pebblewriter

Tag: rising wedge

  • Gold: Anatomy of a Rat’s Nest Chart

    Once in a while, charts are so crystal clear that we can see the future as easily as we can reflect on the past. Gold is not one of those charts. The zigs and zags come fast and furious and rarely correlate with anything happening in the real world. Witness the indifference this so-called inflation hedge has shown toward the highest inflation in 13 years.

    But, the charts have pointed out some excellent trading opportunities along the way – usually by highlighting trend changes (or continuation patterns) that offer strong directional hints.

    I thought it might be interesting to reflect on the use of channels. What do they tell us, and how can we use them to guide our trading?

    By the time we layer in all the trend lines, Fibonacci levels, moving averages, etc. charts can start to take on a rat’s nest look.

    But, if we strip away some of those things, the channels tell a very compelling story. GC’s long-term chart, for instance, starts with a long, pretty well-formed channel. It did a reasonably good job of guiding prices from the late 1990s until 2014.

    When it broke down in late 2014, it was a clear signal that the long-term trend had given up the ghost.

    We can see that the breakdown followed a pretty clear trend lower, marked by the red channel below. When GC rallied out of that falling red channel – a clear buy signal – we were able to construct a less bearish falling purple channel that guided prices for several more years. When GC reached the bottom of that channel, it accurately signaled a good buying opportunity. That signaled was reinforced when, in 2019, GC broke out of it. Once a few parallel highs and lows were established, we had a rising channel once again. But, GC broke out of that rising channel, requiring a more aggressive one. We added the rising purple channel to accommodate it……and expanded the red channel to make room for the new highs.Although it’s a little early to say with any certainty, the rising purple channel is threatening to break down. It obviously sets up a backtest of the rising red channel’s midline (the dashed red line.) If the two of them are breached, it would be a very bearish signal – particularly in light of the drop through the 200-DMA.

    Put it all together, throw in some trend lines and other chart patterns, and we get a pretty clear picture that GC is on the verge of a breakdown. The chart doesn’t necessarily tell us which way it will ultimately go, just that we’re at an important juncture – very useful information indeed.The factors have been busy overnight, seemingly in quarter-end mode to prompt a bullish run for the barn. Will it be enough?continued for members… (more…)

  • Bullard: Wait, Did I Say That?

    Not that futures needed any help melting down this morning, but Jim Bullard just poured gas on the fire. Yes, Jim Bullard! The Fed president who never had a hawkish thought in his life.

    Then, he trashed the Fed’s most nonsensical policy: throwing $40 billion per month into the mortgage market when mortgage rates are already at all-time lows.

    Bulls better hope that ES can bounce at our next downside target: the 50-day moving average currently at 4174.

    It appears that algos are finally being given the green light to (drumroll please) decline.

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  • Charts I’m Watching: Apr 12, 2021

    Futures are off slightly on a low volume Monday following what should have been a bigger reaction to the latest PPI data that was off the charts.

    Either bond traders all took Friday off, or it would appear that the Fed has taken “supporting” the markets to new heights.

    Markets will have another chance to react this morning…unless, of course, VIX futures fail to react to the obvious support.continued for members… (more…)

  • Yield Curve Model: “Correction Imminent”

    Our yield curve model is again sounding the alarm on overpriced equities. Unless the 10Y – which closed its June 8 gap this morning – declines sharply right away, the 2s10s spread signals a sharp equity downturn to finish the correction which began on Oct 12.The bad news for equities? A sharp drop in the 10Y also portends a correction.

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  • Fear and Greed

    ES is reaching our next downside target right on schedule.Note that if ES hadn’t spurted past its February highs in late August, falling to our 100-DMA target would have involved a fairly shallow drop of 5.5% and would have preserved the rising white channel.

    Instead, we have a 10.8% loss so far and face much greater technical damage if support isn’t retaken – all for the sake of completely unjustified higher all-time highs.

    Fear and greed. It’s the same old story when it comes to markets, even in the age of algorithms and central bank interference.

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  • Having Fun Yet?

    Stocks nailed our second downside target from last Friday [see: Correction Warning.] Judging from the financial press, it was a shock to the average investor.  It’s sad that a 4.5% correction would warrant such concern. But, as I often say, that’s the world in which we’re living.

    Bulls need February’s highs to hold, while bears are rooting for the algos to follow the direction offered by currencies and bonds.

    Many Robin Hood traders and newbie option “investors” are no doubt wondering why they didn’t pick up a good book instead of plunging into the market. These are indeed difficult times.

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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.

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  • Charts I’m Watching: Aug 12, 2013

    The eminis are flirting with danger this morning, having ducked below a key channel midline (dashed, purple) but bouncing off a smaller channel bottom and another channel midline (dashed, white) near a .786 (1674.15) for a Gartley Pattern completion.

    The dollar is threatening to break out of the falling wedge….

    And, the SPX is set to tag the neckline of the yellow H&S Pattern again.  Holding above 1686 will be key.

    I’ll play the downside on the opening with an eye towards the red .886 at 1679.86 — our target from last week.

    UPDATE:  9:35 AM

    We got a bounce at the pale blue channel midline, but I suspect it’s just to back test the neckline and that 1680 is still on the table.

    The danger for bears is a dip to tag the .886 and complete the H&S Patterns, then a rebound back above the neckline to invalidate the patterns.

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  • Update on USDJPY: Jun 18, 2013

    The pair has dropped like a rock since the purple channel broke down on June 5.  It reached the .886 Fib as expected [CIW: Jun 6], then immediately bounced back above the neckline of the H&S Pattern it had completed (in red, below.)

    The following day, it fell back through that neckline, and has spent the past three sessions trying to climb back above it.

    In the process, however, it formed a second H&S Pattern (roughly the dashed yellow line as the neckline.)  Either of them could send the pair tumbling to the white 1.618 at 85.66.

    But, the defunct purple channel has given rise to a decent-looking new channel (in white, below) that — if it holds — could pick up where the purple channel left off and carry USDJPY to new highs?

    But, what if it doesn’t, i.e. if the H&S Patterns play out?

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  • XLF: Playing Catch Up

    On April 2, 2012, SPX completed a Butterfly Pattern at 1421 — the 1.272 extension of the July – October 2011 plunge.  It provided a great entry point for the fledgling pebblewriter.com’s first major short position.

    We scored over 20% in about 2 months [see: All the Pretty Butterflies] trading the 11% decline.

    XLF hadn’t done as well up to that point.   It had only retraced a Fibonacci 78.6% of its 2011 decline from 17.2 to 10.95.  So, no surprise that it sank by a whopping 18%.

    In response to a consulting client who was bottom-fishing for financials, I discovered they were probably bottoming in early June.  I posted my results in the appropriately titled:  So Crazy It Just Might Work.  If anything, my estimates were conservative.  XLF has soared 41% since that low (turns out it was the day before.)

    And, wouldn’t you know it, XLF has gone and formed its own Butterfly Pattern — just like SPX did in Apr 2012.

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