pebblewriter

Tag: H&S

  • AAPL: Flirting with Disaster

    Not since the summer of 1666, as young Zack Newton sat pondering gravity, has so much attention been paid to a falling apple.

    Should we care about AAPL’s deteriorating powers of levitation?  The $200/share drop since its September highs, especially on the heels of a new dividend and share buyback program, has been unnerving.  But, if you invest based on fundamentals, it’s a solid company selling at 11 times earnings and a 62% 5-year CAGR — which happens to be on sale.

    If you pay attention to chart patterns, however, AAPL is flirting with disaster.  It’s a mere point or two from completing a Head & Shoulders pattern that targets the low 300’s. [To read about how H&S patterns work, click HERE.]

    Even if you don’t give a darn about chart patterns, know that many other investors do.  The four tags of the white trend line (the neckline) in the past month are ample proof.  So are the many previously completed patterns that weighed on AAPL.

    In January 2008, AAPL completed a H&S pattern that saw share prices drop from 200 to 115 in a few short weeks.

    Buyers at 115 were rewarded with a rebound to 190, then punished by a plunge to 78 as the rebound completed a right shoulder in a much larger H&S pattern.

    Not every pattern plays out, of course.  Consider the pattern below — a well-formed pattern that targeted much lower prices.

    Instead of a big drop off, AAPL found channel support before much damage was done.  Prices rebounded to new highs where they formed a new pattern (in white) which did play out.

    Like any other chart pattern, H&S patterns don’t occur in a vacuum.  Channels and harmonics often influence the ultimate outcome.

    The channel that saved the day in 1995 is still with us, though it most recently offered resistance to higher prices instead of a floor.  It’s the white channel in the chart below.

    The much smaller, steeply rising purple channel, on the other hand, has kept prices rising — putting AAPL back on track after two significant sell-offs.  It’s currently around 445 — within a few points of the Crab Pattern 1.618 extension of the failed mid-November rally.

    If the current H&S pattern plays out and AAPL drops below the purple channel support, there’s another, less bullish channel that could come into play — seen in yellow below.

    The next lower channel line is in the vicinity of the purple line referenced above: 430 or so.  But, if gravity takes hold, mid-line support doesn’t show up until around 300.  Ouch.

    There are a dozen or more other patterns that could easily influence AAPL’s future (consider, for instance, the grey channel I’ve sketched in — the mid-line of which marked this morning’s lows.)  There are also many fundamental events that could strengthen the price.

    The company’s current share buyback scheme, for instance, is only $10 billion — about the average daily volume at $500/share.  But, with $120 billion in cash on the books and virtually no debt, the company could easily expand it to a more meaningful level.

    If this most widely held stock were to crash, could the rest of the market be far behind?  I think there’s little question it would. Such an outcome would spell disaster for the bullish story line that TPTB have been working so diligently to construct.

    Might they join company insiders in supporting the stock here at 500?  It would be a lot cheaper than another round of QE and, in the end, probably more effective.

    Stay tuned.

    UPDATE:  1:00 PM

    This morning, AAPL reached the downside targets we identified back on November 27 [see: Update on AAPL: Nov 27, 2012.]   My thoughts at the time were that AAPL (then at 590) was about to reverse and retreat to the 500 area where we were likely to get a bounce before breaking down to 472-493, with 486 being the sweet spot.

    Here’s the chart I posted back then, showing 486 as the (Crab Pattern) 1.618 extension of the 570 – 705 rally between July and September.

    AAPL did, in fact, reverse at 594 a few sessions later — forming a now-obvious right shoulder.  It bounced not once but twice at 500ish before completing the Crab Pattern this morning.

    The chart below shows the actual price moves overlaid on that Nov 27 forecast.

    With this morning’s plunge, AAPL also tagged the .618 of the 354 – 705 rally (from the Oct 4, 2011 low) and the 1.272 of the small Butterfly pattern discussed above.  The fact that it did so without a comparable sell-off in the general markets is potentially significant.

    I certainly won’t discount the possibility of a bounce off the 1.272.  But, a close below 500 does significant damage to the upside case.

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  • Charts I’m Watching: Jan 14, 2013

    ORIGINAL POST:

    The dollar is making a stand at the upper end of the target range I charted Friday, but hasn’t yet broken out of the steep falling channel.  While there was a turn at the .618 Fib that would justify a .786 completion (a Gartley), the more obvious Point B was at the .382.

    In a perfect world, this would signal DX has further downside potential to the .886 for a Bat Pattern completion — though, obviously, not every corrective wave has to be a harmonic pattern.

    The EURUSD similarly reached a common turning point at the 1.272 extension of the latest move down from Dec 19 (or Jan 2, take your pick.)

    But, as can be seen, the rally from last week features no potential Point B whatsoever.   It’s hard to call this a Butterfly Pattern in the absence of an actual pattern.

    Furthermore, the tails on the daily candles offer an even more aggressive upper bound for the rising wedge we’ve been charting for the past several weeks.

    Equities are pointing to a soft opening, but nowhere near what one would normally expect with horrid AAPL news on the tape — much less the approaching budget showdown.

    Regular readers are well aware of the importance of the 500 price level for AAPL.  As we’ve discussed many times, the completion of the H&S pattern could have dire consequences for AAPL and the entire market.

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  • Charts I’m Watching: Jan 8, 2012

    We’re getting a little more momentum going on the downside today.  SPX completed the small H&S pattern I posted yesterday.  It targets 1445 — approximately the .146 Fib of the 1266.74 – 1474.51 rally.

    DX completed its back test of the falling red channel and continues to show strong positive divergence.  The RSI chart shows substantial upside.

    And, despite the Japanese vote of confidence, the euro is showing continued weakness — with another test of the rising wedge and a white channel line coming up.  The channel line intersects with a .382 Fib at 1.3060, so look for a bounce there.

    We remain short from SPX 1462, but we can expect to see some bounces along the way.  As discussed in the last performance posting, I will likely maintain a core short position until we reach our ultimate target.  But, I’ll also provide thoughts on any foreseeable interim moves.

    Longer term investors who wish to ignore the intra-day swings should feel free to disregard that info.  While, those who hope to capture the many 10-20 point swings along the way will have some useful (and hopefully helpful) information.

    As of last week, the primary directional moves accounted for about 40% returns since inception on Mar 22.  The interim swings were good for an additional 55%.  So, pick your poison.

    UPDATE:  11:15 AM

    AAPL just broke through an interim channel line on the primary channel we’ve been following since early November.  This should set up another test of the channel midline and, more importantly, the H&S pattern neckline.

    Since AAPL is an important bell cow, it’s important to know what’s at stake here.

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  • Cliffhanger: Dec 31, 2012

    ORIGINAL POST:  9:25 EST

    We remain short from SPX 1447 on Dec 18.

    The dollar is either finding support at a channel midline or about to find it at the bottom of a channel, depending on which channel ultimately holds.

    DX RSI shows great channel support either way.

    The EURUSD is still hanging in there, backtesting the red channel midline again in the midst of the major white channel back test that’s been going on since Dec 18, and post the rising wedge break of Dec 19.

    As Reeodd mentioned in a question Friday, the H&S pattern that completed (see the 2:50 entry) would look better formed if the right shoulder were a little higher.  This is definitely true, though the past six months has seen many very lopsided H&S patterns play out perfectly.

    Bottom line, the pattern completed — but it didn’t close beneath the neckline.  We saw a bounce right at the close that allowed it to remain above — just as we suspected [Winding Down — 3:55 entry.]

    This correlated perfectly with the VIX reversal at a key Fibonacci .618/1.618 level we were expecting.

    I don’t usually count H&S patterns as “in play” until a close below the neckline.  But, in this case, I think that rule is mostly academic.

    The reality is that the market will move today in accordance with the news out of Capitol Hill, which might be in keeping with normally reliable chart patterns — or not.

    I have no inside knowledge of the goings on in Washington.  But my view has always been that Congress, while recognizing the need for Fiscal Cliff-type changes, cannot ever be expected to commit political suicide by actually voting for them.

    Old guys in strongly partisan districts might be the exception, and we’re seeing olive branches extended (even aisle-crossing) by some.  But, young turks whose anti-establishment vitriol got them elected are unlikely to fall in line — as happened with Plan B last week.

    And, if that sounds like I’m hedging my bets, it should (metaphorically, anyway.)  Betting on the outcome of the political process is a crap shoot, pure and simple.  I express an opinion because that’s what members expect.  It should, in no way, be considered as fact until after midnight tonight.

    Our forecast still calls for much lower prices in the next 9 sessions.  Thus, I remain short. But, anyone uncomfortable with the very real risk of a short position imploding as the result of a last minute political stick-save should really be on the sidelines until all the dust settles.

    By the way, we have a number of new members with us.  For those who are scrambling to get up to speed, let me recommend a couple of posts.  The last update I made to our current forecast/analog was on December 17.

    https://pebblewriter.com/forecast-update-dec-17-2012/

    And, if much of that post sounds like an obscure, ancient language, I recommend you take a few minutes to peruse the following pages:

    Also, if you did not receive an email announcing the publishing of this post at around 9:30 EST, please let me know.  I’d like to make sure everyone’s preferred email address is in our distribution list.  While you’re at it, check out your profile and make sure there’s a phone number or alternate email address listed in case of problems.

    Last, take a minute and sign up to follow pebblewriter on Twitter.  On a couple of occasions, email has been out of commission, and this is a good alternative way of communicating.  I continue to explore using it as a means of communicating intra-day posts of any importance.

    UPDATE:  11:15 AM

    I’m going to take the next hour or so and update the forecast/analog charts from Dec 17. Unless something happens, I won’t post again until then.  In the meantime, keep an eye on SPX’s falling white channel.

    The upper bound is currently around 1412.44 — the .618 retracement of the latest leg down from Thursday’s high of 1421.29 to Friday’s 1398.11 low.  A break-out would be significant, and cause for a short-term hedging position.

    In the absence of any news by 4pm EST (regular hours today, folks – bah, humbug!) I imagine enough prudent investors will choose fear over greed that we’ll get another sell off anyways (as always, subject to PPT action.)

    UPDATE:  12:40 PM

    SPX just tagged that .618 level we discussed earlier.  It’s close enough to the channel line to be considered still within, but I’d look at any move higher as a reason to take a protective long position.

    UPDATE:  12:45 PM

    Just got the second push through.  I’ll take a protective long position here at 1413, with stops initially at 1412.  Core shorts remain in place.

    The 60-min RSI channel (since Dec 18) shows a breakout.

    UPDATE:  1:25 PM

    SPX has bounced back and forth a couple of times as news reports hint at a possible deal on part of the agreement needed to avoid sequestration.  I’d continue to keep a protective position in place, just in case.  Obama to speak at 1:30.

    The latest push was to the .786, which opens up a potential Butterfly Pattern (1427.59 or 1435.62) IF prices surpass 1421.29.  Note that 1427.59 would intersect with the upper yellow channel bound as well as a shoulder line that parallels the latest H&S pattern neckline.

    This also would mark a full back test of the rising purple channel and the midline (dashed) of the white channel guiding prices higher since 1343.  Also note that 1425.68 is the .618 of the 1448-1398 drop, and 1424.41 is the .618 of 1474 to 1343.

    On the downside, keep an eye on a drop back through the white channel line — currently around 1410.50.

    UPDATE:  1:47 PM

    Despite Obama’s jovial tone, this doesn’t sound like an agreement is any closer.

    UPDATE:  2:30 PM

    Prices have yet to drop back through the white channel — meaning any trading above 1411 could be written off as an intra-day blip.  SPX came very close to, but didn’t quite tag the .886 of 1421-1398 at 1418.65.  Completing that little Bat Pattern could easily be the extent of this intra-day rally.

    But, the risk is still to the downside.  If we muddle on through and close above the white channel line, I’d leave the protective long position in place.  If we fall back through, I plan on lifting it.

    As detailed above, a push above 1421.29 opens up 1424-1435.

    UPDATE:  3:00 PM

    McConnell says there’s a deal on taxes, but last I heard there needs to be some agreement on spending, too.  And, I’d be surprised if the House would agree to such a deal.

    We’ve reached the bottom of the target area for this rally, so a turn anywhere in here would be reasonable.  But, there remains potential to the 1429-1435 range, with best guess being 1429.

    I hesitate to take profits on intra-day longs just yet, but would reassess at 1417.

    UPDATE:  3:45 PM

    Looking good for that 1429 level on mostly negative divergence — wouldn’t surprise me to close there.  I think I’d unload those intra-day longs in a heartbeat if we tag it.

    UPDATE:  3:55 PM

    The news reports are getting just plain silly.  But there’s no deal prior to the close, and the House won’t even vote on anything the Senate might pass today.  I’m closing out the longs here at 1426.

     

  • Charts I’m Watching: Dec 27, 2012

    The dollar broke down from its steepest channel (in white) as I suspected, settling into a consolidation that might flesh out the larger purple channel today or tomorrow before breaking out of the yellow channel it’s been in since Nov 12.  My target remains the .618 at 79.319 on the purple grid.

    I say “might” because the 60-min RSI features a well-defined channel (rising, white) that could legitimately continue to nudge prices upward at a more modest clip now that RSI has lost the purple channel.

    The EURUSD, in the meantime, reversed right at its .618 as expected, but then broke out of its falling channel overnight to extend just beyond the .786 at 1.3275, completing a Gartley Pattern (white.)  With the .618 reversal, it could also be working on a Bat Pattern that completes at the .886 of 1.3290.

    Note, however, that it has already reached the .886 of a pattern drawn from Dec 20 instead of Dec 19 as shown above; so, there is potential for a reversal without any additional upside first.

    A little more negative divergence would help sell me on this being a top for the pair.  Once it does reverse, there is ample downside.  We’ve yet to see a significant sell-off since it broke down from the rising wedge last week.

    In equities, my core position remains short since 1447 on Dec 18, but we concurrently played an expected bounce from the completion of a Crab Pattern yesterday at 1416.43 with stops at 1415.

    UPDATE:  10:30 AM

    SPX just broke down through the bottom of the white channel that’s carried prices higher since the 1343 low.  The next potential support is the .500 Fib of the 1474 to 1343 drop at 1408.93, which intersects with the .382 of the 1343 to 1448 rally at 1408.02.  It’s also the 25% line of the falling channel from Dec 11 (yellow, below.)

    The dollar poked up above the top of the yellow channel and is testing yesterday’s 79.81 high.

    This is also the mid-line of another channel I’ve been watching, shown below in purple — an area of potential resistance for the dollar, support for equities.

    A sustained push through 1408 leaves little in the way of channel or Fib support until 1393.45 (the .382 of 1474-1343, white below) or 1395.68 (the .500 of 1343-1448, purple.)

    But, there’s not much else there to recommend this for a substantial bounce.  We might  get nothing more than a back test of the DX yellow channel, then off to the races.  The concurrent move for SPX might be a backtest of the broken purple channel and white channel midline at around 1420-1422.  But, I’m not inclined to play that bounce.

    There are only 10 sessions left before our target of 1284-1290 on January 11.  That’s roughly 12 points per day, so drops like today’s will be the norm — not the exception.

    The only other potential support I see is the bottom of the white channel, currently at the purple .618 (1383.33) and the red .786 (1381.50.)   Bulls will want to defend 1381.50, as it was a Bat Pattern completion at the next higher Fib level (the .886 at 1472.43) that got the correction started in the first place.

    Remember, 1474 is where we sold our QE3 longs and went short back on Sep 14 [see: The World According to Ben.]  The bullish case would benefit most by painting a drop to the next lowest Fibonacci Level (the .786) as a little correction on the way to new highs.

    If SPX is very oversold at that point, I’ll consider playing a bounce.  But, as of right now, there’s no positive divergence to support catching this falling knife.

    UPDATE:  2:50 PM

    We’re getting a decent bounce here at 1401.80.  Nothing special going on in terms of Fib levels, but some channel action and a nice round number bounce are playing into it.  Worth a short-term long, IMO.

    It’s likely the market is getting a lot of help from AAPL — which is just a breath away from completing its H&S pattern again.  Recall that since we called the top back on Nov 27 [Update on AAPL] it went down and bounced at its neckline as expected — tagging 501.23 on the 17th.

    It was a nice 33-pt bounce, retracing a Fibonacci 38.2% back to a purple channel line.

    Today, AAPL came dangerously close to completing the pattern yet again — putting in a 504.66 low versus the neckline’s 502.90.  In so doing, it completed a little Bat Pattern on the 60-min chart which should get a reaction back up to 512-515 or so.

    After that rally fails, however, we’re left with a Crab Pattern (smallest pattern in red) that points the way to 480.42.  Note that this is in the same vicinity as a .786 (in white) at 480.65 and a Butterfly Pattern completion at 481.59.

    If 480 can’t hold, there is another Crab Pattern completion waiting below at 446-452 (red 261.8, white 161.8 and 88.6.)

    If/when the H&S pattern completes, it targets the June 2011 low of 310.  But, don’t be surprised if we get a very strong backtest — even a breakout — of the neckline first.  There are a lot of players with a lot of money who understand full well what a close below 500 means for this stock and the overall market.

    UPDATE:  3:30 PM

    SPX continues its back test of the recently broken channel lines.  It would have to break up through 1422.58 before the acceleration channel is endangered.

    As of now, it looks like a parallel of previous steep plunges such as that of November 2012…

    …as well as the one in April – June 2011.

    12:40 — getting close…

    UPDATE:  3:45 PM

    That should about do it.  SPX just tagged the upper bound of the white channel…

    …and, DX just completed a back test of the yellow channel.

    I would be very leery of playing the bounce any further than right here at 1421 — the .886 retrace of the drop from yesterday’s 1423.97 and the .618 of the drop from Dec 21’s 1432.78.

     

    More later.

  • Oops

    Oops.  It’s a word you never want to hear from your pilot, your surgeon, or your fellow EOD tech.  But, I could swear I heard a collective “oops” — and maybe even a few choice expletives — from TPTB when markets sold off during yesterday’s FOMC announcement of cheap money till the end of time.   If more QE won’t kick start even a little rally, what’s left?  Indeed.

    Yesterday’s SPX high came near three important Fib levels, not to mention a key channel line I’ve been watching for months (yellow, dotted.)  In addition, many key indices, currencies and individual securities reached critical channel or Fib tops intra-day.

    We remain all-in on the short side from SPX 1438 [1:30 post], though any rise through 1440 likely means we need to bag the .786 @ 1446.44 before heading down.

    As to the downside, watch closely for a break of the white acceleration channel line shown above.  There are numerous H&S setups waiting to come into play once a break and back-test occur.  The EURUSD is about to take a big dump as well.

    UPDATE:  12:45 PM

    First big hurdle is at 1419 — the neckline of the Inverted Head & Shoulders pattern completed on Tuesday.  We usually get a back-test of a neckline, so bulls typically see a neckline tag as an opportunity to buy.

    It’s not.

    Next stop, 1413.65 — the .618 of the latest move up and the target of the little H&S pattern completed this morning.

    UPDATE:  3:45 PM

    Still dancing around the neckline mentioned above.  There are many more H&S patterns waiting in the wings if we can push below 1415 or so.  The next one up (purple neckline) signals 1393-1395.

    Note, however, that the back-test of the white neckline hasn’t completed.  So, we could still go up and tag 1426-1428 first.

  • Stay Groovy

    “It was an expression used by small recon units and sniper teams in hostile terrain in Vietnam. They would tell one another to stay groovy when the danger level was so insanely high they popped amphetamines to stay awake and ready to rock twenty-four/ seven, because anything less would get them all killed. Stay groovy; take your pill. Stay groovy; safety off, finger on. Stay groovy; welcome to hell.”

     The Watchman, Robert Crais

    Those who have been following this blog or its predecessor for any length of time know I’m a big fan of analogs.  I was asked just yesterday why I thought they worked, and found myself fumbling for an answer.

    Like harmonics, I know that they do, because they’ve enabled us to make some nice calls that were accurate as to price and time such as the big downturn in April and the subsequent 1474 top in September.

    The big Kahuna, of course, was the July/August plunge in 2011 that mirrored that of Dec 07-Jan 08.  It’s just plain scary how well that turned out.

    I think analogs work mostly because of channels and harmonics.  In the simplest terms, channels keep prices pointed in a general direction for a noticeable period of time.  They can last for decades…

    a few years…

    or a few days.

    Regardless, I’ve found that most significant moves occur within or interact with channels.  Very often, as in the above chart, they’re channels within channels.  Even big channels that seem to generate their own atmosphere are usually aligned with other big channels.

     

    So, it’s not terribly surprising when moves that bring the market to the brink of disaster or reach ridiculously overbought levels react “just like it did last time!”

    Harmonics, likewise, are usually related.  The easiest example is the 2007-2009 plunge from 1576 to 666 which, when followed by an intial reversal at its .618 Fibonacci level, signaled both a Gartley Pattern reversal at its .786 retracement (the May 2011 high) and a Bat Pattern reversal at its .886 (Sep 2012 1474 high.)

    Combining the two, and tossing in some other chart patterns and traditional technical analysis, it’s easy to see why the market has done what it has most of the time.  If markets move in somewhat predictable and repeatable ways, then analogs can be viewed as a predictable aggregation of those predictable moves.

    Of course, its not always as simple as that sounds.  Even great analogs usually present alternatives. Over the past couple of months, the one we’re following now has hit our primary target at times and our secondary targets other times.

    And, some can be tough to get a handle on.  The one from this past April [see: New Analog I’m Watching] that very capably guided us from 1422 to 1266 and back up to 1474 (the top chart above) worked beautifully from a price standpoint, but was way off in terms of timing (since licked, I think.)

    And, last, there’s one truism that’s the bane of every analyst who charts analogs:

    Every analog works forever…until it doesn’t.

    Even as we’re counting down the last few points to the 10% downturn we charted all those months ago, a well-timed Bernanke comment or Hilsenrath article (is there really a difference?) could nudge the markets just enough to complete a Zweig Breadth Thrust event that ushers in a new high.

    If that happens, never mind.  End of the road.  It’s been a nice ride for the past nine months, but it’s time to change partners.  If it doesn’t, however, and we reverse in the next 10-15 points, it’s just about time for the song.

     

     

    UPDATE: 1:20 PM

    I’ve had several messages asking whether we’ve reached the target or not.  Frankly, I’m surprised.  The answer should be perfectly obvious to everyone:  maybe.

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  • Charts I’m Watching: Nov 23, 2012

    ORIGINAL POST 9:25 AM

    SPX seems intent on reaching the next Fib level — the .618 of the 1433-1343 plunge at 1398.99 — before embarking on a significant B wave lower.

    But, the top of the new purple channel that’s been guiding us lower since mid-September is up above at 1401-1403, so there’s every chance in the world that SPX will stretch to reach it.  Plus, 1400 is just too tempting a target.   Reversals are attracted to round numbers like moths to a flame.

    The neckline of the H&S that completed back on the 7th is up at 1406ish and would mean a break out of the channel, so I’ll make that a secondary target and would look for a quick retreat back into the channel.  Since the market’s aim here is to give the “appearance” of setting up a Bat Pattern that targets the .886 at 1459.56, a reversal anywhere between the .larger pattern’s .382 at 1393 and .500 at 1408 would suffice.

    SPX just smacked into a bunch of channel lines in this area, and we should see a strong reaction before moving much higher.  But, as we discussed Monday, the general trend remains higher to our forecast target.  Any shorting here would be a short-term trade in conjunction with a long core position.

    DX is closing in on the highest of our proposed Point C’s posted on Monday — the .382 of the 78.725 to 81.515 run since the Sep 14 low.  This is also a .618 of the more recent 79.72-81.515 spurt and a channel line, so a reversal should be imminent.  Remember, the overall trend is higher into the end of the year.

    We’re looking for either a B subwave higher in the C leg (or the main B leg higher itself) of an A-B-C move lower to find a Point C for the Bat Pattern completion up at 83.06 to 83.62.  It could be significant, but it’s a counter-wave in a counter-wave, so don’t get too hung up on nailing it precisely.

    The EURUSD is closing in on the .618 retracement of its recent drop from 1.3138 to 1.2660 — as well as an important channel line.  Look for a reversal around 1.2956 to coincide with SPX’s channel tag discussed above.

    UPDATE:  10:30 AM

    SPX just reached the upper bound of the channel discussed above.  I’m trying a short position here at 1404, with stops around 1407.  Again, general trend remains higher. Targets and charts in a moment.

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  • The Hangover

    Bulls had quite the party last week.  SPX broke through fan lines, Fib levels and resistance galore on decent volume and breadth, reaching our 1472 target in a big blowout party hosted by the ECB/GCC/FOMC.

    We discussed this target as far back as March 18 [see: Big Picture].  It was refined further a few weeks later in my posts re an analog I developed [see: New Analog I’m Watching].

    The timing ended up being off, as we made essentially two right shoulders in that H&S pattern, and thus reached the bottom in early June instead of early May.  It also took longer to get up to 1472 than I expected – 3 1/2 months of gut-wrenching chop instead of the nice 3-wave move higher I charted.

    SPX also fell further than the 1305-1317 target I originally anticipated.  I amended it along the way to as low as 1295, never imagining we’d break the 1292 support level.  But, in general, the analog played out pretty darned well — establishing new highs and turning many bears into bulls.

    The great thing about reaching targets, of course, is the profits.  Our theoretical long/short SPX portfolio is up about 55% in the 5 months since that analog was posted [see: results.]  The scary thing is figuring out where things are going next — as it’s absolutely no fun giving any of it back.

    Are we really on a sustainable path to SPX 2000 now that Bernanke has practically guaranteed the market will never go down?  Or, are we due for a killer hangover — those 208 points vanishing faster than a Vegas bachelor party security deposit?  The answer, as usual, is somewhere in between.  Though, since I shorted at 1474 Friday, you can probably guess how I expect this to play out.

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  • Update on VIX: July 17, 2012

    Regular readers are well-acquainted with one of the tools we frequently use in forecasting VIX: the channels on its daily RSI chart.  On April 18, with VIX at 18.70, RSI channels helped me forecast a high of 27.13 [see: VIX at a Crossroads.]  VIX reached its yearly high of 27.73 on June 4.

    Being able to accurately forecast VIX enabled us to capture most of the downside from 1422 to 1266, and most of the upside since.  On June 2 [see: Channeling VIX] I reiterated VIX’s impending high and called for a reversal to 16.84.

    An ideal .618 retracement of the difference between A and D indicates a downside of 16.84, realistic if stock market takes off again.

    Earlier today, in addition to reaching this target we spelled out six weeks ago, we had an important development that strongly supports our latest equity forecast.

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