pebblewriter

Tag: RSI

  • Anticipation

    It certainly looks like we’re almost there.

    The eminis seem to be already there…

    The EURUSD is clinging by its fingernails…

    The dollar looks ready to rumble…

    The USDJPY is making a bid for an IH&S, but has run smack dab into that yellow channel midline again…moment of truth for the yen…

    This morning’s dip in SPX is appealing, but look how many times over the past several sessions the red channel midline (now around 1627.25) has come to its rescue…

    A break below 1626.46 and it’s probably game-on.  But, we haven’t quite hit our 1635+ target.  I’m inclined to believe this is a fakeout to buy a little more time, shake out a few weak bulls before the final thrust.

    UPDATE:  12:25 PM

    SPX continues to bump along.  It recovered from the first plunge down to the red midline, and is back at it only 2 hours later.  This time, however, there’s a small Head & Shoulders Pattern at stake.  It would complete at 1627.33 and target around 1621.30.

    Remember, we’ve seen more than a normal number of H&S Patterns not play out over the past couple of months.  So, odds are that this is another shakeout brought to you by your friendly neighborhood market makers.

    As always, use stops — and update them frequently to keep them where you’re comfortable.

    continued for members… (more…)

  • The Best Laid Plans

    The best laid plans of mice and men
    Go often awry,
    And leave us nothing but grief and pain,
    For promised joy!

    Robert Burns, 1785

    ORIGINAL POST:  6:45 AM EDT

    The wedges we’ve been watching on DX and EURUSD are playing out.  EURUSD has broken out…

    …and DX has broken down.

    But, it’s the USDJPY that I’m watching especially closely this morning.  It still hasn’t broken 100 since our Apr 8 observation [USDJPY update] that it was running out of steam:

    “…there is growing risk of a downturn as it approaches 100… it appears the pair might have hit at least interim resistance at today’s high.”

    It topped out 3 sessions later at 99.94, and two weeks later is in danger of a larger pullback.

    Remember, weakening the yen was a critical element of the BOJ’s stimulus program that was supposed to generate inflation, boost Toyota sales and send Japanese investment funds flooding into foreign markets.

    Instead, Japanese investors are repatriating their funds from abroad — a net Y9.5 trillion ($95 billion) since the first of the year.  Why?  As any US investor could tell you, QE might not inflate economies, but it sure as hell inflates markets.

    The Nikkei 225 is up 65% since last October’s lows….

    …and, still hasn’t even recovered 2/3 of its losses from the 2007 crash.  The Dow and the S&P 500, by contrast, have recovered all of them — and, then some.  So, to many, the Nikkei still seems the better value.  It’s hard to argue with success.

    But, I’ll do it anyway.  In reaching 14,020 a few hours ago, NKD tagged the .618 Fibonacci retracement of its 2007-2009 crash from 18,365 to 6990.

    To those not familiar with harmonics, this tends to be a big deal.  When SPX reached the equivalent point in April 2010, it plunged 17%.  The DJIA fell almost 15%.  The USD, represented by DX, soared 9.3%.

    But, the yen positively soared.  USDJPY started a 17-month slide that took the pair down 20% from 94.98 to 75.78.  NKD, which had just reached its .382 Fib, shed 23% over the next 4 months, eventually reaching almost 30% in Nov 2011.

    Could the USDJPY’s failure to break 100 be telling us something?  You better believe it.  I called a top a few weeks ago because the pair had reached several important Fib levels as well as the midline of an important channel (in yellow, below)…

    …that dates back to 1995.

    There’s no guarantee it won’t push through instead of retreating, but the RSI picture supports the danger of a significant retreat.

    Daily RSI has backtested the broken yellow channel twice, but the trend is clearly down — with the latest push being rebuffed by the purple midline.

    And, a close-up reveals that a breakdown has already started.

    Stay tuned.

    UPDATE:  9:25 AM EDT

    With SPX set to open 5-6 points higher, it stands a very good chance of reaching our 1584.23 target. In other words, a pop and drop is very much in the cards.

    If it goes any higher, look for 1590.36 instead.

    UPDATE:  9:40 AM

    That’s good enough for me.  I’m closing my long position and reverting to full short here at 1584.80.  Stops around 1586ish.

    The .25 of the purple channel is right around 1587, so I’d use some discretion around that stop level and look to see if there’s any real strength behind a move higher.

    UPDATE:  10:25

    Getting a push through 1587, so I’ll open an interim long position for what should be only a few points higher to the .886.  Core short remains in place.  Tight trailing stops.

    I wouldn’t start getting nervous about the short position until around 1594 — the trend line (red, dashed) that extends from the 2000 and 2007 peaks.

    UPDATE:  10:50 AM

    I’ll go ahead and close that interim long here at 1590.  While I still think there’s potential to the 2000-2007 trend line, it could easily happen after the correction that should begin in the next hour.

    That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.

    This is a very artfully crafted scenario to justify (from a technical standpoint) a rally above that red TL — which is one of the last remaining technical impediments to a continuation of the rally from 1343 in November.

    Can they pull it off?

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  • 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.

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  • Charts I’m Watching: Apr 16, 2013

    We’re set to get a nice bounce here at the bottom of the purple channel — as revised in last night’s last post.

    Based on where the futures are pointing, I’m not sure whether it will have legs or not.  But, I’m inclined to play along on the upside, but with relatively tight stops in case it peters out.

    The EURUSD has rebounded nicely as we anticipated, but has reached a point of resistance at the midline of the rising channel at a price level that’s proven difficult to exceed since early March.

    The daily chart shows a bounce off the bottom of the purple channel as expected, but plenty of overhead resistance in the 1.33-1.34 range if it’s able to break through 1.316 or so.  The .618 is up at 1.3341.

    The dollar continues to tread water.  I’ve drawn a tentative new wider channel that might represent the expected range now that the rising white channel is officially kaput.

    Remember, this decline is a backtest of the broken red .25 channel line.  If the decline continues on track, we could reach that channel line (at about the .red .382) in very short order.  It’s currently at about 81.74.

    But, there’s no reason DX must retrace all the way to that line.  It has already back tested the purple .618 — a reasonable pullback after the Bat Pattern that completed at our 83.616 target back on Apr 4.

    The daily RSI, in fact, shows strong support from the bottom of the rising purple channel and the .25 of the rising white channel.

    The yellow midline on the RSI chart represents that dashed white channel midline cutting across the middle of the price chart above.  A thrust up through it should accompany the next big equities dump.  And, to my eyes, that’s the next major move.

    Though SPX is safely back in the purple channel, it can’t go on forever — right?  Even if our most bullish scenario plays out, there would need to be pauses of more consequence than the past two sessions.

    In that pullback, SPX reached the .786 of the 1539 – 1597 rally between Apr 5-11 (1552.36 vs 1551.88.)  The bullish case will consider that reversal as the full extent of the pause — a proper corrective wave that reversed at the bottom of a very well-defined channel dating back 5 months and 230 points.

    If so, SPX should head up and push through the trend line extending from the 2000 and 2007 tops — currently around 1593.50 — on the way to its 1823 target.

    The bearish case suggests we slap a Point B on that reversal and call it a Butterfly Pattern that targets 1523 or 1503.

    So, which is it going to be?

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  • Charts I’m Watching: Apr 15, 2013

    The big story this morning is the meltdown taking place in the commodities complex.  Gold is especially taking it on the chin, continuing the plunge that started on Friday with the critical loss of the LT channel we discussed last week, the horizontal support at 1520-1535, and the psychologically important 1500 level.

    Recall gold had a nice bounce on Apr 4 at 1539, the bottom of the channel and the horizontal support of several prior bounces.  In a dramatic demonstration of what happens when channel support is lost, it has since shed 205/oz.

    The next best available channel is well below the current one, but supports the idea of a bounce at 1379 or 1359 — the Bat Pattern and Crab Pattern completions shown in the first chart above.

    If those levels should fail to hold, the next major support levels are 1309 and 1155.

    We’ll discuss oil and other commodities later, but first let’s catch up with equities.  Recall that we shorted at 1597 last Thursday [CIW Apr 11 – 11:30 update] after tagging the TL connecting the 2000 and 2007 highs.  As we discussed Friday, we were expecting a bounce at the 2007 previous high of 1576.09 in order to maintain the bullish case.

    The technical elephant in the room is the previous 1576.09 high — now just 5 points below… Unless 1576 is taken out, any correction will be viewed as a backtest of an important, previously exceeded level of resistance.

    This morning, we came very close — reaching 1576.87 so far.

    I’ll take a long position here at 1576 just to see where it takes us.   Tight stops (1573ish) are in order, as the next support is down between 1553-1561.

    We discussed last week about core versus interim positions.  I see this as a make or break moment for SPX, as a plunge below 1576 really damages the bullish case.  A plunge below 1553 does very serious damage.

    So, I’m comfortable in closing out my short position from 1597.  That doesn’t mean I believe the market will go up from here.  The jury is out.  But, by placing tight stops below my long position, I can manage the risk of being wrong.

    SPX doesn’t have to reverse strongly for a hold here to be effective.  The bottom of the big purple channel (from 1343) isn’t far below at 1564.  But, it’s rising quickly.  It’ll be up to1576 by Apr 22.  So, if SPX can merely go sideways for a week or so, it’ll have a channel bottom bounce available to drive it higher.

    UPDATE:  11:40 AM

    Gold just reached the bottom of our target range from this morning: the Crab Pattern completion at 1359.  It should reverse here.  But, again, a failure to hold could easily send prices down to 1309.

    It’s interesting to see what the US dollar has done during this sell-off.  Instead of reflecting a risk-off posture and rallying strongly, it has continued to drift mostly sideways to lower.

    UPDATE:  11:55 AM

    SPX just broke down through 1576, so I’ll play along on the downside here with an objective of 1564 — the bottom of the purple channel.  But, a push down to 1561.60 — the .618 of the 1539-1597 rally — looks very doable given the current downside momentum.

    UPDATE:  1:10 PM

    SPX just hit our 1564 objective.  I’ll take profits here and try a long position, but I think there’s at least a 50:50 shot at a (probably) intra-day push lower to 1559-1561.  I’ll leave stops pretty tight here and be happy to go along if it plays out that way.

    The view from 30,000 feet coming up…

    UPDATE:  2:03 PM

    Just got stopped out at 1564, so it’s back to the short side.  Lots of near-term targets, starting with 1561.60, coming up in a few…

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  • 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.

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  • USDJPY Update: Apr 8, 2013

    The largest channels are all pretty loose fits, with plenty of incursions that make forecasting with them iffy at best.

    But, the smaller channels and Harmonic Patterns have been pretty effective.  Even though USDJPY has been running like a 燃える尾を持つ猫, there is growing risk of a downturn as it approaches 100.

    Consider the new channel constructed by today’s high.  It lines up with the Oct 31, 2011 and Mar 14, 2012 highs.  It would carry more weight if there were more than one tag on the bottom, but we shouldn’t ignore the potential for a correction.

    Given the tear the pair has been on lately, it would probably be motivated more by a weak US dollar than a strong yen.

    The pair put in a decent correction at the red .786 (of the decline from 101.44 in Apr 09), hinting at a future Butterfly Pattern.  The 1.272 is at 108.47 and the 1.618 is at 117.43 — right next to the large purple .886 at 118.59.

    There’s also a small Crab Pattern (white, above) completion at 99.26.  So, though I wouldn’t necessarily put money on it (the trend is your friend), it appears the pair might have hit at least interim resistance at today’s high.

    A failure to reverse here will likely mean a trip to the purple .618 (at least) at 105.57.

    But, that would mean barging back into the daily RSI channel (in green below) that broke down in mid-Feb and is undergoing its 2nd back test.  It’s certainly not impossible, but it would be easier after a pullback to reset RSI to lower levels.

    Stay tuned.

  • Charts I’m Watching: Mar 21, 2013

    ORIGINAL POST:  9:25 AM

    The EURUSD is still trying to change trajectories (purple channel to red), but hasn’t been able to break out yet.

    The dollar is similarly facing a change in direction if the red channel can hold.

    Judging from the futures, SPX is set to react off the neckline and TL we’ve been talking about for several days. Though, daily RSI still shows a little more upside potential.

    I’ll play along on the downside, but will be looking to see if it gains support at the purple channel midline.

    UPDATE:  09:23 AM

    That should do it for the short side, going full long again here at 1550.7 with stops at 1548ish.  Always fun, trying to catch a falling knife…

    The 15 min RSI shows support with SPX here at the .500 Fib.

    Fresh charts in a few…

    UPDATE:  9:50 AM

    If SPX reverses here, it leaves a much nicer right shoulder for the IH&S we discussed yesterday.  And, the revised purple channel looks more sustainable.

    Existing home sales, Philly Fed and Leading Economic Indicators are due out at 10 EDT.

    UPDATE:  10:01 AM

    Data better than expected on Philly Fed and Conference Board Leading Indicators, a miss on NAR existing home sales.

    The leading indicators look a lot more positive than the current, which barely moved.

    No charts for the NAR, but sales came in at 4.98 million vs expectations of 5.0 million.  Inventory increased from 4.3 to 4.7 months, which flies in the face of the most commonly heard argument that a shortage of product was driving prices higher.

    There are no doubt pockets of actual product shortages, just as there are many with a huge excess.  But, the price increases have more to do with math than with supply and demand at the moment.

    The NAR, like everyone else, reports average (median) prices.  The entire market could remain at a standstill, but if the bottom 5-10% (in price) of houses are bid up, the average price increases.  It wouldn’t affect the average house, just the average price of all houses.

    That’s why many average homeowners remain underwater and unable to sell their houses for the asking price despite the “good news” from the NAR/MSM.  So, what’s happening to bid up prices on the low end?  Enter our friends at the Fed.

    As Bloomberg reported a few days ago, big institutional money is chasing single-family homes.  With the stock market at all-time highs, bonds at 2% and much of the rest of the world in questionable economic condition, the new bubblicious investment is housing.

    Blackstone, which put $3.5 billion to work buying 20,000 houses, just increased its credit line by another $1.5 billion.  Colony Capital owns 7,000 units and is raising another $2.2 billion.  American Homes-4-Rent owns 10,000, and is buying up more.

    Institutions represent a large percentage of the buyers in many markets which have rebounded the most:  Miami (30%), Phoenix (23%), Charlotte (21%), Las Vegas (19%.)   But, will the dead cat bounce translate into profits for investors?

    As fools rush in, rents are falling in many of the markets in play — making it tough to derive much cash flow.  Colony Capital will be buying another $2.2 billion worth of houses, even though their current portfolio occupancy is only 53%.  In an environment of 2% 10-year treasuries, the 4-5% cash-on-cash yield might look pretty good — especially coupled with some degree of inflation protection.

    I can’t help but think this is another big bubble in the making — courtesy of the Fed’s ZIRP.  Even after 5,000,000 foreclosures since the 2006 peak, new delinquencies continue to surface — including a steady contingent of older, more seasoned loans as this LPS chart shows:

    Global Economic Intersection ran a nice piece Tuesday posing a thought-provoking idea:

    “The housing market is therefore the hostage of economic growth and not the signal of economic growth.”

    The evidence of yet another liquidity-fueled, lack-of-any-better-alternatives bubble is here.  Investors must decide whether to button their chin straps and get in the game, or watch from the sidelines as the greater fools slug it out the red zone.  Stay tuned.

    UPDATE:  2:05 PM

    With the move down through 1548, I gave SPX a little more wiggle room to the .618 of the last move up at 1547.35.  It bounced, but couldn’t hold, prompting me to take a short-term short to cover my core long position.

    I’m closing the short here at the .786 of 1543.75 for a small gain.  More charts, revised channels coming up.

    The bullish case needs 1546.27 to hold firm.

    UPDATE:  2:30 PM

    Hard to keep up with charting this morning, with things moving rather quickly and dropping a little further than I expected.  Looks like the .786 will hold, but let’s make that the new stop.

    The 60 min RSI has found midline support at a potential falling channel (purple) and a rising channel which isn’t as convincing as I’d like (yellow.)

    UPDATE:  5:30 PM

    Weakness everywhere around the close.  I’m going to lay out the bullish and bearish scenarios, but from a chart pattern standpoint, this is a toss-up.

    Taking a look around the indices, I see a lot of indices at make or break points.  I just revisited RUT, a great case in point.  Drawn from the 98 and 02 lows, one channel makes a great case for the upside being done.

    The daily chart CU shows just how precisely we’ve tagged the top of that channel and the TL’s the make up the rising wedges.

    Drawing the channels off the 98 and 09 lows, however, shows RUT has already pushed above and backtested the channel top (in purple.)

    Throw in some Harmonic Patterns and things get really interesting…

    There was a big reversal at the .786 of the 2007-2009 crash, so we should expect a Butterfly Pattern to play out at the 1.272 of 996.26, right?

    But, look at all the TL’s of resistance we’d have to push through first…

    Besides the trend lines, the purple 1.618 hasn’t really caused a reaction yet.  The white 1.618 has, but not much of one.  And, note that the yellow pattern calls for a run to the 1.618 at 1033.  Mixed signals, to say the least.

    More in the morning…

     

     

  • Charts I’m Watching: Mar 20, 2012

    The ECB will do “whatever it takes”, which I guess now translates into strong-arming the Russians into bailing out Cyprus.  Still no break out on the EURUSD, though.

    It makes sense to play along with the upside, but keep stops close.  It’s questionable whether this rally will have any legs. The dollar looks like it’s finding support here.

    UPDATE:  09:33 AM

    Looks like a pop and drop by SPX standards.  That was the .786 of the move down from 1563.62 (purple) and the .886 of our proposed path to 1576 (white.)  Full short again, stops at 1561ish.  Revised charts in a few minutes…

    UPDATE:  09:55 AM

    The daily chart tells the picture well.  I need to redraw some channels, but the prominent features are:

    • large 1474-1343 Crab Pattern completion at 1555.57 (yellow)
    • large 1370-1074 Crab Pattern completion at 1553.39 (red)
    • small 1530-1485 Crab Pattern completion at 1559.32 (white)
    • small rising wedge broken at 1563 top
    • long-term TL and channel top at 1560

    UPDATE:  11:10 AM

    SPX continues to position itself for a run at 1576.  The 5-min chart shows a small potential Crab Pattern with a 1.618 at 1577 and a Flag Pattern targeting 1576.

    It has broken back above and backtested the purple channel midline and retraced nearly .886 of its drop from 1562 and a little more than .786 of the drop from 1563.62.

    While it’s positioned for 1576, there is no more certainty than when we first broke 1555 on the Mar 14 overnight ramp job.  The large, bearish patterns listed above have still not produced the kind of sell-off they normally do.

    And, it’s all because of the cheerleaders’ determination to be able to tout a new all-time high for the S&P 500.

    In addition to the little Crab Pattern (purple) that targets 1577 and the flag pattern targeting 1576, there’s an obvious effort to construct an IH&S pattern targeting 1580.  It could benefit from a lower right shoulder, but bulls must beware of crossing back beneath the purple channel midline.

    The S2 shoulder isn’t quite legit, BTW, as the neckline doesn’t quite connect on the left side.  But, the S1 shoulder is quite a ways down there.  So, if the pattern plays out, be prepared for some serious chop.

    UPDATE:  1:00 PM

    With the FOMC announcement a little over an hour away, let’s resume our chat about the big picture.  If it seems like we’re “lost in the reeds” as one reader so aptly put it, it’s because we are.

    The large Crab Pattern completions promised a good-sized dump last week at 1553/1555.  Instead we’ve inched higher.  Why?  These patterns completed in the middle of harmonic no-man’s land: the gap between an .886 retracement and a double-top.

    The .886 retracement (of the 1576-666 crash) produced a 9% reversal back on Sep 14.  Since then, SPX came screaming back to retake the 1576 all-time high — but slammed into the Crab Patterns and a very important channel line along the way.

    Now, it doesn’t know what to do.

    Double tops usually produce reversals, too — sometimes meaningful ones as we found out on October 11, 2007, when SPX scooted up past the 1552 top from 2000 by a whopping 24 points before dropping 58%.

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

    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.  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.

    I don’t know what the catalyst was, but on Mar 21, 2000 (that date sounds awfully familiar) 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.  Could it happen again?

    continued for members… (more…)

  • Picking up Pennies

    Just about every other index has reached an important harmonic and/or chart pattern target. Given the NFP print, this could be the day SPX finally reaches 1553-1555.  Best to be long on the opening, and ready to re-short fairly quickly.

    The dollar isn’t waiting, surging nearly 1% on the day and resolving the question as to which channel to watch.

    DX is very near a tag of the red .786 (83.064) and the purple 1.618 (83.179).  But, more importantly, it is coming up to the intersection of the midlines of two important channels.

    Look for heavy resistance at these levels — until the equity sell-off begins in earnest.

    Likewise, the EURUSD is off over 1% and approaching the white .786/yellow .500 — also the scene of an important channel line.

    Will the currencies react first to the equity strength, or are they positioning ahead of what they know will be an equity pop and drop?  As the grown-ups in the room, I believe currencies are doing the latter.

    Our premise called for a back test of the channel line or TL off the July 2011 & Sep 2012 highs, but the market is eager to go ahead and get there.  Who am I to stand in the way?

    UPDATE:  9:35 AM

    Got to 1551.65, only 1.74 away from the white 1.618 – which is close enough for me.   I have nothing against staying in until the actual tag; just watch your stops in the event it turns quickly.

    I’ll pick it back up if we get a second push through 1551, as it would not be unusual to see a bit of an overshoot — somewhere between 1553 and 1560.  Likewise, a drop through the yellow TL down around 1535.50 probably signals “game over.”

    Remember, this completes a Crab Pattern from the 2011 crash from 1370 to 1074.  Are we guaranteed a big sell-off here?  Of course not.  But, odds are it will be substantial.

    UPDATE:  10:08 AM

    If SPX is going to bounce higher, it should do so by 1543 — the 1.272 Fib on the small white harmonic grid and the bottom of the tiny channel SPX hung out in for the past several days.  For anyone who missed the last six points because of the gap open, this is your second chance.

    UPDATE:  10:27 AM

    SPX getting the bounce here at 1543… will take another crack at 1553-1560.

    In the meantime, let’s take a look at how we got here.  If you had asked me at the end of 2011 which upside scenario looked most likely, I would have suggested the Crab Pattern that started at 1370 in May 2011 and put in a bottom at 1074 in October (in white, below.)

    There were three potential Point X’s in a row: 1370.58 on May 2 (in white above), 1347 on July 21 (in red) and 1356.48 on Jul 7 (not shown.)  And, 1370.58, the high following the 1576 to 666 sell off from 2007 to 2009, was the most prominent.

    My reservation was that it reversed at the .707 Fib level rather than the more common .618, .786 or .886.  The .707 is the red-headed stepchild of the Fibonacci ratios.  It’s the square root of .500, which itself doesn’t get much respect as a Fib ratio.  Geeks and wannabe’s CLICK HERE for details…

    When SPX finally pushed above 1370 in March 2012 and started approaching the 1.272 Fib levels between 1422 and 1451, we had to choose from among the three possibilities for a Butterfly Pattern completion [see: All the Pretty Butterflies.]

    I went with the red pattern because of its more precise tag on the .786 and was rewarded with 20%+ gains from a perfectly-timed short.  And, I assumed the red pattern would continue to drive future harmonic swings.

    As we approached the red 1.618 at 1515.24, I noted that it intersected with the purple 1.618 (1518.57) and the yellow 1.272 (1510.19) — not to mention the yellow trend line running very precisely through the July 2011, April 2012 and Sept 2012 highs.  To me, this was a very solid conclusion based on very reliable patterns.

    We got the sell-off.  In fact, we got three sell-offs, one from each of those Fib levels.  On the final tag at 1518.57, we got a little overshoot to 1530 (a smaller harmonic pattern completion) before beginning a correction all the way to…1485.  Yep, not even a lousy 3%.

    In harmonics, it’s not usually the tops that bother me, it’s the 2nd waves.  The rebound from 1485 went to 1525 (a healthy .886 retracement) and even sold off nicely — before zipping back up to complete an IH&S, take out the 1530 high and…well, here we are.

    Harmonics are great.  They offer concrete turning points at which the market usually reverses.  If it doesn’t, you’ve either picked the wrong Point X (1347 instead of 1370) or the wrong pattern.  In other words, there’s a solid decision matrix; you know when it’s time to go to Plan B.

    Fundamental analysis isn’t anywhere near as precise — especially in the short to medium term.  And, as we’ve seen this past year, there’s plenty of money to be made by going long at bottoms and short at tops.  You just have to be prepared to switch gears when your assumption — no matter how well thought out — turns out to be wrong.

    If SPX exceeds the Fibs at 1553/1555 and/or the IH&S target at 1465, there’s not much more in the way of targets other than the previous high of 1576 (October 2007.)  Many other indices have made new highs, so maybe TPTB will feel it necessary for SPX to do so as well.

    more later…

    UPDATE:  1:55 PM

    The bounce off 1543 still going strong.  15-min RSI just broke out of a falling channel from this morning’s rally.  A move back to the white RSI channel midline might permit 1553/1555 or slightly higher.

    continued for members… (more…)