pebblewriter

Tag: Inverse H&S

  • Chart Patterns and You

    ORIGINAL POST:  9:15 AM

    Last night, the dollar tagged the .786 Fib retracement of its decline from Apr 4.  It subsequently sold off almost to the .618 but, so far, is hanging in a rising wedge.

    The EURUSD re-tested the .500 Fib of its rise from Apr 3, and snapped back into its falling wedge and the (purple) channel that’s guided prices since then.

    The e-minis tacked on a few points overnight — almost reaching the .786, only to give them all back with this morning’s underwhelming Durable Goods report.  The H&S Pattern that was looking pretty good at yesterday’s open is now looking a little ragged, with a right shoulder that’s already 15 points higher than the left.

    UPDATE:  9:45 AM

    SPX continues trudging toward the .786 retracement (1584.23) of its decline from 1597 to 1536.

    After plunging beneath the channel that’s guided it from 1343 to 1597 on Apr 17, SPX rallied and re-joined the channel yesterday.  This was a very bullish development, as long as SPX remained in the channel all the way to the closing bell.

    Despite a five minute thrill ride from 1578 to 1563 (the channel bottom) and back, SPX managed to regain and hold the 2007 high of 1576.09 into the close.

    It now sits perched on the neckline of an Inverted H&S Pattern which has either completed or not, depending on whether a 5-minute plunge qualifies as a shoulder.  Short answer — I have no clue.

    Here’s what we do know:

    1. Prior to Apr 17, SPX had been locked into that purple channel below since 1343 on Nov 16 — an 18.9% gain in five months
    2. SPX barely paused when it completed two big Crab Patterns — the 1.618 extensions of the 1370-1074 decline and the 1474-1343 decline (purple and white below)
    3. Instead, SPX exceeded the Oct 2007 high of 1576.09 (yellow)
    4. SPX reversed at 1597.35, almost precisely at a trend line drawn between the 2000 and 2007 highs
    5. SPX fell 3.8%, making a lower low, dropping out of the channel mentioned above and suggesting a H&S pattern that targets 1474 — the Sep 2012 high (white pattern)
    6. It roared back into the channel, retracing almost 78.6% of its drop
    7. In the process, it topped the 1576.09 high and the 1553 and 1555 Fib levels and almost reaching the 1583 target of an IH&S Pattern
    8. Depending on your interpretation, it might also have completed an IH&S that targets 1621.

    What Does It All Mean?

    When I forecast markets, I look for lines in the sand.  I try to determine price levels that, if crossed, would signal a change in trend.  When that trend switches from bullish to bearish, I want to be short.  When it switches from bearish to bullish, I want to be long.

    A channel is one such method that features boundaries rather than absolute price levels.
    As long as prices remain in a rising (or falling) channel, we can expect prices to continue to rise (or fall.)  It’s rather simplistic, but it usually works.  We can make educated guesses as to future price targets based on where the channels point.

    Of course, even well-formed channels (multiple tags on the top and bottom and over a sufficient time period) can’t go on forever.  I look for moments when prices have to choose whether to remain in or leave the channel.  A tag of a top or bottom bound or midline usually create opportunities, though other lines can as well.

    The Real World

    Recall that we shorted SPX at the 1597 high on the 11th [see: Big Picture], riding down to the channel bottom where I went long at 1554, expecting at least a bounce.  We got one on the 16th with SPX rallying up to 1575 — the channel .25 line.

    We closed our long position, going short the following morning for the trip back to the channel bottom at 1555.  We tried another long position there, but were quickly stopped out as the channel was broken — signalling a bearish trend change.

    So, we shorted again, playing quite a few bounces down to 1540 where we eventually went long in anticipation of establishing a H&S Pattern neckline [see: Dollar Daze.]

    At that point, I expected a back-test of the broken channel.  We got it, reaching 1565 on the 22nd but closing beneath the channel’s lower bound.  Note that this move completed 5/6 of a H&S, but the right shoulder was underdeveloped relative to the left.

    Anticipating an intra-day retracement to 1567 (the .500 Fib) or 1574 (the .618) the next day (yesterday), I stayed long — trying without much success to anticipate the top.  Since SPX topped the .618, the next up on the chart is today’s target: the .786 at 1584.23.

    Going Forward

    With all that as preamble, here’s what I expect going forward.

    continued for members… (more…)

  • Charts I’m Watching: Apr 22, 2013

    Looks like we’re getting some follow-through this morning on Friday’s technical rally.  But, this doesn’t appear to be one worth chasing unless it can push up strongly through 1560.

    I’ll play along on the opening with an interim long position, with tight stops for the fizzle that could come quite quickly.  If 1560 is exceeded, look for 1573 or so.

    The dollar pushed above the TL from the prior highs as well as its .618 Fib of the Apr 4 high.  This bodes well for a run to at least the purple midline — probably at the .786 or .886 (83.258 or 83.446.)

    UPDATE:  9:35 AM

    There’s 1560.10, I’ll close the interim long here and revert to full short unless SPX can push higher.

    UPDATE:  9:39 AM

    Got a pullback to the neckline of the small https://pebblewriter.com/inverted-head-shoulders-pattern/ (in yellow, below) completed on the opening.

    I’ll try another interim long position here at 1554, with very tight stops (1553ish) in the event SPX pushes down through the neckline.

    The IH&S targets 1574 — which is also roughly the .618 retracement of the 1597-1536 decline.

    UPDATE:  9:50 AM

    I’m going to allow a little more wiggle room on the stop, as this setup is too good for the bulls to waste.  Hanging in there for 1574.

    UPDATE:  10:00 AM

    The existing home sales won’t make it any easier for more upside, here.

    Pulling the plug on the interim long unless it can push back up through 1555.

    As we discussed Friday, the right shoulder formed thus far is sufficient for the H&S Pattern proposed on Apr 16 to play out.  All we need now is a drop back to 1535 or so.

    But, getting SPX up to 1474 would be a coup for the bulls.  At that point, it would have formed 2/3 of another larger IH&S that targets 1610.  So, don’t expect them to give up this seemingly insignificant pattern easily.

    UPDATE:  11:55 AM

    SPX just shot through 1555 on weak technicals.  I’ll add an interim long position, but wouldn’t get excited about this move just yet.

    It’s questionable whether can push through 1558.74 — the .886 of this morning’s decline.  I’d have to classify it as corrective unless it can break out of the falling white channel.

    UPDATE:  12:15 PM

    Just reached 1558.53, pushed above the channel upper bound for about 3 1/2 seconds, and retreated.  I’ll hold on to the long, but raise stops to 1556ish.  The bulls really need a breakout here.

    *   *   *

    A quick shout-out to John Lounsbury, Managing Editor over at Global Economic Intersection.  He’s celebrating three years of fine reporting on economics and market analysis.  He’s a darn smart guy and fine writer in his own right, but also features some terrific guest writers on a regular basis (they’ve even been known to post occasional pebblewriter.com stuff when they’re desperate.)  Check it out HERE.

    * * *

    UPDATE:  12:40 PM

    SPX just burst through our channel line mentioned above.  This puts the red .786 at 1566.94 on the table — a Gartley Pattern.  Note that this is also roughly the level of the .500 retracement of the 1597 – 1536 decline.

    Assuming SPX will push through 1560 this time (the RSI chart below suggests it will) we’ll look for signs of weakness between 1567 – 1574.

    UPDATE:  2:35 PM

    SPX making nice headway toward our interim target range of 1567-1574.  I’ve had a chance to fine tune some of the charts; and, this move is shaping up pretty much as expected.

    Recall that we shorted at 1597 back on Apr 11, and held went long again at 1541 last Thursday.  SPX is coming up on the .500 retracement (in white, below) of that decline, which is a common enough corrective wave move.

    Note also that the red .786 and light blue 1.618 are very close to that same price level.  While the coincident Fib levels concur on the importance of 1566-1567, it’s the chart patterns that will likely determine the next 100-point move.

    continued for members… (more…)

  • The Big Picture: Apr 11, 2013

    The chart of the day:

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

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

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

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

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

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

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

    UPDATE:  10:15 AM

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

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

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

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

    UPDATE:  11:30 AM

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

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

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

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

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

    UPDATE:  1:40 PM

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

    UPDATE:  2:15 PM

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

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

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

    UPDATE:  3:25 PM

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

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

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

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

    continued for members… (more…)

  • Charts I’m Watching: Mar 25, 2013

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

    Here’s the fundamental problem.

    continued for members… (more…)

  • Anatomy of a Top: 2000

    The 2000 top shows just how “messy” tops can be.  Here’s the finished picture in perfect hind-sight.  It’s a very crowded chart, but every single pattern had a say in how the top unfolded.

    SPX had zoomed from 442 to 1478 in about 5 years, a not-too-shabby 234% gain for an annually compounded 27%.

    Once SPX broke out of the falling purple channel, it had “permission” to pursue several harmonic patterns in the works.  SPX shot up 66 points in that one day — blowing through every Fib level between .618 and 1.000.

    It finally came to rest at 1458, completing a Bat Pattern at the purple .886.  But, the small white 1.272 was just above at 1477, as was the rising purple channel midline and the 1.272 from a much larger pattern seen below.  An IH&S target waited at 1497 – tantalizingly close to a nice round number of 1500.  And, the all-time high of 1478 from two months earlier beckoned.

    SPX got up to 1477.33 before reacting, falling to 1466 over the next two days.  Close, but not quite.  Someone watching closely might have noticed the Flag Pattern it constructed, targeting 1562.  Someone else probably pointed out the biggest Crab Pattern target of all — the 1.618 extension of the 13% correction from 1420 to 1233 from Jul-Oct 1999.

    On Mar 21, 2000 SPX shot up through the channel midline, the cluster of Fibs around 1477 and, importantly, the 1478 high and raced up toward those higher targets.

    On Mar 24, it reached 1552.87, which cleared the IH&S target at 1497, the purple 1.272 at 1519 and the last remaining Crab Pattern at 1535.  What ultimately stopped it?  The .75 line from the big purple channel dating back to Jul 1999 — almost to the penny.

    Total move: 17% and 227 points in 20 sessions.  Can it happen again?  Stay tuned.

  • RUT: End of the Line?

    RUT has reached the upper bound of a well-defined channel that dates back to 1998.

    It could leak slightly higher in reaching for the top of the large rising wedge and some key Fib levels, but I suspect RUT has reached a turning point.

    continued for members… (more…)

  • Charts I’m Watching: Feb 28, 2013

    Yesterday was a great example of the beauty of Harmonics.  In conjunction with my RSI work and channel work, we were able to rack up 23 points on a day when the big picture is still fairly negative (remember Italy, the sequester, negative GDP, retailers’ horrid guidance?)

    By drawing important Fibonacci lines in the sand, we made the market prove to us it had more upside by crossing those lines. As we’ve discussed many times before, Harmonic Patterns don’t, by themselves, always tell you what the market is going to do in a particular time frame.

    But, they do an excellent job of “if-then” forecasting, such as “if the market reverses at Point A, we can be very confident of reaching Point B.”  Again, combining this information with other fairly reliable patterns, we can capture most of the points most of the time

    The market didn’t fall out of bed overnight, so I’ll take a long position on the open this morning in anticipation of tagging the .786/.886 combo at 1521.11/1521.19 or the .886 at 1525.70.

    Fresh charts in a few…

    UPDATE:  9:45 AM

    The channel placement is still somewhat speculative.  But, again, in a volatile situation like this, the market will show us whether it has more potential or not.

    We are nearing the .786 retracement of the move down from 1530, and the .886 of the move down from 1525.  They’re on top of one another, lending added validity.  So, all else being equal, we can expect a reversal here — especially given the 60-min RSI chart.

    Note we’re taking a 2nd crack at breaking out of the yellow channel at 61 — the range in which most moves fail.  Stay tuned.

    UPDATE:  9:50 AM

    Just tagged our target level, so I’m booking the 5 points from this morning here at 1521.29.

    A strong move back up through 1521 opens up 1526.  The immediate downside target is around 1510 a combination of Fib levels and the next lower purple channel line (the 25%.)  If that doesn’t hold, the bottom of the purple channel is currently down at around 1494.

    BTW, I’ve had a number of questions about the new fund in the works and the changes it might bring for this website.  I think the past few days are an excellent example of why a fund makes a lot of sense.  Yesterday, I was in and out of the market (on these pages) six times for a total of 23 points:

    1. Bought at 1497
    2. sold at 1507 (+10)
    3. bought at 1507
    4. sold at 1514 (+7)
    5. bought at 1514
    6. sold at 1520 (+6)

    Twenty-three points on 1497 is a little over 1.5% — a decent day, especially given that it occurred on a bounce in the midst of a downturn, which are generally tricky.  Twenty or thirty of those in a year would be a great year for most investment advisors.

    Given that it takes a few minutes to identify a situation, a few more to chart it, a few more to make the chart readable for members, and more still to post it online and compose a cogent comment or two, it’s challenging to get that information out to readers fast enough so that you can capture every single point that I do.

    Then there’s the issue of how to trade the information.  I just shorted SPX at 1521 with the expectation of an initial 10-point drop.  Suppose it pops up to 1525 60-seconds later?  Were you stopped out?  Do you hold on?   Wait, now it just dropped 20 points!  You refresh the screen…where’s the update!?

    While you’re anxiously refreshing the webpage, I’m looking at RSI channels (in multiple time frames), various chart patterns, checking the dollar/euro/bonds/VIX, looking for any news just out, etc.  I make a determination and either trade on it or sit pat.

    I then start the process of updating the chart and posting it online with supporting comments.  Best case…3-5 minutes.  Worst case, all hell is breaking loose and it takes 10-15 minutes or more.

    This is why I like the idea of a fund.  For better or worse, it’s the quickest, most efficient way to transfer value from my noggin into your net worth.  Investors can go on with their business meeting/golf game/ski run and leave all the sweating it out to me.

    BTW, I know a fund isn’t for everyone. For the rest of us, the website will continue to provide the exact same kind of information it always has.  But, it will evolve, ideally becoming more efficient with streamlined delivery accompanying the charts for the pebblewriter.com veterans and investment professionals who want to go it alone.

    For example, those who have been around for a while would completely understand a comment like “hit .786/.886 combo at 1521, Gartley/Bat or Butterfly Point B?  Charts later.”   That way, I could cut down on the time it takes to convey the essence of the post.  I’m also looking into ways to post the information on a chat-like platform, which might also eliminate email and log-in problems.

    The trick with investment advisor clients is finding a way to deliver timely information at a reasonable price without giving away the secret sauce to potential competitors.  It will mean substantially higher fees for future subscribers ($2,500 on Mar 4), but won’t affect current members who have taken advantage of the current membership offer.

    Have you locked in your subscription price yet? CLICK HERE

    More shortly…

    UPDATE:  12:50 PM

    SPX won’t go down without a fight.  It has retraced almost .886 of its declines from 1521.37, meaning it’s about to reverse at 1520.65 and head lower (a Bat Pattern) or is destined for the 1.618 at 1525.29 — also the .886 retracement of the 1530-1485 decline (1525.70) and the level of the last high on the 25th.

    As noted earlier, a push through 1521 opens up 1526.  SPX has till about 1:30 EST to decide: push up through 1521 or a channel breakdown.

    Note the close proximity of the white channel line, which will always, always offer support… until it doesn’t.

    The RSI picture is mixed at present, so we’ll stay focused on harmonics and channels.  Looking at other indicators, the dollar is hanging in there in its own rising channel.

    It recovered its midline just before equities opened this morning, and broke out of its a channel on its 15-min RSI.  It tagged 82, but hasn’t yet been able to break above — much less reach its short-term target of 82.136-82.281.

    UPDATE:  1:20 PM

    There’s our answer, a breakout above the .786/.886 Fib at 1521.11.

    Playing the long side again, with initial target of 1525.70, trailing stops starting at 1521.

    Charts in a few…

    UPDATE:  2:05 PM

    Getting pretty close, now.  This should also be a tag on the large purple channel midline and the proposed yellow channel top.

    UPDATE:  2:20 PM

    Let’s review the implications to our forecast of tagging 1525.70.  We started into this yesterday, but got interrupted by a pretty wild intra-day ride.

    continued for members… (more…)

  • Trading with Harmonics

    The first of a two-part article on harmonics trading strategies.

    Part 1.  January 28, 2013

    Harmonics are a great source of information about the market, but they don’t tell you how or when to trade any more than do MACD crosses or breadth indicators.  So, how do you use them?  This discussion of the basic process might serve as a good starting place for beginners.

    I consider harmonics like trade alerts.  That is, every time we approach an important Fib level, I stop and consider whether the market is likely to react or not, then make a trade decision accordingly.

    There are pages for each specific pattern under the Learn>Harmonics tag on the Home Page.  But, they all relate to one another.  Let’s walk through a real world example.

    SPX has fallen from 1576 to 666 and seems to have bottomed (how to know it’s bottomed is the real trick.)  I draw a Fibonacci Retracement grid on the price range (100% for 1576, 0% for 666) and make sure every important level is showing as on the chart below.  For a discussion of Fibonacci levels, click here.

     

    ThinkorSwim makes this very easy with a built-in drawing tool, as do many other platforms.  If your platform doesn’t provide it, you might want to think about changing, or at least opening up a TOS account to facilitate your charting (and, no, they don’t pay me to say that.)  You can read about harmonics and study the charts I post, but there’s no substitute for doing your own charting.

    Back to our example: because we went long at the very bottom, we set our sights on the higher Fib levels.   All harmonic patterns are marked using the letters X, A, B, C and D.The inception point (high) is X, the low is A.  B is the first reversal, C is the next, and D is the completion. The location of the reversals relative to specific Fib levels tells us what kind of pattern we probably have.

    Suppose we’ve watched SPX climb all the way up to 956, where there’s a 9% correction down to 869.  Because this reversal occurred below the .618 Fib level, we might have a Bat Pattern on our hands.  Bat Patterns complete at the .886 (1472) so we’ll make a note of that for future purposes and consider 956 a potential Point B.

    We sail right through the .382 and .500 levels, then experience another 9% correction at just above the .500 (1150 to 1044.)  Again, it’s below .618, so it could be signalling a Bat Pattern.  But, it’s a relatively minor reaction, so we treat it as only a potential Point B.

    Now we’re approaching the .618 at 1228.74 — the most important of the Fib levels.  Because the two prior reversals were pretty tame, we might suspect more from this one. We begin to contemplate a short position, and look for other signs of a reversal.

    Because we’ve been watching closely, we notice a smaller Crab Pattern setting up as we approach the .618 (the purple pattern below.)  It features a Point D at 1215.93 — slightly below our .618 at 1228.74.  So, we feel pretty confident about this being a good trade entry.

    Are there other chart patterns such as a rising wedge, channel, fan line, etc. that also hint at a reversal?  In fact, there’s a nice channel that’s formed over the past 9 months, not to mention a broken RSI channel (in red) just shy of the Crab completion.  And, we’re nearing the 1240 target of the Inverted Head & Shoulders pattern completed at the 2009 bottom.

    These would all be good reasons to consider a short.  Taken together, they make for a pretty compelling argument.  Where, though?  Other traders are watching the same charts we are, so there’s a chance the reversal will come a little early.  We don’t wait to wait too long and miss the top.  But, of course, every point too early is a point of lost profit.

    In the end, timing is a judgement call based on many factors, including liquidity, risk tolerance, the type of instruments we’re trading, other positions in the portfolio, etc. and is worthy of its own article.

    Let’s assume we make the decision to open a short position around 1213 on the April 15 — in case SPX doesn’t make it all the way to 1215 or 1228.  We feel pretty good about our decision when SPX is down to 1186 the following day and 1183 the next.  That’s a 2.5% move in two days — not bad.

    On the third day, however, our plan is looking iffy.  SPX gaps up on the open and hits 1208.  Three days later, it pops above the Crab target of 1215.93 and tags 1217, seemingly in search of the .618 at 1228.74.

    Suddenly, we’re underwater by 15 points or 1.25%.  Is it time to bail?  Again, it depends on the type of investor you are.  Options traders might have closed their puts for large profits already, while swing traders might be happy as long as SPX doesn’t exceed 1230-1235.  Buy and hold types might have used the Fib level as a warning of a potential downturn and hedged or lightened up on their long positions.

    Checking our charts, we can see that neither the price nor the RSI channels have been broken to the upside.  In fact, the little red RSI channel which helped convince us of the downside potential shows the latest push higher came with a lower RSI score (negative divergence) and a pretty pathetic back test.  So, we’re inclined to hang in there.

    It turns out to be a great decision.  The following day, RSI plunges through the midline of the purple channel.  SPX plunges 38 points from its high, stabilizes for four days, then really starts falling apart.  On May 4, SPX reaches the white channel midline, a possible bounce spot.  We’ve already made 4.5% since shorting at 1213 less than 3 weeks ago.  Time to bolt?

    To be continued…

  • 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.

  • Charts I’m Watching: Dec 26, 2012

    I hope everyone had a lovely Christmas.  Intra-day posts will be open to the public this week, my little gift to those considering a pebblewriter membership.   Sorry, but our forecast will still be available to members only.

    As announced on Monday, subscription prices will increase on January 1.  In keeping with our practice of paying for performance, the annual rate will be about $10 for each percentage point of return since the new site’s inception on Mar 22, 2012.

    We’re up about 95% over those first nine months [SEE DETAILS HERE] so the new rates will be as follows:

    • Annual:  $950
    • Semi-Annual: $550
    • Quarterly:  $375

    The first fifteen to sign up for an annual membership at the current rate of $800, however, will be granted Charter Member status.  Charter Member rates are locked in for the life of the site, so you’ll never pay more — no matter where annual rates end up.

    If we are fortunate enough to continue averaging a little over 10% per month, annual memberships would be $1,200+ in March.  So, locking in current prices is a no-brainer.

    Sign up HERE.

    *  *  *  *  *  *  *  * 

    We remain short from 1447 on Dec 18.   Per the 1:10 post in the members section:

    SPX just tagged the .786 mentioned above, pushing just beyond 1446.44.  I’m closing my intra-day longs (again) here at 1447 and will see what kind of reaction we get here.  Charts in a few.

    But, I’ll repeat my warning from Monday: bulls will be looking for opportunities to shift momentum, and it could be especially easy with low volume and the inattention that comes with a holiday week like this.

    Keep an eye on the dollar index and the little H&S patterns on SPX this morning.  Some strength is to be expected early in the session, but there is the risk of a small breakout.

    As we discussed Monday, the key SPX level to watch is 1432, which would take prices out of the proposed falling channel as well as complete the lopsided little IH&S that targets a Bat Pattern completion at 1441.  I’d put the odds at 50:50.

    SPX’s bearish H&S pattern has picked up a new neckiline — the bottom of the purple channel above.  The neckline is rising, but it currently completes around 1425.

    The EURUSD is coming up on its .618 at 1.3250 — also the top of a well-formed channel.  The rally should fail at that point, with the key level to watch afterwards being the recent bottom at 1.3157.  Charts later.

    UPDATE:  10:50 AM

    SPX just broke below the neckline of the bearish H&S pattern (in purple below.)  If the pattern plays out, it targets about 1416 — which intersects with a little Crab Pattern at the purple 1.618 at 1416.28.  The key level for bulls to hold is 1422.58.

    A drop to 1416 would very likely see a decent bounce, as it also represents a Bat Pattern completion at the Fib .886 of the 1411 – 1448 rally between Dec 14 and Dec 18.

    The slightly less likely target is the 1.272/.786 intersection at 1419.61-1419.81.  Either level marks an important channel midline, which — combined with the harmonic pattern completions — could elicit a strong bounce.

    A drop through 1411 means much more immediate downside.

    UPDATE:  12:00 PM

    We reached our primary target, reversing at 1416.43.  If SPX can break back through the white channel midline at around 1422, the top case is a bounce to the .618 just formed at 1426.53 (also a white channel line) or the .786 at 1429.28 (the top of the white channel.)

    This is a short-term trade only, and is likely to complete by Friday.  As always, stops are strongly recommended — so, 1415ish should do the trick.

    Any breakout from the channel has upside potential to 1436.

    UPDATE:  12:30 PM

    DX tested the bottom of the little white channel I posted earlier, then zipped right back to its midline with the equities sell-off to 1416.43.

    It has now tested the upper bound of the yellow channel twice in the past two sessions, and must either commit to the rapidly rising white channel  — breaking out of the yellow — or  consolidating further.

    A break out of the SPX white channel would likely equate to a breakdown of DX’s white channel.  If stocks get a rebound to 1436 as discussed above, look for the dollar to flesh out the proposed purple channel to around the .618 at 79.319.

    UPDATE:  3:10 PM

    SPX just pushed through 1422.58, raising the odds that this is more than just a bounce in the current primary wave down.  I never use Elliott Wave to forecast (it either doesn’t work or I’m just lousy at it) but the move down from 1448 to 1416 looks like 5 waves to me.

    If so, the bottom of the 3rd wave down was that 1422.58 level, and breaking that level means we’re probably going to work on retracing the overall move now.

    updated 3:30 PM

    The first big wave down, of course, was 1474 to 1343 from Sep 14 to Nov 16.  Wave 2 was back up to 1448 — a Fib 78.6% retrace. SPX has dropped 32 points since, back to just beyond the .618 retrace of 1474-1343 and only about 30% of the 1343-1448 rally.

    So, technically, we might have just established a Point C for a Butterfly Pattern pointing to 1510 or 1555 (the 1.272 and 1.618, respectively.)  But, that doesn’t fit with our primary forecast, which is that 1474 was an important top which will stand for many, many months (at least.)

    The more likely scenario is that 1488 was the end of the 2nd wave, with 1448-1416 serving as the 1st of the 3rd wave down.  If so, and if SPX holds 1416.43, we should expect a 2nd wave up to retrace anywhere from .382-.886 of the drop from 1448.

    The potential Fib targets (the white grid) are:

    • .382:  1428.49
    • .500:  1432.22
    • .618:  1435.94
    • .786:   1441.24

    A 2nd wave up could stay within the small white falling channel only up to about the .382 at 1428.49. But, even that is pushing it.  In other words, any move higher means a break-out of the channel.

    On the other hand, a reversal at the (red) .618 at 1426.53 means the current wave down isn’t quite done.  This also intersects with the small purple .786 (1426.64) and the small pink .382 at 1426.84.)

    That’s probably about as clear as mud, but suffice it to say there are many harmonic scenarios in play in the small, intra-day scale — even though the larger scale still points down.

    I see absolutely no reason to get bullish at this point, and look at this as nothing more than a bounce.  Those of you playing the bounce at 1416 should keep stops where you’re comfortable, with the understanding that the risk is still to the downside.

    As discussed in the performance update a few days ago, I will occasionally keep a core position in place (in this case, short) while playing a contrary wave for a bounce.  This is one of those situations.  More later.