pebblewriter

Tag: H&S

  • Who We Rooting For, Again?

    It’s a sputtering economy in one corner, OPEX in the other.  But, wait, that’s no ordinary boxing ring; it’s a house of mirrors and Ben Bernanke is the referee.

    If bad news is bad, this is bad.  Unemployment claims are up.  Housing sales are down.  Philly Fed survey numbers are down.

    Then again, maybe bad news is good.  The slumping economy has the QE crowd salivating again (you’d think they’d run out of spit sooner or later.)

    Even if we could forget the economy, QE and the 5/6ths completed H&S pattern, tomorrow is OPEX.  And, as we all know, that means the fight is rigged — at least until Monday.

  • VIX at a Crossroads: April 18, 2012

    Where there was once a falling wedge, there is now a channel.  The April 10 breakout that looked so promising completed a Bat pattern and promptly reversed nearly 61.8% of the move from the 13.66 bottom.  Is this the end of the ride, or are there bigger and better things in store for VIX?

    I have tentatively added another channel to the RSI to accommodate the latest spike.  It would likely guide the next leg down, if indeed that’s forthcoming — which I mostly doubt.

    Of course, every time we complete a Bat pattern with a Point D at the .886, we’re also establishing a potential Point B in a larger Crab pattern.  In this case, that would result in a completion Point D at the 1.618, which is 27.12.

    That’s an interesting price, because it equates with the 2.618 of the small Butterfly pattern potentially setting up on the hourly chart.

    Things get real interesting when you back out and look for competing or complimentary patterns.  On the 60-min chart, we can see that the move off the bottom conforms to a upward-sloping channel (in white) so far.  This channel will intersect with the downward sloping main channel (yellow) on Friday — which, of course, is OPEX.

    It’s only fitting that the point at which VIX must commit to one channel or the other arrives on OPEX.  The situation reflects the alternatives we’ve been discussing for SPX.  The analog we’ve been watching indicates a short-term top is at hand, and we should see a brief but scary sell-off in the next few days.  This would correlate with sideways action in VIX, followed by a breakout of the yellow channel to follow the white one — probably topping out at the 27.13 level at the bottom of SPX’s decline to around 1305-1317.

    The alternate SPX view is that we go on up and tag the rising wedge’s apex without the sell-off first.  There’s certainly enough important news in the pipeline over the next few days to bring either course to fruition.  Such a movement in stocks would mean the white channel breaks down and the yellow one holds — knocking VIX back to the 14.5 — 15.8 range.

    Of course, such a move would complete most of an inverse H&S pattern (in yellow) and set up the next upside break out.  Technically, we have enough of a right shoulder as it is, but a drop to around 16 would be ideal.

    In summary, my leading assumption is sideways until OPEX, then a breakout up to the 23-24 range to complete the IH&S that correlates with the SPX’s H&S move down.  We should then see a back test of the yellow neckline and subsequent push to the 27-30ish range to correlate with SPX’s move to 1307-1317.

    It would be a break of the yellow channel (which has a grand total of two anchor points on its upper bound) that would be similar to the Mar 16, 2011 breakout to 31.28 (see below.) But, such a move would bring it back the midline of the long-term channel that’s been such a magnet for breakouts over the past few years.

    That midline, by the way, is in the same neighborhood as the Inverse Head & Shoulders target of 28.20, which would be very doable if SPX were to plunge 70-80 points over the next week.

    But, keep the alternatives in mind.  The market is exceedingly hinky lately; and, as much as I like the analog, it’s certainly not guaranteed to play out.  As always, please use stops.

    Good luck to all.

  • Channel Surfing: April 17, 2012

    The analog I first posted about on the 9th [see: Analog Details] has performed well this past week.  Given the overnight action in the futures, it’s about to get a boost in the right direction.

    A perfectly formed H&S pattern would mean a right shoulder in the 1400 range.  Though, as we pointed out yesterday, we already have enough of a right shoulder to matter.

    For anyone interested, I posted Part 2 of Why Do Analogs Work? yesterday.  It details the 2011 as 2007/8 analog, and delves into the numerous chart patterns, fan lines, regression channels and harmonic patterns that took us from May to July of last year.

    It’s a decent guide to how these various patterns interacted and combined to generate a top, and subsequent fall — helpful hints for times like these.

    Stay tuned.

  • The Dow’s Analog: April 16, 2012

    The Dow is setting up with the same chart patterns and harmonics as SPX, leading me to believe it’s also on the path to completing an analog of its Feb-May 2011 top.  The big difference is that DJI already came very close to and reacted off its .886 Fib.

    However, this doesn’t trouble me too much.  In 2011, the Gartley pattern played out with a 20-pt near miss on the .786 (after a .618 Point B) on Feb 18.  The reaction was pretty significant, with a 834-point swoon over the next 17 sessions.  Yet, DJI swept back up to meet and exceed the .786 by 332 points before topping out in May.

    Now, as it’s making a bid for higher highs, it has the same three options as SPX.  Remember, it’s all about getting to the .886 Bat pattern completion (13,217) and then the price level of the rising wedge’s apex — about 13,730.

    If the analog holds, we should top out tomorrow somewhere between 13,125 and 13,240 followed by completion of the H&S pattern and a swift decline to 12,320-12,420, then a subsequent rise to a new high in the 13,730 to 13,840 range.

    But, if this current rise gets a head of steam on it, we could just go on up and tag the apex and long term midline (red, dashed) around May 7 at 13,737-ish.  There’s a Crab pattern that completes at 13,659 that is already in the works (red Fib pattern.)

    The third option will be the trickiest: DJI reverses, nearly completes the H&S pattern, but can’t seal the deal.  It follows the same path of least resistance up to 13,737 around May 7.

    The analog and the 2nd alternative are shown on the chart below.

    As it now stands, DJI has retraced about .707 of its recent decline.  It can go as high as the .886 at 13,230 and still form a decent H&S pattern.  Any higher and it starts looking really wonky.  A rise above 13,284 means we’re likely pursuing the alternate instead of the analog.

    For now, I’m expecting the analog to hold.  The RSI chart, particular, shows a distinct possibility of a turn in the very near future (note the red, dashed line.)

    Good luck to all.