pebblewriter

Tag: rising wedge

  • On the Verge: April 26, 2012

    UPDATE:  5:35 PM

    S&P cuts Spain two notches, from A to BBB+, based on contracting economy…cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain’s key trading partners.

     

    UPDATE:  3:25 PM

    Here’s a close up of the alternative path, which looks stronger with every uptick.  I haven’t altered its course since first charting it a couple of weeks ago.  Remember, it remains only an alternative until the H&S pattern busts.

    As we originally discussed, the thick, red dashed line is our target.  It’s the center line of a channel that goes back to 1935.  Really.  The rising wedge apex intersects with it at around 1462, which is the 1.618 extension of the purple Crab pattern detialed below (Point X at 1422.38).

    FWIW, it’s also the 3.000 extension of the small Crab pattern (yellow) nestled in the B-C-D legs of the larger Crab.

    UPDATE:  3:15 PM

    Interesting that today’s ramp has come without any help from the euro zone.  EURUSD continues to stall at the channel line discussed in this morning’s update on the euro.

    ORIGINAL POST:  1:45 PM

    Yesterday we examined the fact that SPX had broken a 26-session channel and was in danger of following our alternative forecast higher — the purple dashed line marked “alt.” in the chart below.  Remember, that alternative calls for a strong move to 1462-1472 in short order, while the analog calls for a breakdown first.

    We took a close look at the RSI trend line that, broken back on the 5th when the rising wedge was broken, was being back tested big time.  I mentioned I’d be watching it like a hawk, as I felt it would hold the key to which way this confusion resolves.

    As of right now, that RSI trend line is being broken.  While it’s possible this is an intra-day head fake, I’m not so sure that I’m willing to bet cold, hard cash.  Note the highlighted circle on the RSI portion of the chart below.

    And, expanded here…

    There is the possibility that the downward sloping red, dashed TL will catch it on the way up, but the yellow TL just broken was a major feat.  A close above the TL would imply a definite momentum shift.

    From a bearish perspective, one small Bat pattern that indicated more downside busted when we moved above 1392.  The larger Butterfly (labeled in red) will need its Point C moved over to today’s high, but won’t bust until/unless we exceed 1422 (where C > A.)

    From a bullish perspective, the Bat/Crab pattern marked below in purple correlates very well with the smaller yellow Crab — which, until this morning, was just a Bat.  Remember, Bats terminate at the .886 retracement, and Crabs at the 1.618 extension (or more).

    The small yellow Crab’s 1.618 is 1413.74, while the larger purple Bat’s .886 is 1414.97.  When two targets are in such close proximity, it lends additional credence — all else being equal.    Technically, we could get a move to 1414ish and still have a valid H&S pattern, but as we discussed yesterday, it puts additional strain on the pattern — and the analog — playing out, unless we see a very quick reversal.

    As we approach 1400, the market should at least pause.  It’s the original H&S “idealized” shoulder line, the 1.272 of the small Crab pattern, and a nice round number.  But, unless we reverse in the next hour and see that RSI dip back below the TL, I’m increasingly positive about a move to at least 1414-1415 to fulfill the Crab and Bat.

    Remember, this is still a back test of the rising wedge.  But, I’ve been studying rising wedges a lot lately; and, as we discussed many times [see: In a Fix], it’s not uncommon for a back test to go on up and tag the original apex — faking out all who were playing the broken wedge.

    More later.

  • Analog Update: April 24, 2012

    The analog we’ve been watching since April 9 is playing out nicely so far.  We got the original bounce at 1357 as forecast, followed by a rise to the middle of our 1380-1400 target range.  The H&S pattern we expected did, in fact, set up and complete yesterday.

    Now, we’re back testing the little channel (solid yellow) formed by the right shoulder.  It was broken during yesterday’s plunge.

    As we discussed yesterday, if the wheels fall off the analog, it’s going to happen here — at the H&S neckline.  A hard bounce would likely send SPX up to tag the initial rising wedge apex at 1462-1472 (the purple dashed line.)  It can be viewed as a Crab pattern with the 1.618 at 1462 (in purple, points not marked.)

    But, I think we’re more likely to see the analog continue to work.  The key will be a failure of this morning’s rally/back test and a close below 1363.  Note that we’ve also established a channel to the downside (red, dashed) that coincides nicely with the harmonic picture.

    The pale blue Bat/Crab indicates a potential to 1335-1340, which would be a nice spot for a back test of the H&S pattern itself.  From there, the larger red Butterfly pattern takes over, with potential to 1317 (the 1.272) or 1289 (the 1.618.)  Though, a drop below last October’s 1292 would be a challenge.

    The key levels I’m monitoring today are 1378 — at which point the back test starts to intrude into the previous channel, and 1382 — at which point the larger red, dashed channel is jeopardized.

    Good luck to all.

  • The Dow’s Analog: April 16, 2012

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

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

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

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

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

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

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

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

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

    Good luck to all.

  • Bottom Fishing

    EOD:  2:25 AM

    SPX overshot the Crab’s 1.618, whichever Point X we use.   The next major lines of harmonic support are are the red pattern’s 2.24 at 1342, correlating with the purple pattern’s 2.618 at 1341.

    Given the level of oversold on the day, here’s an alternative view.

    UPDATE:  11:55 AM

    The Crab Pattern I posted about earlier pulled a fast one on us.  It either busted, or I drew it wrong.

    Technically, it’s forbidden for Point C to exceed Point A — kind of like Wave 1/Wave 4 overlaps in Elliottworld.   But, it happens.   I’ve redrawn the Crab to begin with the March 23 1386 low instead of the March 29 1391 low — which means that the 1.618 extension is 1364.92 instead of 1372.51.

    Note the daily RSI tag on the same trend line (red, dashed) that stopped the Oct 4 and Nov 25 declines. The previous tags are highlighted in light blue.   This decline is picking up momentum, so the RSI TL and the Crab pattern might get mowed down.

    But, be cautious.   Like any trading system, once you start bending the rules in Harmonics, it opens up a can of worms.  Markets frequently overshoot logical targets, and it’s no cause to discard the methodology.

    I’m taking some profits off the table at these levels, and will let the rest ride essentially risk free.  Note that 1364 is the .707 of the 1340-1422 move.  If it doesn’t hold, the next support is at the .786, which would equal 1357.  An intra-day push to 1357 and close at 1364 would be interesting.

     

    ORIGINAL POST

    After yesterday’s close below the rising wedge, we can safely consider it officially broken.  Now, the question is whether SPX will freefall in an epic fail of the bull market, or find support at some interim level for another leg up.

    In the near term, we’re approaching a potential Crab Pattern turning point at 1372.51.  We might have reached it yesterday but for the little acceleration channel SPX has been in since 1422.  Today, the channel passes right through 1372, so we could get a good test.

    This isn’t a big pattern, so we might not see earth-shattering results, but it should be good for at least a nice bounce if not an outright reversal.

    I think an outright reversal might be in the cards, though.  The hourly RSI shows positive divergence with this morning’s leg down, and daily RSI shows a tag of an important internal trend line.  But, it’s the weekly RSI chart that, as a bear, really gives me pause.

    Expanding the RSI chart gives us a clear view of a trend line that might provide significant lift at these price levels (ignore the compressed upper chart.)

    I’ve also been watching VIX’s price action, constructing some probable channels months ago: the yellow channel guiding the downside, transitioning to the red channels for the subsequent rise.  Since then, I’ve barely adjusted them.

    Note how well they’ve called the turns.  At this point, they hint at a likely breather for VIX.  All things considered, I think we’re likely to see a backtest of the VIX falling wedge that will correspond with a return to the other side of the red channel.  It could happen any time, but might well occur coincident with the afore-mentioned bounce in SPX.

    All this begs the question, what kind of bounce will we see?  As we discussed the other day, this rising wedge is a reasonable facsimile of the 2010-2011 one [see: Analog Watch.]

    The most likely drawing of the current wedge puts the apex around 1460-1470 somewhere around May 7-11, meaning we reached only 88.6% of the potential in both time and price at the recent 1422 high.  [see: Was That It?] If we repeat the pattern, we’ll head back up to tag that apex — exactly as we did in May 2011 at 1370 (note the dashed white line that connects the March 2011 apex to the May 2011 top.)

    More importantly, however, we’d tag the upper bound of the huge rising wedge (red dashed) that dwarfs the rising wedge (yellow, solid) that just broke down.

    I’ve drawn its upper bound as the biggest, boldest red line I can muster on the above chart.  Why?

     

    Stay tuned.

  • Charts I’m Watching: March 22, 2012

    ORIGINAL POST: We’re finally seeing reactions on the harmonic pattern completions we’ve been watching for what seems like forever [see: Everything’s Coming Up Crabs.]RUT completed a Crab Pattern (in red) within the last leg of a Bat Pattern (purple) off the 2011 highs.  It never has cleared the TL off the May and July highs.  The May 2011 high was a double-top to 2007’s.

    COMP completed a tiny Crab within a little Butterfly pattern and tagged a key trend line off the 2007 highs.

    I call it a trend line because it’s exactly parallel to the line connecting the 2002 and 2009 lows.  A reversal here would make for four touches — i.e. a channel.  But, COMP could continue bucking its bearish divergence and go up to complete the larger Butterfly pattern (purple) at 3250-3295.

    DJIA still hasn’t made a new high since completing a Crab Pattern a stone’s throw away from a Butterfly Pattern (purple) completion at 13,338.64.  We’re still watching for a clean break of the rising wedge in the price chart and the trend line in the RSI chart.

     

    Though, it’s important to note that, at these prices, we came within 28 points of completing a Bat pattern (yellow) at the .886 (13,317) in the weekly chart.  That would make for a logical back test if/when the rising wedge finally breaks.  It might also be the 5th and final wave target if today’s move stays within the wedge itself — which is just as likely.

    Coming up….SPX.