alike. We’re offering a 25% rebate off the first month of Monthly and Quarterly auto-renew subscriptions. Annual memberships are available at a very substantial discount (rewarding those who act quickly!)

    Remember, the annual pricing is available to current members. If your current membership hasn’t expired yet, we’ll tack your new subscription on to your current expiration date. This can be especially valuable for those who took advantage of a special last year which offered a discount on the first year of a auto-renewing annual subscription.

    To sign up for a new monthly or quarterly subscription, CLICK HERE. For details on an annual subscription, drop us a line with the subject line “sign me up!”

    * * *

    After SPX’s break out on the back of a 37% plunge in VIX, it’s no surprise that the VIX has kept it within striking distance of new all-time highs.

    In dropping that 37%, VIX completed a deep retracement of its rise from 9.97 — the lowest it’s been since 2007 — to 16.28.  The .886 retracement is considered the last stop before prices drop through the previous lows.  Imagine: risk being considered lower than at any time since 2007!

    Yesterday, VIX spent the entire day dancing around that .886, with a dip below it every single time SPX started slipping.  The message to algos was that VIX was about to drop to new lows and, therefore, stocks should be bought.It was enough to keep SPX from completing a simple retracement from its .886 to its .786, or any meaningful dip until the final minutes of an otherwise nonsensical session.Today’s a new day, as CL is closing in on our 48.35-48.45 target and investors are no doubt anxious to express their disappointment with the lack of details provided for the fantastic, big-league tax cuts “revealed” yesterday.

    Despite the slight bump in futures overnight, our downside targets remain intact – starting with 2384.

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  • Price Alert: Gold

    Gold is approaching our next upside target from two weeks ago [see: Gold – Following the Yellow Brick Road.]

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  • This is a Test

    Yesterday, we got a taste of what happens to United Airlines passengers who are “disruptive and belligerent.”   In what is being described as one of the biggest PR fails in recent memory, United CEO Oscar Munoz defended the action taken to forcefully drag an Asian-American doctor from a flight that United had overbooked.

    No doubt United would have found the volunteers it needed had it upped the compensation it was offering to $1,000, $1,500 or even $2,000.  Instead, it will pay millions to the passenger, and many more millions in lost revenues from prospective passengers who are too horrified to “fly the friendly skies.”

    The stock is likely headed for at least 61.72, a 14% drop from yesterday’s highs — about $3 billion off its market cap.  And, that would be a positive outcome — if it’s able to hold both horizontal support and its SMA200.

    While the event itself was shocking, it’s equally surprising that the CEO of a major airline could be so tone deaf as to email his employees that “I want to commend you for continuing to go above and beyond to ensure we fly right.”

    The most interesting CEO on the world stage, right now, is our own Donald Trump.  He faces much greater challenges than Munoz did: escalating military conflicts with both Syria and North Korea and, by proxy, Russia and China.

    We’ve had a taste of Trump’s leadership skills with respect to the battles over health care, tax reform, and scores of executive orders relating to the environment, energy, etc.  He won some, and he lost some. None of those, however, involved the risk of nuclear war.

    Is it any wonder that investors are a little nervous and stocks have, so far, not shaken off this particular geopolitical risk?

    On Feb 10, SPX broke out of a large, year-old channel that was averaging 17% YoY returns.  It has backtested that channel top seven times in the past several weeks — including a serious plunge below it on Mar 27.

    Today, it’s happening again.  Will it survive this test?  It might just depend on whether or not Trump survives his.

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