pebblewriter

Tag: H&S

  • Election Aftermath

    Futures were all over the map last night, with ES’ 113-pt range dictated almost entirely by factors as opposed to election results – which, contrary to Trump’s declaration, are still AWOL. Note that ES tagged our IH&S neckline (also the former H&S neckline) target where it is currently running out of gas.

    As expected, the most important factor was VIX which collapsed over 18% from its overnight highs – slicing through channel midline and the 10, 200 and 20-day moving averages.

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  • Manipulation is Nothing New

    Yesterday, former SEC attorney Teresa Goody joined those calling for an investigation into the market action on December 24.

    It was hardly the biggest move we’ve seen over the past year. But, it resulted in new lows that ruffled a few feathers.

    Click the image to watch the interview, or just keep reading.

    Goody: …when you have these wide swings in the market, 400, 500, 600 points, 2 to 3 percent, I think that’s a clear indication that there is some sort of a market structure issue, so the SEC will have to investigate, I think, and also FSOC look into why there’s this volatility because it’s not fair to everyday investors, it’s not fair to all investors, really. And it really goes to the fair and efficient markets that we have.

    Melissa Lee and Kelly Evans of CNBC could have left it there. But, to my surprise and to their great credit, they challenged Goody’s statement — eliciting a nonsensical stream-of-consciousness response that rivaled one of the best deer-in-headlights word salads ever.

    Lee: Would, [by] the same token, the SEC investigate big up days?

    Goody: [long pause] I think that big up days are a little different from down days…

    Lee: Why? Doesn’t that speak to market structure as well? If you have the same circumstances that lead to a rise in the Dow of 3% on thin volume, why wouldn’t you investigate that?  If it’s really on the basis of market structural issues, why wouldn’t you investigate that?

    Goody: Well, for one thing, it’s about market loss and investor loss.  And, so, while I think that that’s important to look at too, it’s more important to look at the loss because you have things like the high frequency traders, for example, and, so, once there’s a massive sell off, you have the ability for people in the market like high frequency traders to get out early. And, then, once the market starts coming around, to come up and buy in low, so they sell high buy low.  And, then, the average investor is going to act less quickly than the high frequency trader for example, and they’re going to lose money. And, then, with this volatility everyday investors are very confused by that. They hear “oh Apple’s doing very poorly, or Apple’s doing very well and so maybe I should buy or sell.”  And, the average investor is going to act more quickly to, uh, minimize loss than they are to get a gain.

    Evans: Teresa, I don’t quite follow that.  If they’re front running, they’re front running. Whether they’re shorting or they’re on the long side, either way if you’re front running the public, and that’s a market structure issue, we talked about this a couple of years ago…it’s one thing for investors to…lose money, as you said, but if you also can’t buy something because it’s artificially moved up 10%, you’ve also lost out. So, it’s gotta go both ways or it doesn’t hold water, right?

    Goody: I agree with you.  And, I think that the bigger concern is when investors are losing a lot of money. But, I completely agree that there’s also an issue when investors can’t get in because it’s artificially high.  And, this goes to your point, too, is that what we’re trying to find is the real valuation.  So, anything that negates the integrity of the real valuation of a stock is something that has an impact on the market integrity and the market structure. And, so I agree, it’s big ups and big downs.

    But the SEC and, I think regulators, is more concerned with everyday investors losing a lot of money rather than not being able to get money and the gains because there’s more of an impact there, especially when its 500 or 600 points decrease.  But, I think they need to look into both and this way, also, when you’re looking at a decline, whether there’s front running, whether you know, some traders are able to sell high and start a sell off, and anticipate a big sell or a big purchase, and then they can get in front of that too, so those are issues where you can get more of the manipulation and the fraud.

    On that holiday-shortened trading day, the S&P 500 opened down 16 points and closed down 49 points. It’s highlighted in blue in the chart below.I couldn’t agree more that an investigation is warranted.  In fact, it’s high time the SEC investigate the rampant market manipulation that occurs on a regular basis.  Let’s start, though, with the much more frequent instances where the manipulation results in huge gains in the markets.

    On the 24th, members will remember, Mnuchin called in the Plunge Protection Team — which aptly manipulated markets into a sharp recovery by crushing VIX to the tune of 50%.This is a common occurrence as we saw again last night.  After five sessions of declines, ES broke out overnight and is currently showing a 25-pt gain.The primary reason?  Again, VIX — which was slammed by over 5% overnight and 23% since Wednesday.By all means, let’s investigate market manipulation.  But, if we really care about market integrity, let’s investigate those manipulating it in both directions.

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  • Backtest Accomplished

    Members, remember to request access to @pebbletrades if you’d like intraday notices of important updates.  Only about 20% of you are currently signed up, and I’d like to use it more often to signal when important target tags or changes to a forecast occur. If your identity isn’t discernible from your Twitter handle, drop us a line so we’ll know to approve you.

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    SPX/ES backtested their necklines in dramatic fashion yesterday.  As we discussed, they had their choice of a gentle sloping path (which stretched to Wednesday or Thursday) or a sharp plunge.

    SPX opend off 13 points and never looked back.  The losses accelerated until it reached our downside target and VIX reached our 21 target — also a backtest.

    The swift recovery in the closing hour and the overnight ramp job send the message that the worst is over for now.  But, of course, we’ll want to see some follow through for confirmation.

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  • Are We There Yet?

    SPX came within 7 points of our downside target yesterday, getting a midday bounce that couldn’t quite reach the 200-DMA.  Futures popped as high as 73 points off the intraday lows, but have since given back about 12 of those points and are perched barely above ES SMA200 at a 28-pt gain in the after-hours.If those gains hold, it still won’t be enough to ramp SPX back above its 200-DMA.  What’s more, USDJPY, RB and CL have further to fall, VIX has additional upside potential and DJIA and COMP remain below their 200-DMAs.  Despite the after-hours euphoria, stocks aren’t out of the woods just yet.

    One economic item which doesn’t usually attract that much attention, but might today: Treasury Budget.  The trend hasn’t been very positive lately as witnessed by the widening gap between outlays and receipts.

    For excellent commentary on the problems this poses, see Jeffrey Gundlach’s interview on CNBC yesterday.  The latest is due out at 2pm.  From Briefing.com:

    Export and import prices are also due out (8:30am.)  These will get extra scrutiny to see what impact tariffs have had on prices so far.  And, Michigan Consumer Sentiment (10am) frequently impacts markets.

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  • Pulling Out All the Stops

    When unexpected unpleasantness unfurls, you can count on central banks to pull out all the stops. Such is the case with the British election results which, like Brexit, have wreaked havoc on FX markets.

    EURGBP, having broken down from its rising red channel dating back to mid-2015, was well on its way to a perfectly nice backtest at .80ish. Instead, it’s backtesting the broken red channel itself. Hence…the stop pulling.It should start with nice bounces from USDJPY and CL — which, as discussed yesterday, have already reached interim bottoms — and, of course, a sharp plunge by VIX.

    Look for USDJPY to pop through its SMA200 for good measure… …and CL at least hold its own in the midst of strong selling pressure.

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  • Charts I’m Watching: Apr 12, 2017

    As we noted yesterday, SPX is hanging on by the skin of its teeth to a breakout.  Despite an 18-pt intraday plunge, it recovered by the end of the session thanks to a timely decline in VIX and rally in WTI.  Will it be enough to keep the trend intact?

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    The daily candle is close enough to the yellow channel bottom to call it a save.  But, futures are off several points again this morning. 

    And, VIX is on the rise — likely headed for our target at 16.25 – 16.48.

    But, USDJPY has reached the white channel bottom ahead of the SMA200 and could get a bounce for a few days.

    It will need to clear the 109.75 price level to be of any help.

    I suspect this is all designed to allow ES to tag support on this little red channel as well as the larger red channel.  If it doesn’t hold, the falling white channel suggests another 20+ points of immediate downside.If it holds, SPX should bounce from right here and recover to test the IH&S neckline over the holiday weekend.  Aside from the purple TL, the other key level is the SMA5 200 at 2354.95 — which is very close to the yellow neckline (which has yet to be properly backtested.)  I would want to be long here with very tight stops.

    Here’s SPX with the same falling white channel as ES sketched in.  Clearly, yesterday’s reversal at 2337, which occurred a few points shy of our 2334-2335 target (yellow) was a little premature.  It leaves open the question as to whether the bounce was off firm enough support.

    UPDATE:  10:01 AM

    SPX is struggling to remain above its SMA50.  USDJPY and CL aren’t helping much, though VIX is falling just enough to keep it above the purple TL — now around 2348.80.

    Remember, we have an EIA crude inventory report coming out at 10:30AM.  CL has been steadily approaching the .886 at 54.11 for the past two weeks, and yesterday’s API report was bullish.

    Stay tuned…

    UPDATE:  10:32 AM

    The EIA says crude inventories decreased by 2.2 million barrels.  The bad news, however, is that Cushing is at all-time highs — 69.4MM versus capacity of 77MM barrels.

     

    CL spiked higher for a moment, but is back to its .786 Fib.  SPX is following its lead, and dropping through the purple TL.  I’d revert to short on any drop through the SMA5 100 at 2348.76.

    CL is slipping, and looks like it wants to tag its SMA5 200 at 53.19.  It would be enough to knock SPX off trend, so it’s a little tricky.  If CL drops through the SMA5 200, it’d be quite negative for both CL and SPX.

    VIX is keeping SPX afloat……and USDJPY is still playing its cards close to its vest.

    UPDATE:  10:38 AM

    SPX is slipping below the purple TL, but has so far just head-faked 5 separate declines below the SMA5 100.  If CL gets a strong bounce off its SMA5 200, it’ll set up another head fake.  Even so, it makes me nervous to hold long as it keeps testing the SMA5 100.  Keep your stops where you’re comfortable.

    UPDATE:  10:44 AM

    I’ll probably be right back to long, but I’ll revert to short here.  CL is struggling with its SMA5 200 and USDJPY might not hold its red TL.A drop through 53.29 would be bearish and open it up to 51.6 or lower.

    Note that ES’ red channel has completely broken down.UPDATE:  11:07 AM

    A bounce off the white midline makes sense.  We’ll have to see what happens, thought, when it reaches the SMA5 10 at 2347.80.  If it pushes through, everything’s a go for the SMA5 200 tag and yellow neckline breakout.  If it can’t, then 2334.26 is in view.

    At the current rate, it could reach the .786 without tagging the bottom of the falling white channel — if it’s willing to wait a while.  Note that the channel’s .236 line reaches 2335 a little after 3pm this afternoon.

    UPDATE:  11:42 AM

    ES just reached the midline of its falling white channel, which could provide support even though SPX doesn’t show much.

    UPDATE:  11:58 AM

    Now, SPX has tagged its midline, too.  I’d expect a bounce here, though it could be confined to the SMA5 10 around 2344.  Note, though, the SMA5 200 is approaching the purple TL.  A huge bounce would make that a target — though it seems unlikely.

    CL has broken down below the .786 and SMA5 200.  So, this entire decline feels very much managed/engineered — meaning there’s a purpose and a target which is below current levels.

    UPDATE:  12:09 PM

    12:09 — often a turning point in bounces — and SPX just backtested its SMA5 10.  I’d look for a reversal here, but keep an eye on USDJPY and CL.

    UPDATE:  12:21 PM

    SPX is nudging up through the SMA5 20 on VIX weakness and USDJPY strength.  But, CL continues to falter.  And, VIX has bounced at the SMA5 50 three times in a row.  I’d hold short here.

    UPDATE:  12:51 PM

    VIX is getting a nice boost, but our 16.25-16.48 target isn’t that far off.  SPX should continue dropping, but I’d keep a close eye on VIX and USDJPY, which is testing its SMA5 200 again.

    I have to run a quick errand, will be back in 10 minutes or so.  Watch for TL support at 2341.78, the 1.618 and .786 at 2334.26-2335.34, and the .886 at 2328.65.

    UPDATE:  1:03 PM

    SPX just tagged TL support at 2341.78 and got a nice bounce.  Bears need the bounce to stop right here.  Will CL be satisfied with a backtest?

    UPDATE:  1:14 PM

    Giving it just a little leeway in case the .886 is the target.  My only hesitation is USDJPY, which has pushed above its SMA5 100 again.  On the other hand, VIX has tagged the SMA5 50 for the 4th time.  The fact that it hasn’t plunged down to the SMA5 200 or below tells me this is probably an officially approved and scripted decline.

    UPDATE:  1:40 PM

    SPX is breaking out on VIX’s dip below red TL and USDJPY’s push above the purple TL.  Back to cash until this resolves itself.  Remember, VIX has support at the purple TL and the SMA5 200 around 15.35.  If it drops through the SMA5 200, SPX has a good chance of reaching its own SMA5 200 — perhaps as it reaches the SMA50.

    UPDATE:  2:01 PM

    Feeling pretty iffy about it, but we could get a reversal here at the SMA50 rather than the SMA5 200 as it’s also the white channel .786 line.  Back to short with relatively tight stops.

    Note that ES has fully backtested the red channel.

    UPDATE:  2:10 PM

    Note that USDJPY is back below the purple TL.  I need to run out for a meeting and probably won’t be back until after the close.  I think there’s probably a 50% chance that SPX holds these levels until the SMA5 200 arrives at the SMA50 at 2349.60.  It’s equally likely it reverses between here and there and heads down to 2334 or 2328.  As long as it stays below 2350, I’d want to be short.

    UPDATE:  2:51 PM

    TL support, again.

    UPDATE:  3:20 PM

    USDJPY just snapped, sending VIX surging and CL popping to compensate.  SPX is down to the white midline again, where it could bounce.  VIX might have one more good run in it up to 16.25+; but, they might be looking to close the session at that SMA50/SMA5 200 intersection. I’d want to revert to cash above the SMA5 100.  As usual, shorting overnight should only be attempted by those who can hedge or handle the gap risk.  Watch your stops.

    .

  • This is a Test

    Yesterday, we got a taste of what happens to United Airlines passengers who are “disruptive and belligerent.”   In what is being described as one of the biggest PR fails in recent memory, United CEO Oscar Munoz defended the action taken to forcefully drag an Asian-American doctor from a flight that United had overbooked.

    No doubt United would have found the volunteers it needed had it upped the compensation it was offering to $1,000, $1,500 or even $2,000.  Instead, it will pay millions to the passenger, and many more millions in lost revenues from prospective passengers who are too horrified to “fly the friendly skies.”

    The stock is likely headed for at least 61.72, a 14% drop from yesterday’s highs — about $3 billion off its market cap.  And, that would be a positive outcome — if it’s able to hold both horizontal support and its SMA200.

    While the event itself was shocking, it’s equally surprising that the CEO of a major airline could be so tone deaf as to email his employees that “I want to commend you for continuing to go above and beyond to ensure we fly right.”

    The most interesting CEO on the world stage, right now, is our own Donald Trump.  He faces much greater challenges than Munoz did: escalating military conflicts with both Syria and North Korea and, by proxy, Russia and China.

    We’ve had a taste of Trump’s leadership skills with respect to the battles over health care, tax reform, and scores of executive orders relating to the environment, energy, etc.  He won some, and he lost some. None of those, however, involved the risk of nuclear war.

    Is it any wonder that investors are a little nervous and stocks have, so far, not shaken off this particular geopolitical risk?

    On Feb 10, SPX broke out of a large, year-old channel that was averaging 17% YoY returns.  It has backtested that channel top seven times in the past several weeks — including a serious plunge below it on Mar 27.

    Today, it’s happening again.  Will it survive this test?  It might just depend on whether or not Trump survives his.

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  • Reproach and Retreat

    The first big Republican victory — the repeal and replace of the ACA — has morphed into reproach and retreat.  The net impact: what does this failure portend for the rest of the Trump agenda and, thus, the Trump Rally?

    Regular readers know that I’ve looked askance at this rally from the start [see: Why the “Trump Rally” is a Fraud.]  It was born of a sharp reversal in CL, USDJPY and VIX — the key algo drivers.  Momentum traders jumped on board as it rose.  And, somewhere along the way, mainstream investors convinced themselves that the new and improved outlook justified an 18% rally.

    But, live by the algo, die by the algo.  The yen had to appreciate to compensate for higher oil prices.  Higher US and euroland inflation necessitated a drop in oil and gas.  And, front-running the Fed’s tepid response to spiking inflation was widespread.  With the Trump Rally narrative in doubt, there were simply too many plates to keep spinning.

    Futures are off 22.50 at the moment, leaving us some clues as to what to expect for SPX.  But, the more important side of the equation is where do WTI and the USDJPY dip to?

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  • Horseshoes and Hand Grenades

    There’s an old expression that says “close only counts in horseshoes and hand grenades.”  So, we spent most of the day yesterday wondering whether the day’s 2336.45 lows were close enough to our long-held downside target of 2335.34.The tag was marred by premature reversals in oil and VIX.  Did the guys working the algos not get the message?  Or, were they just a little over-eager?  Admittedly, it’s tough to nail a precise value in an index as unwieldy as the S&P 500.  But, they went to all the trouble of engineering a backtest of a key Fib level.  You’d think they’d care…

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  • Update on AAPL: Jul 31, 2013

    It’s not often I get the chance to plug a future competitor.  As some of you know, my son Kyle is helping me out this summer.  He will graduate in December with an Economics major and Personal Financial Planning minor from Texas Tech University in lovely Lubbock, TX.

    In addition to performing many rather thankless duties for me, he has spent a fair amount of time learning the ropes of charting and technical analysis.  I asked him his opinion on AAPL the other day, and am pleased to present his analysis.  FWIW, I think he did a very nice job.

    It wasn’t the easiest of assignments.  Since our bottom call on April 19 [see: Is it Safe?], the stock quickly rallied to our upside target (a nice 20% gain), then promptly gave back almost all of those gains.  After all is said and done, he feels bullish about the rally continuing – a forecast with which I agree.

    I hope to lure Kyle back after he graduates for more of the same.  Though, he seems pretty excited about the financial planning field.  Those of you in the biz who would like to chat with this bright young lad about his career plans, feel free to drop me a line.

    *  *  *  *  *

    AAPL rose sharply following its earnings release last Tuesday.  EPS was $7.47 on revenue of $35.3 billion. Both numbers beat Wall Street estimates. Analysts had been expecting EPS of $7.34 on revenue of $35.18 billion.

    It shot up 25 points, breaking through the midline of both the rising purple channel and a large falling channel (in white below) from the 705 high.  It backtested the white channel midline, then shot up yesterday to complete a Bat Pattern (yellow) at the .886 of the drop from 465 on May 7.

    The completed Bat Pattern could pay off with a drop to backtest the white channel midline around 430-433 (the last Bat Pattern – from 469.95 on March 25 – fell much more sharply, retracing .886 of its rise.)

    Such a pullback could ultimately be bullish, as it could form the right shoulder of another IH&S (red) that targets 525 – only a few points away from the 1.618 extension (522.39) of the 469-385 drop beginning March 25. This target intersects with the top of the white channel around August 5-12.

    But, given that the recent low was slightly higher than the April lows, a large IH&S Pattern has already completed.  It could go ahead and play out now.

    The current rising purple channel doesn’t intersect with the top of the white channel until lat August/early September, about the time it passes through the latest Bat Pattern’s extension to the 1.618 at 513.26.

    Both of these bullish scenarios assume that AAPL is able to beat its former highs of 465 and 469.95.  Many potential harmonic patterns on the way down from 705 have been unable to.  In fact, each successive high has been lower than the last.

    But, for now, we’ll remain bullish with a target of 514 by late August and 570 before the end of the year.

    GLTA.