pebblewriter

Tag: harmonics

  • Update on Oil: Sep 20, 2012

    Oil has tumbled the past few days, begging the question “what about QE3?”  It was supposed to prop up commodity prices.  There are many competing theories as to the influence of elections, Saudi assistance, etc.  But, the bottom line is CL had tagged some important channel lines and simply corrected.

    There are some pretty obvious long-term channels, as well as two huge rising wedges. The first one broke down only 50% of the way to its apex in price, and 61.8 of the way in time, yet — as is often the case with early breaks — prices came back to tag the apex in time (as well as a major channel line.

    The latest RW broke much later — .707 in time and .786 in price — and is already beyond the apex in terms of time.  The apex is around 144 — close enough to the all-time high of 147 to be considered a double-top were it to come into play.

    To do so, however, CL would have to break through a fan line from that 147 high.  As the following chart shows, the fan lines have been pretty effective at signaling major moves.

    The next such potential support is just below at around 88.  But, this line has been broken twice before on strong plunges, and CL seems determined to make another tag on the long-term support represented by the solid yellow channel line below at 78.

    But, to do so, it’ll have to break through triple harmonic support.  CL is also nearing the largest pattern’s .500 Fib at 90.24, which corresponds with the .382 on two smaller patterns at about the same price.

    It’s easier to see on the close-up.

     

     

     

     

  • NDX Update: Aug 12, 2012

    It’s been a while since our last look at the big picture in NDX.  I’ve focused more on broader indices such as SPX, RUT and NYA.   And, NDX has been subject to excesses, thanks to the impact its largest component — AAPL — has on its performance.

    But, over the past several months, it’s been one of the more predictable indices.  In our Apr 1 forecast, I wrote that its small rising wedge had run out of steam and it was due to reverse and test the lower bound of its larger wedge.

    In the May 1 update, I put a number (2438) on the downside target, revising it on May 8 2446 to reflect the just-completed H&S pattern.  Sure enough, on June 4 it bottomed at 2443.92 to tag the lower bound of the big wedge.

    Since then, NDX has reached the Fibonacci .786 of one pattern and the .886 of another.  Is this another important turning point?

    continued… (more…)

  • The Waiting Game: July 31, 2012

    ORIGINAL POST:  11:30 AM

    SPX might be tracing out either a flag or pennant pattern on the 15-min chart.  While either could portend higher prices (2/3 of the time), a flag would mean lower prices first — probably down into the mid 1370s.

     

    At first blush, the market seems to be respecting the last high of 1380.39 on July 19.  I suppose it makes for a more positive wave structure.

    But, I suspect the bigger worry for bulls is the Fib .786 at 1381.50 (in yellow).  This retracement from the 1576 to 666 plunge (Oct 2007 – Mar 2009) was only recently exceeded again, and a real, live bull market shouldn’t have any difficulty retaking and defending it.  Here’s the big picture, again:

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  • Update on the Dollar: July 24, 2012

    There is significant negative divergence on the dollar on both a daily and weekly basis.

    DX is also very close to completing those harmonic patterns it hasn’t already completed.

    It’s approaching the .707 of the largest (yellow) pattern, tagged the 1.272 of the next largest (purple) pattern, tagged the 1.618 of the red pattern, nearing the 1.618 of the pale blue pattern and the 1.272 of the smallest Butterfly pattern, seen in the chart below.

    DX is also approaching the price level of the last rising wedge apex — which is the next best thing to an actual back test to the RW itself.  No guarantees — because the dollar is suddenly the asset everyone wants to own — even if it costs money to do so.

    I have a bunch of charts to post this morning.  Check back around 10 AM EDT.

  • Charts I’m Watching: July 23, 2012

    Looks like I jumped the gun Friday, getting back in too early after scoring 15 points on the downside.  We have a substantial cushion, being up 626 points/45% since inception on March 22, but I really hate giving any of it back on a off-hours dump like this.

    As I posted Friday:

    If you didn’t get short ahead of time, the likely downside of this push is the small channel bound at around 1364.  I don’t think it would be worth jumping in at this point.  Of course, if we break 1360, it’s a different story.

    Having a stop at 1360 doesn’t help much when the market gaps open down 20 points.  So, we’ll focus on where we’re likely to end up today.

    While the upper bound of our rising wedge has been pretty clear, the bottom has so far refused to present a crystal clear picture.  Whether or not to include which tails has left the exact slope muddled, which means it’s difficult to anticipate the probable low this morning.

    There is a trend line (yellow, dashed) in the daily RSI that indicates a bottom is already in, but it’s not a TL or channel line I’ve been following, so it warrants further study.

    It caught the tumbles on Apr 10 (-28.25), June 11 (-42.25), June 25 (-24), July 12 (-19.75) and is thus skilled at putting a stop to big drops.  It has just been tagged this morning. (more…)

  • Bat Patterns

    Bat Patterns are one of the more common harmonic patterns.  They are similar to Gartley Patterns, except that the AB retracement can be anywhere less than the Fibonacci .618 of the XA leg and the AD leg completes at the .886.

    Because the AB leg can be anything < .618, we have to be a little careful as we approach the .618.  A reversal at .600, for instance, could be a Bat or a Gartley that came up a little short.  So for those that are close enough to go either way, we’re cautious around the .786 (the Gartley completion) too.

    Likewise, a presumed Bat pattern that is approaching the .786 on its CD leg can throw us a curve and put in a bigger reversal there than at the .618.  If this happens, there’s a pretty good chance we need to move the Point B to the .786 and prepare for a Butterfly Pattern extension to the .1.272 or 1.618.

    Likewise, a Bat Pattern that completes at the .886 could evolve into a Crab Pattern — which features a Point B anywhere up to the .886.   The pattern above, for instance, could be just the XA and AB legs, with an ultimate completion at the 1.618 of 892.12.  Bottom line, either play a minor reversal at the .886 or have a pretty clear idea of the medium and longer-term potential.

    In the chart above, for instance, there’s a trend line that should provide support near the last session’s low.  So, there’s a decent chance that the existing reversal is all we’ll see.  As always, stops are recommended just beyond the expected target just in case the pattern fails — as it does about 30% of the time.

  • Update on the Dollar: July 17, 2012

    We’ve been keeping a close eye on the US dollar, which as a safe haven, continues to move inversely to equities.  I remember reading Aftershock a couple of years ago.  It made the very convincing argument that the US dollar would be destroyed by disastrous fiscal policy and runaway debt.

    The advice was to dump everything into euros and ride out the coming storm.  Needless to say, this otherwise terrific book demonstrated the risk of putting any investment advice into writing — a fear I battle on a daily basis.

    DX has been in a huge falling channel for years — a fact many dollar bears have duly noted.

    Since 2005, however, the major direction within the channel has been a slightly downward sloping sideways movement (the white channel lines.)  We’re currently working on our third thrust up within that system — shown by the small purple channel over the past 2 years.

    continued… (more…)

  • Harmonics Scenarios

    Periodically, I like to go through and chart the various harmonic scenarios for both the upside and downside.

    It helps to pass the time while sitting and staring at the computer monitor, watching our forecast play out (so far, so good.)

    It’s also helpful in generating a set of potential outcomes for the market over both the near and longer-term.

    DOWNSIDE SCENARIOS

    Remember, all harmonic patterns begin with a significant reversal which we call Point X.  Over the past year, we can identify several obvious Point X’s, each of which generates its own set of Fibonacci retracements when paired with the recent 1422 high.

    continued…

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  • Fed Up Yet?

    ORIGINAL POST:

    As expected, the Fed threatened much but did little – extending Twist through the end of the year.  Stocks and commodities didn’t much like it; the dollar is up nicely.

    If the sell-off holds or accelerates at all, it will confirm the Point B we placed at 1363.46 yesterday — the Fib .618 retracement of the 1422-1266 drop. It might also confirm my suspicion that the daily RSI pop out of the channel was an aberration rather than a broadening of the channel, as seen in the following chart.  I keep coming back to the RSI chart below because of its import.

    A drop back into the channel to, say, the midline would probably result in a SPX pullback (Point C) to the channel line around 1340.  A drop to the other side of the channel would likely result in a drop to the other side of the price channel — say 1326.

    Even if we were to call the channel broken, we’d still be looking at a very extended rising wedge in RSI — also a sign of an overbought situation.

    If 1363 holds as our Point B, it leaves the door open for a Gartley, which completes at  the .618 (1389), or a Bat, which completes at the .886 (1404).   Either of these, especially if they come on the heels of a more significant dip now, would likely fit nicely with a VIX drop into the low teens, possibly below the 13.66 watermark.

    Note the smaller scale patterns all had their most common targets exceeded during yesterday’s rumor infused ramp job.  So, the possibility remains that the ramp just continues on up this acceleration channel, straight to our upside targets before turning back down.  That’s certainly what I would have expected had QE3 been announced.  But, I don’t think so.

    I think it’s more likely we get one of the paths below.

    While I’ve been typing this, SPX has recovered to almost even.  In fact, it stopped right at the .886 of yesterday’s highs, seen here on the 5-min chart.  BB’s upcoming appearance will be important.  The lack of a serious sell-off after the announcement should embolden them to leave well enough alone — which might be enough to get a little more downside going.

    I’m going to be traveling over the balance of the week, so posts will be a little spottier than usual.  I know I’ve received many questions and comments in the time it took to put this post together, and I’ll try to answer those after I get to LA this evening.

    Stay tuned.

    ********

    For those who’ve asked about the membership special I’m now running… let me clarify.  If you have any kind of membership other than an annual, you can upgrade to an annual for the next two days and I’ll rebate whatever you already paid.  Your annual membership starts the clock ticking again, so you basically get the past however many weeks you’ve been a member for free.

    This is an especially good deal for quarterly or semi-annual members, who can become annual members at very little additional expense.  And, for those monthly members who’ve been trying us on for size, this is the opportunity to lock in your price.

    Why am I doing this?  First, it’s administratively simpler to deal with one transaction a year than multiple ones.  Second, I’m trying to encourage more members to join.  We have six times as many page views each day as we have members.  So, I know a lot of folks are thinking about it.  And, there are less than 20 charter memberships left — where your annual rate is fixed for the life of the site.  I’d love for existing members to have first crack at them.

    And, perhaps most important of all, the more members we have on the site, the more time I can devote to it.  So, tell your friends and neighbors.  Remember, when they sign up as an annual member, you get an additional 3 months tacked onto your membership just for the referral.

     

     

     

     

  • Harmony

    Harmony and me…we’re pretty good company.  From the moment I first heard about Fibonacci, I was l hooked.  A numerical sequence that produces mysterious and magical ratios that show up in everything from the design of pine cones and nautilus shells to the layout of pyramids of Giza and dimensions of the Parthenon?  Sign me up.

    When I heard these ratios could be applied to investing, it was music to this math geek’s ears.  Most of my early efforts were focused on prices, but I’ve spent the past few months studying the application of Fibonacci ratios to time levels, as well.

    Fibonacci time ratios are a trickier than price ratios.  It’s pretty simple to eyeball a stock’s move from 10 to 20 and calculate a .618 retracement of the 10 points.  Just make sure the starting and end points are significant, and check to make sure you’re considering all the alternatives, and Bob’s your uncle.  Okay, so it’s a little more work than that, but not terribly complex.

    Time series, on the other hand, deal with periods that can extend well beyond the standard computer monitor.  It can be really, really tricky to find start and end points that provide a good fit for a set of ratios,  not to mention a reliable long-term stream of market data.

    I’ve tried hundreds of combinations over the past few months, trying to find a set that fit the actual market results well, i.e. it captured the major moves with the primary Fibonacci ratios.  And, I’ve found one that’s very interesting in that it fits the two market crashes in the past 10 years.

    October 8, 1998 represented the bottom of a 22% decline — the first 20%+ decline the market had seen since Black Friday in October of 1987.  It’s been largely forgotten since the arrival of its two more dramatic siblings in 2002 and 2009.

    Setting October 8 as the starting point, the October 10, 2002 bottom falls about a week from the .146 Fib level, and the March 6, 2009 bottom falls only a few days away from the .382 level.

    And, as you might have noticed, the last Fib level of .500 occurred a week ago on June 1.  Like the .236 level, it hasn’t been (so far) accompanied by a 50% drop in the markets.  Does that mean we’re out of the woods?

    continued…

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