pebblewriter

Tag: harmonics

  • Charts I’m Watching: Feb 11, 2013

    It was a beautiful weekend here on the central California coast.  Seems like everyone was out surfing, golfing, taking walks on the beach — at least that’s what I heard.  I spent the weekend poring over ECRI’s Weekly Leading Indicators for the past 30 years.

    Okay, in the interest of fair disclosure, Friday night was the annual Father-Daughter dance at my 10-year-old’s elementary, and I needed a couple quiet days off my feet.  If you’ve ever been in a room full of screaming prepubescent girls for two hours of JB and 1D, you know what I mean.

    Bottom line, the WLI research bolstered my confidence that our current position is the right one — whether or not the US economy is still in a recession, about to double dip, or is on the mend.  The key takeaway is this chart, showing the QE-fueled market continuing to pull away from the underlying economy (as measured by the WLI.)  Check out the article HERE.

    This morning, I’m hearing more and more talk about the market being frothy.  This is somewhat reassuring, as shorting at tops based on Harmonics often leaves one feeling very lonely.  I mentioned that SPX 1518 was at least an interim top to several other dads at the dance (guys who are in the biz) and they looked at me like I’d had too much fruit punch.

    I could have talked for hours about how applying derivations of a golden ratio based on 2,400-year-old mathematics enables effective market timing, but for some reason they had a sudden urge to go find their daughters and dance.  Funny how that always happens, and just when I’m getting to the good part…

    Of course, frothiness is what leads to overbought conditions — which, of course, is what you want when you short the S&P 500.  So far, the market is behaving itself — selling off a little while trying to sort out economic data, quantitative easing, currency wars and the upcoming sequester battle.

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  • Is It or Isn’t It a Recession?

    ECRI’s Weekly Leading Indicator (WLI) came out Friday at 130.2 — up from 129.6 the week before.  Further, they reported that the index’s annualized growth rate increased from 8.2 the previous week to 8.9% — the highest since May 2010.  I wondered: are they retracting their Sep 2011 recession forecast?  Are things really getting better?

     

    CAN’T WE ALL JUST GET ALONG?

    There’s currently an argument raging between various economists and analysts as to whether the US is still in/dipping back into a recession or is on the mend. ECRI is pretty sure we’re in one, while folks like Doug Short and, of course, the mainstream media think not.

    There’s no question that we’ve seen an uptick in several economic measures. My own thesis is that most of these have been not secular, but cyclical swings.  In other words, I don’t yet see evidence of a sustainable trend change, only natural swings from one side of a channel or wedge to the other.

    Here’s an example I posted last week. Total Confidence has traced out a pretty solid-looking channel, while the Present and Expectations indices have formed expanding wedges (and are nowhere near their upper bounds, especially given the recent downturns.)

    underlying chart from briefing.com

     

    Hardly a day goes by when I don’t second guess myself.  Is all the “good news” just one big, well-coordinated head fake or am I missing something?  I spent much of the weekend studying ECRI’s historical WLI (who says technical analysts don’t live exciting lives!?) and found a lot to think about.  First, a brief primer on Harmonics.

     

    HARMONICS

    Regular readers of pebblewriter.com (heck, even the irregular ones) know all about Harmonics and that the corrections experienced in April 2010, May 2011 and Sep 2012 correspond to the important Fib levels of 61.8%, 78.6% and 88.6%.

    For the uninitiated, measure the drop from SPX 1576 (Oct 2007) to 666 (Mar 2009) and multiply it by a Fibonacci 61.8% and you get 1228.74.  SPX reached 1219.80 in April 2010 (within 10 points) and promptly sold off by 17% over the next three months.

    In May 2011, SPX peaked about 10 points away from the 78.6% Fib level (completing a Gartley Pattern) and plunged 21.6%.  And, in September 2012, SPX reached the 88.6% Fib level (completing a Bat Pattern) and corrected by almost 9%.

    Those of us who follow Harmonics were well aware of each of these downturns well in advance [see: HERE, HERE and HERE] and profited nicely from the market’s plunges.  Those who rely solely on fundamentals or [involuntary shudder] the mainstream media…not so much.

     

    THINGS THAT MAKE YOU GO “COOL!”

    While I had noticed the WLI’s channel-like general decline before, I never noticed that it also complied with the rules of Harmonics.  From its all-time high of 143.73 in Jun 2007, the WLI plunged to a low of 105.40 in Mar 2009.

    Like SPX, it found its footing (thanks to QE1) and started higher.  Its first big pause was in Oct 2009 at the 61.8% Fib level.  It paused again in Jan 2010 near the 70.7% Fib, and eventually reached the 78.6% level in April — completing a Gartley Pattern as SPX had finally retraced 61.8% of its drop.

    One could infer from the mismatched Fib levels that the economy — as measured by ECRI’s leading indicators — was ahead of the market at this point. The WLI had retraced 78.6% of its drop, while SPX had only retraced 61.8%.  In any case, they both suffered from the removal of the QE drip – SPX shedding 17% and WLI 11%.

    When the Fed realized their patient would flatline without more QE, they were back with QE2.  The market took off, reaching the 78.6% Fib in May 2011.  This also completed a Crab Pattern, a 161.8% extension of the amount of the Apr-Jul 2010 slide.

    The WLI, however, retraced only 78.6% of its slide since its 2010 high.  In other words, the market was now officially ahead of the economy.

    Following the expiration of QE2, SPX plunged 21.6% to 1074 through October 2011, while WLI gave up 8.9%.  From there, SPX climbed to 1474 primarily on Fed jawboning and promise of more QE — which it finally delivered the day before the 1474 high.

    The timing was no doubt an effort to send the SPX soaring right through the 88.6% Fib retracement of the 1576 – 666 crash.  I seriously doubt that “two points over” was what they had in mind (the market sold off anyway, correcting a respectable 8.8% to 1343.)

    The WLI, in the meantime, topped out at 127.77 — only an 88.6% retracement of its decline from its previous high in 2011.  Again, the market was outpacing the economy.

     

    IS IT OR ISN’T IT?

    The world of market prognosticators is, as always, divided.  There are those who believe the economy is improving, and the market – as a leading indicator itself – is all the proof we need.  Then, there are those who believe the market is priced well in excess of levels justified by the underlying economy — which remains in or is dipping back into a recession.

    Whether QE has “saved” the economy or not, I don’t know of any respected economist or technician who doubts that it has significantly goosed (i.e. “manipulated”) the markets. And, we should pay attention to the disconnect between the markets and the economy as evidenced by the SPX/WLI comparison.

    The WLI just hit an important Fib level (88.6%) after demonstrating that it does, indeed, pay attention to such things.  This occurred at the same time that the S&P 500 hit several important Fib levels and is thus, by my reckoning at least, poised to correct [see: Satisfaction.]

    We all know the old truism “the market isn’t the economy.” However, another quarter of negative GDP following the tax hikes recently enacted and spending cuts in the works would certainly remind investors that the market and economy are, indeed, joined at the hip.

    I care about the economy because I have children.  The Fed’s unprecedented experiment in QE will quite possibly end very badly for the country, for my children and for yours.  But, there ain’t much We the People can do to influence Fed policy.  They don’t answer to us or our political “leaders.” So, we play the cards we’re dealt.

    As an investor, my goal is to capitalize on whatever the market throws at us — regardless of how manipulated it might be, and regardless of what economists call the current business cycle. If depression or hyper-inflation come along, we’ll hopefully see it coming and be well-positioned.

    Are we still in or dipping back into a recession? Will the current QE4-ever result in another 2009-2011 run, or does the market’s yawn last September signal the end of QE’s effectiveness?  We’ll find out in time.  In the meantime, we have some very good tools at our disposal that have provided excellent returns in a very difficult market.  I’ll continue to call it as I see it, and appreciate having you all along for the journey.

     *   *   *   *   *   *   *   *

  • Satisfaction

    Will the sixth try be the charm?  SPX has futzed around in our target area for six sessions in a row.  Today, we should finally get some satisfaction.

    The dollar has broken out of and is back-testing the yellow triangle. Lots of juicy Fib levels ahead, starting with the cluster at 80.758-80.883.

    RSI appears poised to break out of the red channel and explore the upper half of the white.

    While the EURUSD looks like it’s ready to tumble.  The test I’ll be watching closest is the intersection of channels around 1.3253.  But, merely popping back down below those falling white channel lines would be a great start.

    If I’m right, the falling white and/or yellow channels will take it from here.  Note the negative divergence represented by the last two spikes up to the top of the yellow channel.  The flatish red channel dates back to the fall of 2008, and every sustained push below its midline — currently around 50.51 — has been accompanied by a nice sell-off in EURUSD.

    Japanese finance minister Taro Aso is frantically searching for the “off switch” on the yen-cinerator.  In a chat with a legislative budget committee, he admitted: “it seems that the government’s policies have fueled expectations and the yen weakened more than we intended in the move to around 90 from 78.”

    The 7 sessions in (and slightly above) our target area are looking tenuous.  A dip to the bottom of the white channel could take the pair back to 90.82.

    And a fall from the white channel could easily see a back-test of the midline from the purple channel dating back to 2000.

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  • Update on USDJPY: Jan 31, 2013

    The pair continues on a tear, putting in a miniscule consolidation at the 87.5 – 89 range where I expected more of a correction and reaching our secondary target a full 10 weeks ahead of schedule.

    Will we still get a significant correction here?

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  • When The Music Stops: Jan 31, 2013

     

    Lots more economic data out today.  Unemployment claims jumped 38,000 – much higher than expectations, but personal income also beat (thought to be explained by income shifting by those concerned about higher 2013 tax rates.)

    Real Consumer spending is probably the data set that best settles the conflict — up an anemic 0.2% in December (real) versus 0.6% in November.  So, either everyone did their Christmas shopping early this year, or retail sales fell off a cliff.

    Against this mixed picture, January Chicago PMI came out at 55.6 versus consensus of 50.5 and December’s 50.0 (revised down from 51.6.)  Employment and new orders shot up, but so did inventories (after contracting for several months).  While, deliveries, prices paid and backlogs continued to contract. In short, this looks like a rebound from the November slow down largely blamed on the fiscal cliff.

    Also, not that this is a regional, not national, survey.  It sometimes offers a somewhat, but not always, predictive view of the important national ISM Mfg Index due out tomorrow.  In fact, many of the other regional surveys have shown increasing weakness.  The Chicago vs the national data are compared below.

    The market sold off early following the employment data, but rebounded a bit as investors digest the PMI report.  All eyes are on the important data being released tomorrow:

    Markit Flash PMI (covering about 85% of respondents) released on Jan 24 showed an acceleration of output, new orders and employment, but a deceleration of export orders, backlogs  and purchases.  Output prices barely moved, and inventories actually increased.

    Remember, this is only a survey of purchasing managers.  So, it doesn’t, for instance, differentiate between an expansion based on overly optimistic expectations or one justified by an upturn in demand.  Thus, while it tracks mfg output (as reported by the Fed) in general, respondents’ perceptions are often more optimistic than was ultimately justified by actual outcomes.

    We’ll revisit the data tomorrow, but for now it has the appearance of series of lower highs and lower lows, i.e. a falling channel.

    There’s no telling what the economic data will look like tomorrow, let alone how the market will react.  But, it’s interesting that the last Flash PMI data, which was generally regarded as very positive, was good for an 8-pt rally on the opening (which was quickly negated for a flat close.)

    I’ll also be keeping an eye on construction spending, which has been trending down as shown in the Briefing.com charts below.  Spending on commercial construction has been increasing at a declining rate for some time, and recently began contracting.

    The rate of increase in residential construction also recently turned down, so it’ll be interesting to see if this is a trend in the making.

    The market has been relatively quiet this morning.  After reaching the lower end of our upside target range yesterday, SPX broke through the red trend line and the white channel midlines we discussed, back-testing the white channel as expected.

    Since then, it declined to test the next lower channel bound.  The pattern from here gets very interesting, especially when one considers the RSI channels.

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  • Charts I’m Watching: Jan 29, 2013

    Currencies are relatively quiet this morning in the midst of a slew of earnings and economic data. The dollar looks like it could hit our downside target of 79.50 – 79.59 from Jan 25 [see: Update on DX] this morning if the yellow channel holds, but note that its midline intersects with the bottom of the white channel (support) just below current levels.

    EURUSD looks like a lock to tag the 1.618 at 1.3490 we’ve been tracking the past few days.

    This e-mini chart caught my eye this morning…

    With the overnight slide of 8 points, the e-minis give the impression of a broken channel and back test.   Now, it might be one of those dips from which we quickly recover as occurred on the 16th.  But, for those playing the intra-day moves, this bears watching.

    This ES channel equates to the small purple channel within the larger white one on SPX.  So, as yesterday, watch the channel midline for signs of something more significant.  It’s currently around 1498.30.

    The 15-min RSI should see a bounce at the red trend line if the trend is to remain on track.

    As we discussed yesterday, there is a great deal of economic data due out this week.  But, all pale in comparison to the FOMC announcements following their two-day meeting getting underway right about now.

    Last we heard, dissension was growing over how and when to throttle back on QE.  The language that alarmed the Dow 20,000 crowd:

    While almost all members thought that the asset purchase program begun in September had been effective and supportive of growth, they also generally saw that the benefits of ongoing purchases were uncertain and that the potential costs could rise as the size of the balance sheet increased. Various members stressed the importance of a continuing assessment of labor market developments and reviews of the program’s efficacy and costs at upcoming FOMC meetings. In considering the outlook for the labor market and the broader economy, a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013, while a few others emphasized the need for considerable policy accommodation but did not state a specific time frame or total for purchases. Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. One member viewed any additional purchases as unwarranted.

    Needless to say, an increase in hawkish rhetoric could really do a number on this rally.

    Odds are we’ll see another day like yesterday, with market makers shuckin’ and jivin’ to try and convince us a larger move is underway — the better to shake loose some of our hard-earned money.  But, I unless we see a huge miss on economic data or earnings, I don’t expect any fireworks until Bernanke steps up to the microphone (though much of the juicy stuff will have to wait for the minutes to be released.)

    UPDATE:  10:00 AM

    The Conference Board’s Consumer Confidence Index came in well below expectations: 58.6 vs expectations of 65 and Dec 2012’s 66.7.  Most of the rise in pessimism was the result of worsening job market conditions.  Those expecting more jobs in the months ahead dropped from 17.9% to 14.3%. Twenty-seven percent expect fewer jobs — unchanged from last month.  A full 22.9% (up from 19.1%) expect their incomes to decline.

    Briefing.com tracks the data and puts it in a nifty little chart (reflects data through December.)  There are a lot of potential interpretations here, but to me it comes down to “expectations coming back in line with reality.”

    And, though I don’t have the time to construct a chart, I’m pretty sure that expectations — the yellow line — have tagged the top of a descending broadening wedge (megaphone) while present conditions have formed a garden variety falling channel.  Both appear to be at or near their upper bounds, meaning a breakout or a fall is imminent.

    Global Economic Intersection posted an interesting article last month that showed the relationship between consumer confidence and past recessions.  Definitely worth a read for those who pay attention to such things.

     

    So far, the market is pretty much shaking it off, with a dip to the white channel midline the extent of the reaction.  If the midline holds yet again, there’s a good chance we’ll hit our upside target later today or tomorrow.

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  • Charts I’m Watching: Jan 28, 2013

    A positive durable goods report, mixed CAT earnings and the usual meaningless NAR drivel (this time negative, but being spun as a lack of inventory) have combined to drive SPX down 5 points.As we discussed Friday, the bottom of the purple channel (1498) and/or midline of the white (1496.50) are good trigger points for those who play intra-day moves.  Look for a bounce there.

    The bottom of the white channel is currently 1485, the level at which a move lower would seriously undermine our current position.  Otherwise, our core position remains long.

    The dollar, which broke back down below a channel line on Friday, had a 2nd nice bounce off the next lower channel line, but as yet hasn’t broken out.  The short-term harmonic picture continues to be ambivalent.

    Keep an eye on the RSI channels, which still point lower in the short run amidst a general move higher.

    The EURUSD continues to linger in double-top territory — also the completion of a Crab Pattern (small, purple.)

    Note that this is also a .500 and .382 Fib of much larger patterns, so we should get a sizable reaction here.

    I’m adding two pages to the website this morning.  The first is a general discussion of harmonics trading techniques — something I’ve been wanting to do for months.  Part 1 has already been posted under the harmonics section of the “learn” tab.

    The second, which will be posted shortly, is a brief summary of my current core position and will be available under the “markets” tab.  Many of you have asked for such a page, but I’ve hesitated because of the risk of misinterpretation.

    Someone taking a quick look might see a long position, for example, without noting the commensurate high risk of a sharp downturn that was discussed in the daily post the day before.  There’s also the risk that a short-term trade is misinterpreted as long-term, or vice versa.  At tops and bottoms, when we’re waiting for the market’s stripes to emerge, core and short-term trades aren’t always easily distinguishable from one another.

    Last, such a page will out of necessity be a snapshot — a peek at where things stood at the time of its posting.  The outlook might have changed two minutes ago but not have been posted yet.  Someone who reads the full daily post would realize a change is in the works, but this page wouldn’t yet reflect it.

    But, with those caveats out of the way, I’ll post it later today for members only.

    UPDATE:  11:30 AM

    SPX bounced at the white channel midline as suggested earlier (1496.33 v 1496.50 target) and is back above 1500.

    I believe our short-term forecast is right on track.

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  • Update on DX: Jan 25, 2013

    Currency markets have been quiet the past few days, with the dollar showing some indecision as investors try to wrap their minds around a potential new high for equities.

    Since we hit our downside target at the white .786 on the 13th, DX has been non-committal.  My best guess is a repeat of the .786/.886 retrace down to the red zone before DX takes off higher, but this is neither assured nor necessary for our equity forecast to play out as expected.

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  • Now What?

    First, a quick overview…

    The dollar got clobbered overnight, knocking it temporarily out of the white channel that’s guided it since Jan 11.

    But, interestingly, its RSI channel is doing just fine, thank you.

    The EURUSD continues to levitate, but still hasn’t broken the last important interim top put in on Feb 24.  It is also bumping up against two 25% channel lines, so could very well stall out here at the .886.

    There is still ample negative divergence regardless of which channel ultimately wins out.

     

    With the market exceeding the recent 1474 highs, the analog that did so well for us since last April is officially dead.  This begs the question: “now what?”  I see three big issues hanging over the market right now:

      1. earnings season —  AAPL in particular
      2. the US budget/debt ceiling imbroglio
      3. new highs justified?

    Earnings

    GOOG and IBM both gapped up this morning, but the earnings that can really move the market — AAPL — comes after the close.  We’ll take a fresh look at the AAPL chart later today.

    Budget/Debt-Ceiling

    In a few hours, the House will probably pass a measure to postpone the debt ceiling debate until May.  Reid and Obama have both said they’re on board, so this appears to be a done deal.  If House Republicans don’t fall in line, as occurred with “Plan B,” the market will sell off precipitously.

    New Highs

    The market’s strength has caught many off guard, including yours truly.  Many are calling for new all-time highs for SPX. The 2007 high of 1576 is now only 84 points away, so a few good sessions could do it.

    We’ll take a fresh look, focusing on the harmonic and chart pattern picture as well as the establishment agenda.  “What’s that?” you say.  Say all you want about random walks, CAPM, dividend discount models and Dow Theory.  Like any government-managed enterprise, the market is subject to the policy goals and needs of those who attempt to control it.

    Even to my cynical ears, this sounds a bit like rants from the tin-foil hat crowd.  But, consider the news on Egan-Jones yesterday.  This is one of the biggest stories of the month, yet predictably earned only this from WSJ/Marketwatch:

    CNBC was slightly more generous, yet still presented only the SEC’s side of the story.  It’s a story that deserves to be told because it speaks volumes about the degree to which the market is presently being controlled.  And, I’m not just talking about quantitative easing, though I suppose we’d have to consider QE exhibit #1.

    Last summer the market crashed 22%.  It was an analog (replay) of the 2007 top, so we saw it coming in plenty of time to profit quite handsomely.  But, it was a huge wake-up call for The Powers That Be (TPTB) or Plunge Protection Team, Wall Street Cabal — whatever you want to call it.

    With virtually unlimited power and unlimited resources, why couldn’t they prevent something like that from happening?  More importantly, if the top was a replay of the 2007 top, might the rest of 2011 play out like 2008-2009?

    It didn’t, because they learned from the crash of July-August.  First, they tweaked the markets just enough to bust important chart patterns that were playing out.  Second, they tweaked the rules to provide for more time to contain any damage which might otherwise occur (circuit breakers, etc.)  Third, they attacked those who had “caused” the crash.

    S&P CEO Deven Sharma was one of the first victims.  In the wake of the 2007 financial crisis, S&P was rightly pilloried for having pulled its punches — particularly on mortgage and banking related debt.  This was no surprise to anyone who’s ever worked on Wall Street — which pays for these supposedly unbiased views.

    An infamous exchange between two S&P analysts in April 2007 aptly illustrates:

    “BTW, that deal is ridiculous.”

    “I know, right . . . model def(initely) does not capture half the risk.”

    “We should not be rating it.”

    “We rate every deal. It could be structured by cows and we would rate it.”

    Imagine if Hollywood studios funded the reviews of their movies.  Would you care if they received thumbs up or down?  So, in August 2011 S&P found religion and bravely downgraded US debt.  Seventeen days later, Sharma was fired and replaced with the COO of Citibank, the bank whose existence relies on the absence of any future downgrades.

    Egan-Jones beat S&P to the punch, downgrading US debt on July 16.   Two days later, the SEC’s Office of Compliance Inspections and Examinations called looking for information on the downgrade.

    On October 12, Egan Jones was formally notified of a Wells Notice — they were being investigated.  On April 24, the SEC filed a cease and desist order against Egan-Jones — the only rating firm not on the take — stating the action was “necessary for the protection of investors and in the public interest.”

    The financial establishment’s interests, sure.  But, to frame this obvious smack down as “in the public interest” is laughable alarming.  Egan-Jones was the one rating firm with the balls to point out the country’s crumbling financial condition and stick to their guns.  Now they’ve been branded as deceitful, dangerous.  George Orwell spoke the truth in 1984:

    “In a time of universal deceit, telling the truth is a revolutionary act.”

    That other deep thinker, Jim Morrison, provided a similarly profound observation:

    “Whoever controls the media controls the mind.”

    The extent to which the market has been manipulated is deserving of its own post.  But, this Zerohedge article, forwarded by a member, is a great preview.

    Okay, so I know what you’re thinking: if the market is so heavily manipulated (and, presumably, insulated from downturns) why bother trying to beat it?  Simple.

    1. Chaos theory tells us they won’t have enough fingers to plug every hole in the dike (TPTB have similar “never again” strategy sessions after every crash.)
    2. Even when things do run as programmed, we can still effectively capture enough significant swings in the markets enough of the time to boost returns and, more importantly, try to avoid huge downdrafts.

    Over the very long-term, stocks return 8-10% — depending on the time frame examined.  But, sadly, most of us are limited to 40-60 years of investing.  And, a 60% crash right before starting a business, buying a home or beginning retirement could be devastating.

    So, we’ll keep plugging away, letting the markets tell us where they want to go…while trying to get there first.

    So, the question is “Now What?”  We’ll start by looking at the harmonic picture.  As detailed in our last review of all the previous tops, harmonic patterns are very likely to come into play.  So, we’ll start with the charts, then move on to the agenda question and, last take a look at AAPL.
    Since we’ve exceeded the range at which this rally could be considered a double top, we’re probably going higher still. So, we’ll examine the 1.272 and 1.618 extensions.

    In terms of a trading strategy, I’d be comfortable going long here at 1491.  But, disappointing AAPL earnings could knock the stuffing out of the market.  So, those with weak hearts should probably stay on the sidelines until tomorrow morning.

    The most recent patterns show a few possibilities, some of which are clumped together in fairly narrow ranges.  The largest of the patterns — the yellow grid — shows a 1.272 Butterfly Pattern extension at 1510.19 that intersects with the 2.24 extension of the decline (purple grid) from 1448 – 1343.

    A Butterfly Pattern is a good bet, as the Dec 18 reversal at 1448 pretty much nailed the .786 Fib level Point B (1446.44) which Butterfly Patterns require.

    1510.19 also falls within the confines of the thin red line — the TL connecting the Apr 2 and Sep 14 highs that would probably satisfy the EW requirements of an ending diagonal.  I know you’re out there, my Waver friends.  Please weigh in, as I know only enough EW theory to be dangerous.

    The white pattern is appealing enough, but I would have to consider it secondary in importance to the yellow since it began at a less momentous point X.  Ditto for the grey pattern.

    Although it should be noted that we faced a similar dilemma when choosing between the Point X’s for the Butterfly patterns beginning in 2011 [see: All the Pretty Butterflies.] In the end, it was a point similar to the white pattern 1.0 Fib at 1464.02 that determined the April 2 turn.  It featured a Point B closest to the .786 Fib.

    Zooming out, we can see that the 2011 highs could very well still influence the outcome of the current top.  The chart that includes everything is a little busy…

    …so I’ll clean it up by eliminating the interior retracement levels and switching to weekly.

    The target areas can be more easily seen in this close up.

    Note that the large red pattern, the one whose 1.272 extension helped me accurately forecast the April top, comes into play at its 1.618 extension of 1515 – only a few points away from the 1509-1510 level discussed above.

    This is promising, as patterns that influence markets once (that was an 11% correction, after all!) are more likely to do so again.  And, patterns that the market completely ignores — such as the yellow and white patterns from May and July 2011 — are less likely to suddenly leap into a position of authority.

    And, there’s also a purple 1.618 extension (set up by the 1422 – 1266 decline) at 1518.57.  Again, this is close enough to be considered significant.

    If 1520 is exceeded, then we’ll look at the next higher grouping: 1553-1555.  This “group” is basically the two yellow 1.618’s.  Again, the larger pattern’s 1.272 had no influence on the market.  The smaller pattern’s 1.272 is the one coming up at 1519.

    Summary

    My leading harmonic forecast is for 1509-1515.  I can’t imagine getting this close to 1500 and not snagging it for the trophy case.  And, I like the idea of dancing with the harmonic patterns that brung us.

    My secondary goal is slightly higher at 1553-1555, so there should be opportunities to jump back in and capture most of any upside above 1520 if/when appropriate.  Such a move would likely follow a reversal from 1509-1515 back down to 1474ish and would constitute a fifth wave rather than the ending diagonal suggested above.

    If AAPL’s earnings stink up the joint after the closing bell, going long won’t have looked very smart.  But, judging from the steadily appreciating share values, I’m guessing that a relatively positive result is already being leaked.

    Chart Patterns

    I won’t rehash the stuff already posted in the past couple of weeks.  Just take a look at the rising wedge that would be confirmed by a reversal at 1510 as early as tomorrow.  The target would come at the .886 of the base to apex price range and .618 of the time range (almost too good to be true.)

    We’re currently very close to the .786 of 1498, which tells me there’s a decent chance of a run up to 1500ish into the close.

    UPDATE:  3:45 PM

    AAPL is up almost 9 points at the moment.  A rally past 1426 would take it up out of the falling white channel it’s been in since last August.

    Anything over 515 would take RSI above the white and purple RSI channel midlines.   So, as expected, much is riding on the earnings report and how it’s perceived.

    We’ll watch these RSI channels, though. A return to the top of the yellow (and, especially the white) channel would surely spell a reversal.

    The Agenda

    I think it’s pretty straight-forward — bag an important new high, but without setting the bar so high that expectations can’t be managed.  At 1510, SPX clears 1500 but buys some time before the pressure of “will it exceed 1576?” comes to bear (no pun intended.)

    Then, get through the budget mess (or, more kicking of the can) and see where we are.  If we get a sequester, so be it.  The establishment will be well positioned ahead of time and the correction will be managed.

    After the shock of it wears off and prices have firmed in the 1200-1300’s, time to establish the next leg higher.

    Now, the big question is whether TPTB can engineer such a move without it getting out of hand — as it often does.

    Stay tuned.

  • Race to the Bottom: Jan 22, 2013

    Lots of big earnings announcements today:  JNJ, VZ, DD, TRV, DAL all missed, while GOOG, IBM, TXN, CA and AMD will report after the close.   It’s getting tougher to ignore slowing revenue growth, though the misses were almost universally blamed on Hurricane Sandy.

    But it’s the currencies that are getting most of the attention lately, with the yen making headlines all weekend. The BOJ followed through on expectations, confirming they will continue unlimited QE in 2014 once the current program ends in December.  They also embraced a 2% inflation target though, as many observers have pointed out, they’ve failed to even come close to the current 1% inflation target.

    USDJPY is the pair I watch the closest.   A weakening yen obviously strengthens the dollar index (the yen is 13.6% of DX) but it is easily offset by euro strength (57.6% of DX.)  Nevertheless, the pair’s importance shouldn’t be discounted, as it heavily influences trade.

    The two dominant chart features are the falling channel (purple) since 1998 and the falling wedge (yellow, dashed) since 2001.

    The pair broke out of the falling wedge in January 2012, but recently began reacting with the channel midline at a price level just beyond our target range of 87-89.  If you believe the BOJ, the pair will blow through this resistance and continue up to 95 without a hiccup.

    In fact, the daily RSI over the past six months suggests today’s little 1.2% correction might be all we get.

    But, if we back out just a bit, we can see this isn’t necessarily the case.

    continued for members… (more…)