pebblewriter

Tag: fiscal cliff

  • Down the Rabbit Hole: Part 2

    Alice laughed: “There’s no use trying,” she said; “one can’t believe impossible things.”   “I daresay you haven’t had much practice,” said the Queen. “When I was younger, I always did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.”
                                        ― Lewis Carroll, Alice’s Adventures in Wonderland

     

    The market never ceases to amaze me.  Despite all the ingredients being in place for a sizable correction, it’s sailing along as though everything were copacetic.

    Negative divergence abounds.  The correlated currencies are all selling off.  Gold is down.  Silver is down.  Even AAPL is down. Numerous indices have completed bearish Harmonic or Chart Patterns.

    The Fed let slip yesterday that the adrenaline drip will soon be removed — leaving banks without a buyer for their underwater mortgages and the stock market without any downside protection.  They’ve finally admitted what we’ve all known for some time: QE’s effect is diminishing, and the risk is growing.

    The budget showdown is still ahead (the part of the fiscal cliff that really matters.)   The most fractured Congress in modern history, which utterly failed to resolve the important issues, will now turn the task over to an arguably more partisan Congress.

    The country’s AAA credit rating is hanging by a thread at both Moody’s and Fitch.  A downgrade by either would require massive selling by institutions which require at least two AAA ratings in order to comply with their investment policies (especially insurance companies.)

    Unemployment has reportedly declined, but only because we no longer count the dejected job seekers who are leaving the work force in droves.  Include them, and the actual picture is startlingly bleak. (source: Shadowstats.com)

    The EU is officially back in a recession (though it never really left.)  Its banks are being kept afloat by the ECB/ESM, which is exchanging (somehow AAA) paper backed by shaky sovereigns for junk sovereign debt as fast as it can.  Meanwhile, unemployment continues to soar.

     

    The big 2013 headline that isn’t (yet) is the global derivatives debacle:  $700 trillion — over 10 times the global economy — of unregulated, unpriced, unreported private contracts which have been sliced and diced so many times that no one has the slightest notion what the risk really is — except that it dwarfs the capital of the banks that hold it.

    In my opinion, the only things keeping the economy and the market afloat are the unrelenting screech of MSM fairy-tale “good news” and the Bernanke Put (the Fed’s money printing and plunge protection operations.)

    As long as these two factors can outweigh the negative fundamental picture, the market stands a good chance of rising.  Take one of them away, and the resulting crash will be swift and severe.

    That said, I’ve spent the past two days assessing the current state of our analog and forecast.  I’ve quantified it as best I can in an attempt to eliminate my admittedly negative bias.  I’ll lay it out over the next several hours, a few charts at a time.

    If you’d rather skip to the punchline, I’m still bearish.  In the absence of a push through 1474, I think we’re in for a sizable correction and remain short from 1462.  If 1474 is broken, everything changes.

    For members who enjoy getting their fingers dirty, stay tuned.

    *  *  *  *  *  *  *  *

    About an hour ago, we completed a Bat Pattern which is nestled inside of a Bat Pattern which is nestled inside of a Bat Pattern.

     

    UPDATE:  3:15 PM

    RSI channels show how much is riding on this moment.  A push through the top of the purple channel brings the red channel mid-line into play.  Could it correlate with 1474, or maybe just the next channel line on the intra-day?

    I’m not sure.  The intra-day 1.272 is 1468.17 and the 1.618 is 1471.61.  A double-top would be a real nut-buster.

    All I know is there’s still negative divergence across the board, so I don’t expect the red mid-line to be broken.

    My apologies for the delay in getting the forecast charts up.  They’ll have to wait until after the close.  I’ve been distracted by the melt-up, checking and re-checking my charts to see what I might be missing.

    continued for members… (more…)

  • 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 10, 2012

    The market continues to walk a tightrope between another leg up and a very significant tumble.  We’ve been here many times before in the past year, and it isn’t getting any more fun.  To recap…

    We remain short from 1423 on Dec 3 [see: Without a Net].  This was target A established in our Oct 26 forecast [see: A New Old Analog] and can be seen in the original chart below.

    Note that 1423 was very close to the .618 retracement (1424.41 on the white grid below) of the 1474 – 1343 decline.  Prices reversed there as we expected, shedding 25 points to 1398 in its first wave down (in line with our forecast of 1400.)

    That .618 retracement of the 1474-1343 wave down portends one of three outcomes:

    1. the bearish case:  a corrective wave 2 which sets up a more powerful wave 3 down
    2. the bullish case:  the first of a series of impulsive waves to new highs
    3. the middle case: the “A” subwave in an A-B-C corrective wave that points higher before wave 3 down.

    The first case is pretty clear cut, and has been detailed in prior posts.

    The third is also pretty clear, as the .618 retracement to 1423 could be merely a Point B in a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)

    If SPX blows through 1425, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    The big imponderable is case #2.  The top question I’ve received over the past week is whether a fiscal cliff deal would result in such a move.  It’s pretty easy to imagine that sort of a market reaction, even though — like last year’s debt ceiling compromise — it would hardly be justified.

    One thing is indisputable:  deal or no deal, we’ll get higher taxes and lower government spending.  Any combination of the two will negatively impact GDP.   By the same token, though, any deal would almost certainly mean a bump in prices.

    UPDATE:  11:50 AM

    Last Friday, SPX came within 48 cents of retracing .886 (1420.82) of its 1423.73-1398.23 decline.  This morning, it sealed the deal, reaching 1421.64 and completing the Bat Pattern.

    In the process, though, it tagged the neckline of the potential Inverted Head & Shoulder pattern we discussed Friday.   The pattern, if it plays out, targets 1507ish.  For the pattern to play out, we’d (at least) want to see a close above the shoulder line at 1420.80.

    But, it’s important to point out that not every IH&S pattern plays out.   Sometimes, it’s just market makers trying to shake things up a little bit.  Here’s one that didn’t play out last year, for example.

    Suppose we went up and tagged the actual .618 at 1424.41 for instance.  It’d be easy to see it as the bullish case playing out, what with a higher high and all.

    continued for members… (more…)