Around the horn with major indices and currencies… Like SPX, most are at a threshold where they must either break down or break out (I think “break down,” but we’ll know soon enough.)
Coming up: VIX, RUT, COMP, NYA, NDX, DJIA, FTSE, SPX, DX, EURUSD, USDJPY, AUDUSD, CL, GC, SI. And, yes, I’m happy to take requests — first come, first served after the above are done.
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VIX
continued for members… (more…)
Since our last post, UKX did reach our 590.04 Bat Pattern target, slightly exceeding it and an important fan line from October 2007 by 3.22 before dropping 3.2% since the middle of September. But, the correction is likely over — for now. Why?
Like US equities indices, the FTSE has been in a long-term channel up since early 2009. It has also traced out a well-defined harmonic pattern — a Gartley Pattern which completed at the .786 in January 2011.
Since then, it plunged along with world markets in July of that year and had retraced a Fibonacci .886 of the drop by March 2012, only to plunge again and again retraced .886 of that drop by September 14 (our 590.04 target mentioned above.)
In so doing, it completed another rising wedge, which led to the latest drop. Note, however, that it fell to the bottom of a well-defined channel that dates back to June.
I expect this channel to catch the falling FTSE, and for prices to rebound nicely this week. But, investors should use tight stops to play this rebound; a loss of the channel could see a repeat of April 4th — the last time a similar channel was breached.
There’s still the not-so-small matter of the fan line from 2007 (the yellow trend line above.) It intersects with our channel just above current prices, meaning FTSE has to decide whether to continue following this steep channel up or, once again, fall victim to the fan line.
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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.
I haven’t traditionally followed the FTSE-100, having found plenty of ways to lose money in markets closer to home over the years.
But, at the urging of several members who have promised to go easy on me as I get up to speed, I’ve been taking a crack at it. I trade and chart on Think or Swim, and unfortunately they don’t quote the index itself. But, they do quote the UKX, which is 1/10th the value of the index. So, it tracks just fine and it’s easy to do the math.
The FTSE represents about 80% of the UK market and is cap-weighted. As of March 2012, the top ten comprised about 50% of the $1.5 trillion whole: Royal Dutch Shell A/B, HSBC Hldgs, Vodafone Group, BP, GlaxoSmithKline, Rio Tinto, British American Tobacco, BG Group, Diageo and SABMiller.
Over the past five years, UKX has formed a triangle of sorts. Its price pattern greatly resembles SPX’s, completing a .786 retracement of the 2007-2009 decline in early 2011. Unlike SPX, however, it hasn’t topped its Feb 2011 high of 609.58. It came close in May (608.94) and July (608.41), then did the same swan dive as the rest of the markets in July – October — eventually falling 20% before retracing all but 11 points by March 2012.
During the course of its recovery, UKX has done a nice job of following fairly well-defined channels and fan lines. A close up reveals sort of a coiling behavior, as prices have made progressively higher lows and lower highs.
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We’re getting dangerously close to our downside target range of 1295-1323, first discussed back in April.
- 1349.42 — .886 of the purple Butterfly (tagged)
- 1343.41 — 1.272 of the yellow Crab pattern (tagged)
- 1340.03 — horizontal support, prev. Point X (tagged)
- 1323.85 — 1.618 of yellow Crab (next)
- 1317.63 — 1.272 of purple Butterfly
- 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)
I have been viewing the downside as consisting of three basic scenarios:
(1) stick save: Fed freaks over Europe, QEish leak limits downside to 1349 (fail)
(2) top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289)
(3) panic sets in: crash and test bottom or large red rising wedge around 1200
The daily RSI has reached an important trend line of support (solid, purple) and, unlike FTSE, has yet to exhibit positive divergence — meaning it could go lower and tag the dashed purple line.
I suspect the solid line represents 1323 and the lower, dashed line 1289-1295, but that’s pure speculation on my part. As we approach 100-pts off the 1422 top, look for lots of investors to throw in the towel. It’s this capitulation that we need if we’re to see a meaningful rebound.
As I wrote back on April 12 [see: Analog Details]:
To me, a drop to 1305-1317 seems fairly plausible. The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high. The timing looks to be early May.
Will the Fed and ECB come to the market’s rescue yet again? I think so. I think they understand as well as the rest of us how close to the precipice we are. It’s stupid economic policy that will make things worse in the long run, but since when did that matter?
On the other hand, I have no doubt that the looming derivatives disaster [see: There is Nothing Wrong] I’ve been writing about — handily verified by JPM — could be beyond their ability to control (hint: 2008 all over again.)
Stay tuned.
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And, for fellow Simon & Garfunkel fans…
ORIGINAL POST:
In response to several requests from readers across the pond, I’m taking a crack at the FTSE 100. For some reason, Think or Swim (my trading platform) doesn’t quote the FTSE itself, but does the FTSE 100 mini — 1/10 of FTSE’s value — that goes by the symbol UKX.
UKX had retraced a little over .786 of its 2007-2009 plunge when it topped in February 2011 at 609.58 (.786 is the normal completion point for a Gartley.) It subsequently fell 20% to 486.86 last July, then retracing about .886 to reach its recent high of 598.67 in March.
The April 2010 drop came at the Fib .707, which isn’t a legitimate Point B for a Gartley. The harmonic implications of a .707 Point B are a Bat pattern that completes at .886 (635.84) or a Crab that completes at the 1.618 (874.90.) We’ll put a pin in 635.84, because its not that far from the current reality, and see if it lines up with any other indicators.
Besides the harmonics, a couple of patterns are worth examining. First, fan lines from the 2007 top (yellow) and 2009 bottom (purple) have been pretty effective at guiding prices. At present, there’s a purple fan line that — if it holds — should help support prices. If it fails, watch out for a 10%+ drop.
Secondly, the faint red channel lines that have provided a lot of support and resistance in between the fan lines are indicating possible support at the same spot.
Third, the weekly RSI chart shows support at these levels (the dashed yellow line above.) Breaking this line is a virtual guarantee of 8-10% more downside, but it did a pretty good job of supporting previous slides, even without the added benefit of a fan line.
Likewise, the daily RSI should offer support. Even though RSI has fallen in a pretty steep channel over the past 7 months, there are two internal trend lines (purple and yellow above) that intersect with current values that could be supportive.
Don’t get me wrong: I am not bullish on the FTSE. But, it’s important to recognize that it has reached a critical level of support according to several different measures. The economic picture is bleak, so any little nudge could send it tumbling into the abyss. In fact, I view the entirety of the euro zone as only one press release away from financial disaster.
But, if it’s able to hold on, we could see a decent rebound. Holding on no doubt means cranking up the printing presses — a game that is doomed long term, but one which TPTB have shown they have reservations about playing.
When faced with situations like this, I usually punt. There’s not a compelling enough reason for me to place hard-earned cash at risk until the picture is a little clearer. But, we’ll keep an eye on it, and see if the picture clarifies in the coming days.
