pebblewriter

Tag: fibonacci

  • Betwixt and Between

    SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected.  All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)

    But, there was no breakout.  There wasn’t even an overnight ramp job.

    This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.

    continued for members… (more…)

  • Reproach and Retreat

    The first big Republican victory — the repeal and replace of the ACA — has morphed into reproach and retreat.  The net impact: what does this failure portend for the rest of the Trump agenda and, thus, the Trump Rally?

    Regular readers know that I’ve looked askance at this rally from the start [see: Why the “Trump Rally” is a Fraud.]  It was born of a sharp reversal in CL, USDJPY and VIX — the key algo drivers.  Momentum traders jumped on board as it rose.  And, somewhere along the way, mainstream investors convinced themselves that the new and improved outlook justified an 18% rally.

    But, live by the algo, die by the algo.  The yen had to appreciate to compensate for higher oil prices.  Higher US and euroland inflation necessitated a drop in oil and gas.  And, front-running the Fed’s tepid response to spiking inflation was widespread.  With the Trump Rally narrative in doubt, there were simply too many plates to keep spinning.

    Futures are off 22.50 at the moment, leaving us some clues as to what to expect for SPX.  But, the more important side of the equation is where do WTI and the USDJPY dip to?

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  • Horseshoes and Hand Grenades

    There’s an old expression that says “close only counts in horseshoes and hand grenades.”  So, we spent most of the day yesterday wondering whether the day’s 2336.45 lows were close enough to our long-held downside target of 2335.34.The tag was marred by premature reversals in oil and VIX.  Did the guys working the algos not get the message?  Or, were they just a little over-eager?  Admittedly, it’s tough to nail a precise value in an index as unwieldy as the S&P 500.  But, they went to all the trouble of engineering a backtest of a key Fib level.  You’d think they’d care…

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  • Update on Oil: Jan 6, 2015

    A little over a month ago, we wrote that crude light (CL) had reached a two month-old target and what appeared to be a potential buying opportunity: the intersection of a key Fibonacci level and a long-term channel bottom.

    2014-12-01-CL weekly 0800

    We were pleased with that call…until the rebound ran out of gas only a day later.

    Some say the continued decline is Saudi Arabia’s way of bringing US shale growth to a screeching halt.  Others suspect that it’s the US government at work, tanking Russia’s oil-dependent economy.  It’s also possible that that chart, for all its symmetrical beauty, was drawn in the wrong scale.  I’ll explain.

    I chart just about everything in logarithmic scale — particularly those charts that span a long period of time and contain large swings in price.  But, once in a while — for no particular reason — an arithmetic chart just makes more sense.

    Here’s the updated chart in logarithmic scale in all its channel-busting ugliness.

    2015-01-06-CL wkly log 1400Switching to arithmetic scale, it’s obvious that the white channel doesn’t even belong.  Before clicking back to that cat video, though, check out the alignment of the 1998, 2001 and 2009 lows — connected here by the yellow dotted trend line.

    2015-01-06-CL wkly arith 1400A trend line that goes back that far is certainly subject to placement error (to use the tails or not?)  But, simply connecting the Dec 12, 1998 and Jan 15, 2009 lows puts that TL at about 45-46 — a couple of points below today’s low — and, not too far from the white .786 Fib.

    Does it matter?  We’ll find out in the next few days.  If nothing else, it’s a good reminder to check out the alternative view from time to time.  A casual perusal of the blogosphere reveals plenty of folks who chart arithmetically.  Maybe this is one of those times when log scale wasn’t the best choice.

    Suppose CL drops below 46.  What then?

    We discussed the bleak channel and TL standpoint.  From a price Fibonacci standpoint, the next major support is another 13% lower — the white .886 at 41.49.  A time Fibonacci chart shows that the June 2014 highs (the red 1.618) were right in line with the major low in 1998 and high in 2008.  In other words…also bearish.

    2015-01-06-CL wkly arith 1430

    And, it’s probably not too crazy to start talking about the purple Fib lines.  If the 2009 low of 32.34 is broken, the purple .886 at 26.13 is pretty much the last line of defense until the 10.65 lows from the (drumroll, please) Last Century.

    Regardless of whether one looks at log or arith charts, the strong positive correlation between oil and stocks (SPX, in purple below) over the past 20 years is obvious.  It broke down this past year when stocks decoupled from, well… just about everything.

    But, given the level of financial institution involvement with the oil industry ($550 billion in bonds and loans since 2010), it’s probably safe to say that a continued slide in oil can’t help but leave a mark.

    2015-01-06-CL wkly arith 1440Stay tuned.

  • Update on Gold: Jun 26, 2013

    It’s been a while since I last updated this page.  The equities markets have kept me working overtime, and I assumed our May 15 forecast had long since jumped the tracks.

    At the time, Gold had plunged 270 to 1321 per ounce in only 4 sessions, bounced at 1321 (the day after our bottom call) to within 13 of our upside target, and was returning for a second bounce — or not.   From that post [Update on Gold: May 15, 2013]:

    Now, at 1373, it has reached a critical juncture that should result in either a sharp rally to 1560 or a plunge to 1141 in the coming month or so..

    GC was closing in on the .786 retracement of the the rise off the 1321 bottom.  Playing the bounce was a low risk trade as long as one used trailing stops.

    Long positions could be played from the .786 (1357) or .886 (1340) as long as stops are watched very carefully and updated frequently.

    The downside case is probably stronger.  If the current plunge continues past 1321, there are only a few key levels of support before things get really nasty:

    • horizontal support at 1302-1309
    • potential Fib targets of 1276 (the 1.272) or 1219 (1.618)
    • Fib support at 1141-1157
    • Fib support at 947

    The bounce came a few days later at the .886 (1336) and despite gaining 84, couldn’t clear the big white channel midline, much less the smaller red channel (white in previous charts) it had been in since last September.

    When the big red channel from 1999 broke down on Jun 20, GC plunged again.  It failed to catch a bid at the first support level, but is approaching the second one this morning: the yellow 1.618 that completes the Crab Pattern at 1219.10.

    This seems like an opportune time to update the forecast, as gold’s price action continues to provide valuable clues as to investors’ expectations about QE, the value of the dollar and inflation.  Are the many calls for gold to fall below $1000 per ounce well-founded?

    Probably not.  We should get a decent bounce beginning at or near 1219 today that could take prices as high as 1320 or so by July 5-8.  A continued rally through the red midline would mean additional gains to 1357-1385 by mid-July.  But, there’s a better chance of a plunge to 1155 instead — and it need not respect the Crab Pattern about to complete, especially if today’s equity rally falters (gold certainly isn’t buying the MORE QE! snake oil.)

    Remember that 1155 is the .618 retracement (in white below) of the huge rally from 681 in 2008 to last September’s 1923 all-time high.  Around July 15, the bottom of the big white channel, the bottom of the red channel, the bottom of the big purple channel (it replaced the red one that failed on Jun 20) and a Fib Fan line all intersect with the .618 at 1155.

    Note, this is the same price target we identified in our April 15 Update on Gold.

    We can speculate about what circumstances might provide a floor.  The prevailing wisdom these days is yet another round of QE — or at least inflation of some variety. With interest rates on the rise, that seems likely enough.  We’ll stick a pin in the idea of a mid-July market calamity that necessitates Fed intervention.

    But, as long as 1155 holds (and, by proxy, the purple channel), gold will regain its luster.  It could rebound to 1525 by as soon as August and as high as 1760 by the end of the year.

    Each of the two significant spikes since the Aug 1999 low of 253 was followed by a retracement of between .382 and .500 of the rise from 253.  In May 2006, GC topped out at 1009 and then retraced just over 38.2% of the rise.  And, in Mar 2008, it retraced to about halfway between the .382 and .500 Fibs at 43%.

    The .382 Fib of the 253 — 1923 rise was 1285, so that ship has sailed.  The .500 is down at 1088.  1155 is about halfway between them (a 46% retracement.)

    A Fibonacci .618 on such a large pattern as this can be expected to provide at least a sizable bounce, but there is no guarantee.  The purple channel isn’t the most convincing fit in the world, and could fail in time as did the red.  If 1155 doesn’t hold, or if it merely provides a bounce, GC could complete a Gartley Pattern at the .786 (946.90) or even a Bat Pattern at the .886  (822) within the next six months.

    GLTA.

     

     

     

     

     

     

     

  • Update on USDJPY: May 29, 2013

    After recently completing a Crab Pattern at the 2.24 extension, USDJPY fell back through the purple channel midline to the 1.272 Fib level, where it is staging the backtest of the midline we forecast last week.

    While I expect the backtest to be successful, meaning a leg lower is in store, the 部屋に象 is the .618 at 105.58. Note that this is the 61.8% retracement of the 39% crash from the 2007 highs.  It happens to coincide with a number of significant channel lines, so tagging it could be a very big deal.

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  • Update on Gold: May 15, 2013

    Our last update [Apr 15] devoted to gold came in the midst of a huge meltdown.  Gold had lost channel support, horizontal support at the psychologically important level of 1500 and was dropping like a rock through 1335.

    Never one to shy away from an opportunity to embarrass myself, I gave my best guess:

    we [should] get a nice bounce between here [1337] and 1309 and a backtest of one of the broken channel lines — say the white midline around 1410 or even the 1450 level.

    GC shed another 14 points to 1321 the very next day, then rebounded strongly to 1404. Another two weeks on, GC nearly reached 1500 before fading once again.

    Now, at 1373, it has reached a critical juncture that should result in either a sharp rally to 1560 or a plunge to 1141 in the coming month or so.  If that sounds like an impossibly wide margin of error, there is a way to invest without getting fleeced.

    GC has risen via the giant red channel since 1999. The plunge to 1321 took it to the brink of another $200 breakdown.

    It bounced at the channel bottom, though, and made a nice comeback… until May 3, that is.  At that point — having retraced a Fibonacci 61.8% of the damage done by the fall from 1590 — it did another about face.  It’s now only $11 from tagging the .786 retracement (1357) of the rise off the 1321 bottom.

    The Harmonic Pattern could go either way.  The 1487 high on May 3 came at the .618, so a Gartley, Bat, Butterfly or Crab Pattern could result in a climb back to 1532 – 1756.   Though, that would mean a breakout of the falling channel its been in since last September (in white, above.)

    Long positions could be played from the .786 (1357) or .886 (1340) as long as stops are watched very carefully and updated frequently.

    The downside case is probably stronger.  If the current plunge continues past 1321, there are only a few key levels of support before things get really nasty:

    • horizontal support at 1302-1309
    • potential Fib targets of 1276 (the 1.272) or 1219 (1.618)
    • Fib support at 1141-1157
    • Fib support at 947

    I don’t have a dog in this fight.  But, if I did, I’d be watching very closely to see if GC can catch a bounce north of 1300.  If not, it might easily form an inverted cup and handle and continue to be a great shorting opportunity.

    If that should happen, look for the large white channel to influence the drop. The white .618 at 1155 is tantalizingly close to the bottom of the channel in mid-July.

    GLTA.

  • 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.

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  • 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.

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  • AAPL: Is it Safe?

    Owning AAPL shares these past seven months would have been about as much fun as having your annual cleaning done by Nazi war criminal with a penchant for pain and a disdain for novocaine.

    It might seem like it’s been in a free fall, but AAPL’s tumble from 705 has been very aptly guided by a well-defined channel, a few chart patterns and, to some extent, harmonic patterns.  The channel that’s been eating away at AAPL is shown below, along with two recent Head & Shoulders Patterns that helped it on its way.

    But, it’s the chart patterns and the harmonic patterns that suggest AAPL is due for a substantial bounce.  Whether it turns into something more than that will depend on whether it break free of the falling channel from hell.

    This is the set of major channels I’ve used for the past several months of charting AAPL.  Note that the purple channel broke down a few weeks ago, prompting the latest plunge.

    But, AAPL should find support at the .75 line of the white channel around 380-385.  This is an equally well-defined channel that dates back 20 years.   Because channel placement is as much an art form as science, I like to have confirmation from other sources.

    In this case, the harmonic picture is also quite bullish, at least in the short term.  There are quite a few potential patterns from which to choose.  But, note how the overlapping of several key Fibonacci retracements in the 391-395 range.

    This group, seen better in the close-up below, includes the purple .786, the white .618, the yellow .500 and the red .886.

    AAPL pushed down through them like they weren’t there yesterday, prompting many to wonder if it was heading much lower.  But, the channel lines mentioned above should provide the bounce that will bring them back into focus.

    As to the purple channel, it’s done.  I’ve added a new, red channel that should take over going forward.  If we get the bounce I expect at 380-385, it will have been proven.

    Where does AAPL go from here?  There’s still the not-so-small matter of the large H&S pattern that completed back in December (in white, above).  Recall that it targeted around 305.

    If the large white channel shown above should fail, that’s a distinct possibility.  The falling white channel from 705 has shown remarkable staying power. And, the next lower gathering of key Fib lines is at 307-317.

    But, I suspect the big white channel will provide a significant bounce before any new lows occur.  The top of the falling white channel is currently around 435 (though obviously dropping daily), and at 380, AAPL will have nearly met the price target of the latest H&S Pattern to complete.

    If the overall market rebounds Friday as I expect, look for AAPL to perk up and participate.  A H&S pattern that’s brewing on SPX could easily take prices up to the 430 range.

    If the overall market continues past 1597, AAPL could finally break out of its funk and — more importantly — that falling white channel.  Another backtest of the broken purple channel at 466ish would be a great initial objective.

    Stay tuned.