pebblewriter

Tag: harmonics

  • 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.

  • Anticipation

    It certainly looks like we’re almost there.

    The eminis seem to be already there…

    The EURUSD is clinging by its fingernails…

    The dollar looks ready to rumble…

    The USDJPY is making a bid for an IH&S, but has run smack dab into that yellow channel midline again…moment of truth for the yen…

    This morning’s dip in SPX is appealing, but look how many times over the past several sessions the red channel midline (now around 1627.25) has come to its rescue…

    A break below 1626.46 and it’s probably game-on.  But, we haven’t quite hit our 1635+ target.  I’m inclined to believe this is a fakeout to buy a little more time, shake out a few weak bulls before the final thrust.

    UPDATE:  12:25 PM

    SPX continues to bump along.  It recovered from the first plunge down to the red midline, and is back at it only 2 hours later.  This time, however, there’s a small Head & Shoulders Pattern at stake.  It would complete at 1627.33 and target around 1621.30.

    Remember, we’ve seen more than a normal number of H&S Patterns not play out over the past couple of months.  So, odds are that this is another shakeout brought to you by your friendly neighborhood market makers.

    As always, use stops — and update them frequently to keep them where you’re comfortable.

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  • USDJPY Update: May 8, 2013

    USDJPY has continued to slide since our Apr 8 call for a top [HERE.]   It back-tested the broken purple channel midline on May 6, and is signalling a sell-off to at least the bottom of the purple channel (96.25 – 96.66) where it intersects with the white channel .75 line in the next day or two.

      But, if the most obvious harmonic patterns play out, we could easily see the purple channel break down and the white midline come into play at the intersection of the .886/1.618 at 93.40/93.26 towards the end of May.

    Remember, it was the white channel that confirmed the harmonic pattern reversals at 100 last month.

    “…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”

    April 8, 2013

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  • XLF: Playing Catch Up

    On April 2, 2012, SPX completed a Butterfly Pattern at 1421 — the 1.272 extension of the July – October 2011 plunge.  It provided a great entry point for the fledgling pebblewriter.com’s first major short position.

    We scored over 20% in about 2 months [see: All the Pretty Butterflies] trading the 11% decline.

    XLF hadn’t done as well up to that point.   It had only retraced a Fibonacci 78.6% of its 2011 decline from 17.2 to 10.95.  So, no surprise that it sank by a whopping 18%.

    In response to a consulting client who was bottom-fishing for financials, I discovered they were probably bottoming in early June.  I posted my results in the appropriately titled:  So Crazy It Just Might Work.  If anything, my estimates were conservative.  XLF has soared 41% since that low (turns out it was the day before.)

    And, wouldn’t you know it, XLF has gone and formed its own Butterfly Pattern — just like SPX did in Apr 2012.

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  • The Best Laid Plans

    The best laid plans of mice and men
    Go often awry,
    And leave us nothing but grief and pain,
    For promised joy!

    Robert Burns, 1785

    ORIGINAL POST:  6:45 AM EDT

    The wedges we’ve been watching on DX and EURUSD are playing out.  EURUSD has broken out…

    …and DX has broken down.

    But, it’s the USDJPY that I’m watching especially closely this morning.  It still hasn’t broken 100 since our Apr 8 observation [USDJPY update] that it was running out of steam:

    “…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”

    It topped out 3 sessions later at 99.94, and two weeks later is in danger of a larger pullback.

    Remember, weakening the yen was a critical element of the BOJ’s stimulus program that was supposed to generate inflation, boost Toyota sales and send Japanese investment funds flooding into foreign markets.

    Instead, Japanese investors are repatriating their funds from abroad — a net Y9.5 trillion ($95 billion) since the first of the year.  Why?  As any US investor could tell you, QE might not inflate economies, but it sure as hell inflates markets.

    The Nikkei 225 is up 65% since last October’s lows….

    …and, still hasn’t even recovered 2/3 of its losses from the 2007 crash.  The Dow and the S&P 500, by contrast, have recovered all of them — and, then some.  So, to many, the Nikkei still seems the better value.  It’s hard to argue with success.

    But, I’ll do it anyway.  In reaching 14,020 a few hours ago, NKD tagged the .618 Fibonacci retracement of its 2007-2009 crash from 18,365 to 6990.

    To those not familiar with harmonics, this tends to be a big deal.  When SPX reached the equivalent point in April 2010, it plunged 17%.  The DJIA fell almost 15%.  The USD, represented by DX, soared 9.3%.

    But, the yen positively soared.  USDJPY started a 17-month slide that took the pair down 20% from 94.98 to 75.78.  NKD, which had just reached its .382 Fib, shed 23% over the next 4 months, eventually reaching almost 30% in Nov 2011.

    Could the USDJPY’s failure to break 100 be telling us something?  You better believe it.  I called a top a few weeks ago because the pair had reached several important Fib levels as well as the midline of an important channel (in yellow, below)…

    …that dates back to 1995.

    There’s no guarantee it won’t push through instead of retreating, but the RSI picture supports the danger of a significant retreat.

    Daily RSI has backtested the broken yellow channel twice, but the trend is clearly down — with the latest push being rebuffed by the purple midline.

    And, a close-up reveals that a breakdown has already started.

    Stay tuned.

    UPDATE:  9:25 AM EDT

    With SPX set to open 5-6 points higher, it stands a very good chance of reaching our 1584.23 target. In other words, a pop and drop is very much in the cards.

    If it goes any higher, look for 1590.36 instead.

    UPDATE:  9:40 AM

    That’s good enough for me.  I’m closing my long position and reverting to full short here at 1584.80.  Stops around 1586ish.

    The .25 of the purple channel is right around 1587, so I’d use some discretion around that stop level and look to see if there’s any real strength behind a move higher.

    UPDATE:  10:25

    Getting a push through 1587, so I’ll open an interim long position for what should be only a few points higher to the .886.  Core short remains in place.  Tight trailing stops.

    I wouldn’t start getting nervous about the short position until around 1594 — the trend line (red, dashed) that extends from the 2000 and 2007 peaks.

    UPDATE:  10:50 AM

    I’ll go ahead and close that interim long here at 1590.  While I still think there’s potential to the 2000-2007 trend line, it could easily happen after the correction that should begin in the next hour.

    That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.

    This is a very artfully crafted scenario to justify (from a technical standpoint) a rally above that red TL — which is one of the last remaining technical impediments to a continuation of the rally from 1343 in November.

    Can they pull it off?

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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.

     

     

     

     

  • Charts I’m Watching: Apr 15, 2013

    The big story this morning is the meltdown taking place in the commodities complex.  Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.

    Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces.  In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.

    The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.

    If those levels should fail to hold, the next major support levels are 1309 and 1155.

    We’ll discuss oil and other commodities later, but first let’s catch up with equities.  Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs.  As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.

    The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.

    This morning, we came very close — reaching 1576.87 so far.

    I’ll take a long position here at 1576 just to see where it takes us.   Tight stops (1573ish) are in order, as the next support is down between 1553-1561.

    We discussed last week about core versus interim positions.  I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case.  A plunge below 1553 does very serious damage.

    So, I’m comfortable in closing out my short position from 1597.  That doesn’t mean I believe the market will go up from here.  The jury is out.  But, by placing tight stops below my long position, I can manage the risk of being wrong.

    SPX doesn’t have to reverse strongly for a hold here to be effective.  The bottom of the big purple channel (from 1343) isn’t far below at 1564.  But, it’s rising quickly.  It’ll be up to1576 by Apr 22.  So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.

    UPDATE:  11:40 AM

    Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359.  It should reverse here.  But, again, a failure to hold could easily send prices down to 1309.

    It’s interesting to see what the US dollar has done during this sell-off.  Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.

    UPDATE:  11:55 AM

    SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel.  But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.

    UPDATE:  1:10 PM

    SPX just hit our 1564 objective.  I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561.  I’ll leave stops pretty tight here and be happy to go along if it plays out that way.

    The view from 30,000 feet coming up…

    UPDATE:  2:03 PM

    Just got stopped out at 1564, so it’s back to the short side.  Lots of near-term targets, starting with 1561.60, coming up in a few…

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  • The Big Picture: Apr 11, 2013

    The chart of the day:

    We closed our longs (from 1539) yesterday, but are still a few points south of the market’s upside potential.  While yesterday’s 1589.07 might end up being the top, I rather suspect we’ll move just a little higher.

    Recall that we anticipated being in this situation a week ago [Charts I’m Watching: Apr 4 – 1:20 update.]

    I strongly suspect that any move that’s much higher than 1576 will terminate at the purple midline… On April 11, the midline of the purple channel intersects with the TL connecting the 2000 and 2007 highs (red circle below.)  Also on Apr 11, the .25 line of the same channel crosses 1576 (yellow circle.)  So, take your pick.

    So, we can’t very well ignore it now that we’re here, can we?

    I’ll take a shot at a long position this morning — with tight stops of course.  The bottom of the smallest purple channel (from 1539.50) is currently around 1582 and rising about 2.10 per hour.

    The dollar reached the next lower line on the falling red channel and will likely backtest the broken white channel as seen on the 60-min chart below.

    But, take a look at a daily chart, and it’s obvious that the push lower would be relegated to tail status and the channel would remain unbroken if DX climbs back to 82.515 or so.  Not a terribly difficult feat if equities top out this morning…

    UPDATE:  10:15 AM

    Just tagged the midline of the purple channel that’s guided SPX since 1343 on November 16.  I never dreamed when we went long that morning [CIW: Nov 16 – 10:05 update] that we’d tack on nearly 250 points in the next five months.

    SPX also reached the IH&S target (1591.66) from the small pattern completed on Tuesday.  It wasn’t a very well-formed pattern, but here we are.

    We’ve discussed it many times in many contexts, but completing a tag on even a 13-year old channel top doesn’t guarantee a bear market.  But, the odds of at least a correction are pretty good.

    If anyone’s wondering about the dashed yellow line that intersects with our smallest channel around 1597.68, it’s the TL shown on the first chart up above.  It connects the 1994 low and the 2002-2003 lows. If we exceed the TL connecting the 2000 and 2007 tops, this is also a great target.

    UPDATE:  11:30 AM

    SPX just topped 1597, which is good enough for me.  I’m switching sides here and opening a short position.  Stops around 1605 should work.

    My only hesitation is that we’re sooo close to 1600.  Do we leave a milestone like that for another day or go ahead and add it to the QE trophy case.  Hmmm…

    If 1600 is in the cards, expect a bounce at the red TL (1593.25) which bulls will, quite legitimately, interpret as a backtest of an important broken TL of resistance.  BTW, a bounce there would also be a backtest of the large purple channel midline.

    If we fall back through both, however, this excursion to 1597 will appear as a shooting star at the top of a nice little Crab Pattern (the 1.618 extension of the drop from 1573 to 1539.)

    Next key level below the red TL is the bottom of the little purple channel from 1539 — currently around 1589.  And, of course, the 2007 1576.09 high is awaiting its own backtest.

    UPDATE:  1:40 PM

    SPX has retraced .886 of its drop from this morning’s 1597.35 high.  If it’s going to try for 1600, now’s the time.  For the bears, a drop through the channel bottom at 1589.40 would really help get the downside going.

    UPDATE:  2:15 PM

    Got the reversal almost to the penny at the .886 retracement, completing a nifty little Bat Pattern.  The bottom of the small channel is coming up at about 1590.

    Since we’re dropped back through the red TL and the purple channel midline, the next backtest will be from below.

    I’ll update our forecast if/when SPX drops through the channel bottom.

    UPDATE:  3:25 PM

    Such a simple thing: breaking through a channel bottom.  SPX doesn’t even have to chase it.  The channel is rising up to meet the index.  But, no breakdown yet.  Instead, two well-engineered bounces that came at just the right time and place to prevent more serious damage to the bullish case.

    And, now we’re entering into the last-minute ramp zone — the last 30 minutes of the session where markets are only allowed to go up.  Good thing it’s an efficient market, randomly walking down a present-value path to future cash flows and not some trillion-dollar casino manipulated by rich and powerful interests with unlimited funding.  That would suck, right?

    If the little H&S is permitted to complete, it targets all the way down to 1585 — the neckline of the last H&S that completed but didn’t pay off thanks to a ramp job in the futures overnight.

    The way this market has been going, it’ll close at the neckline — forcing us to choose whether or not to play ramp job roulette with an overnight position.

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  • USDJPY Update: Apr 8, 2013

    The largest channels are all pretty loose fits, with plenty of incursions that make forecasting with them iffy at best.

    But, the smaller channels and Harmonic Patterns have been pretty effective.  Even though USDJPY has been running like a 燃える尾を持つ猫, there is growing risk of a downturn as it approaches 100.

    Consider the new channel constructed by today’s high.  It lines up with the Oct 31, 2011 and Mar 14, 2012 highs.  It would carry more weight if there were more than one tag on the bottom, but we shouldn’t ignore the potential for a correction.

    Given the tear the pair has been on lately, it would probably be motivated more by a weak US dollar than a strong yen.

    The pair put in a decent correction at the red .786 (of the decline from 101.44 in Apr 09), hinting at a future Butterfly Pattern.  The 1.272 is at 108.47 and the 1.618 is at 117.43 — right next to the large purple .886 at 118.59.

    There’s also a small Crab Pattern (white, above) completion at 99.26.  So, though I wouldn’t necessarily put money on it (the trend is your friend), it appears the pair might have hit at least interim resistance at today’s high.

    A failure to reverse here will likely mean a trip to the purple .618 (at least) at 105.57.

    But, that would mean barging back into the daily RSI channel (in green below) that broke down in mid-Feb and is undergoing its 2nd back test.  It’s certainly not impossible, but it would be easier after a pullback to reset RSI to lower levels.

    Stay tuned.

  • Charts I’m Watching: Mar 25, 2013

    With Cyprus saved, the sanctity of the EU intact, and a US budget deal passed, we can all go back to watching the market ratchet up 10 points/day, right?

    Here’s the fundamental problem.

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