pebblewriter

Tag: RSI

  • Winding Down

    Beware the Fee-scal Cliff

    Today’s post concludes a week of publicly available intra-day posts, my little gift to those considering a pebblewriter membership.  Sorry, but the forecast is for members only.

    As announced on Monday, subscription prices will increase on January 1.  In keeping with the concept 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.

    *  *  *  *  *  *  *  *

    ORIGINAL POST: 9:30 AM EST

    I remain short from 1447 on Dec 18.  Time is running out for our heroes on The Hill.  Market corrections don’t require that everyone turn bearish — just the handful in the middle whose selling turns the tide.   Those investors who have been wondering, waiting hopefully for a fiscal cliff deal to emerge from Washington… might at least a few of them decide to rein in their equity exposure today?

    Watch this morning for the Chicago PMI — due out at 9:45 EST.  Last month, it turned up slightly, but was considered bearish due to the decline in new orders.  From Briefing.com:

    Briefing.com puts out great graphs, such as this one on the relationship between pricing and the PMI itself.  Not a terribly bullish looking chart.

    UPDATE:  9:44 AM

    RSI has a long ways to go before finding any channel support…

    Why am I always talking about RSI? It might be the fact that it’s helped me call almost every major turn the past couple of years.  As regular readers know, I employ a deceptively simple-looking practice of channeling RSI values in different time frames.

    Combined with Harmonics and other chart patterns, it has been very effective in forecasting.  Consider the past six months alone…

    April 2 — Shorted:  SPX completed a Butterfly Pattern at a channel top at 1421.05.  It was also the third lower RSI value in a row on higher prices (negative divergence) after RSI tagged a channel midline.  See: All the Pretty Butterflies.

    June 1 — Went Long:  SPX reached the bottom of an RSI channel, back-tested a falling wedge and found harmonic support — all at the price levels forecast by an analog that had been going gangbusters since April 9.  See: Why I’m Buying.

    September 14 — Shorted:  SPX had completed a Bat Pattern that dated back to October 2007, tagged RSI and price channel lines.  VIX and DX RSI channels also indicated impending reversals. See: The World According to Ben.

    November 16 — Went Long:  SPX had reached three important harmonic targets, reached a H&S Pattern target, tagged RSI and price channel bottoms — all at a price level forecast on October 31.  See: CIW Nov 16.

    December 18 — Shorted:  Prices overshot our forecast target by 6 days and 10 points, completing a Gartley Pattern set up by the 1474 – 1343 drop. But, in the process, daily RSI completed a perfect back-test of the recently broken channel that had governed the rally since June.  See: CIW Dec 18.

    Together, these major moves accounted for returns of about 40% since the new site’s inception on March 22.  The other 55% came from interim swings ranging from an hour to a few weeks.  But, all of them were influenced by RSI channels, which frequently provided a signal quite contrary to popular thinking.

    I don’t know of any analysts who use RSI channels.  In fact, a Google search for the term “RSI channel” shows a whopping 3 hits in the past month — two of them from this site.  Have folks tried them and failed, or are they just too complicated?

    Though they’re almost always obvious in the rear-view mirror, RSI channels can be very difficult to use in forecasting.  Charts drawn in different time frames can suggest very different results.  They’re tough to use in choppy, directionless markets.  And, divergence is always a challenge.

    In short, RSI channels aren’t for everybody.  It helps if you enjoy staring at charts for hours at a time, and can pick out patterns in a jumble of seemingly random lines.  It also helps to understand higher math, as RSI is essentially a derivative of price movements (magnitude and velocity of price changes.)

    If you’re thinking about using RSI channels, you might want to start with an aptitude test — available here.  Or, just tune in each day and I’ll let you know what I think.  After a year of practice and a few thousand charts, I view them as an indispensable secret weapon.

    UPDATE:  12:20 PM

    Chicago PMI [download here] actually increased from 50.4 to 51.6 this month — though it would still have been below 50 if not for the always handy “seasonal adjustment.”

    The increase again conceals a troubling development: employment and capital spending are both sliding.  New orders rebounded almost to October levels, but CapEx hit a new 28-month low, while employment plunged from 55.2 to 45.9 — the lowest level in three years.

    Lest my bearish leanings sway you, here’s how ISM itself assessed the report:

    The Business Barometer was guided higher almost exclusively by a sizable advance in New Orders.  In spite of the rise in the Chicago Business Barometer, five of the seven business activity indexes declined in December, most significantly the Employment Index.

    In other words, any decline in New Orders — the big “winner” this month — and the whole index will head south for the winter.

    UPDATE:  2:50 PM

    The market continues the kind of slow-motion shuffle to the exits you might see in a crowded movie theater when that first whiff of smoke is noticed.

    Note the impending H&S Pattern (in yellow) completion at 1402 — a scant 4 points below today’s low.  It targets 1354 — right at the Fib .886 of the 1343 – 1488 rally.  We’ve laid the proper groundwork for Bat, Butterfly and Crab patterns in the 1355-1368 range.

    But, of course, this refers to the next leg down — not the entire move.

    I don’t know whether the fiscal cliff will be deemed “solved” in the next hour or not.  I think we can all agree that whatever deal the combatants strike (if any!) the MSM will herald it as the greatest thing since tranched bread.

    If so, and if it gets the right spin, the market is bound to jump.  That’s why we always, always use stops.  Always.  Stuff happens.

    As regular readers know, however, I don’t think it’s going to happen.  IMO, nothing has changed in the past two weeks since I posted:

    …clearly we are slipping closer to the point where a budget deal can’t/won’t be done — assuming the dem’s were ever willing in the first place.

    Given the current political climate, going over the cliff might be the only way possible to reduce spending and raise taxes.  There are many in both parties who openly support the idea, and probably many more who secretly support it.

    It makes sense.  Politicians know we need to balance the budget.  But, they also know their careers will be damaged if they vote for tax increases or spending cuts.  Could be that all the negotiating back and forth is for show, so neither party can be blamed for the hit to the economy that a balanced budget will necessitate (or both will be blamed, depending on your POV.)

    As I’ve posted ad nauseam, any deal means higher taxes, lower government spending, or (almost certainly) both.  We can debate whether this might be good for the country’s economy in the long run.  But, there’s no question that it will stymie growth in the here and now — at the very least.

    Bottom line, I don’t believe there is a “good” outcome to this mess — regardless of what the talking heads report.

    UPDATE:  3:55 PM

    How about a close right at the neckline?  Don’t be surprised.  VIX is getting so very close to tagging that important 22.23 level.  Five minutes left…  where’s the Plunge Protection Team?

    UPDATE:  EOD

    Sometimes — not often enough — Mr Market can be a little predictable…

    Another 3.1% for the week since our 1447 short on the 18th.  Not too shabby.  If anyone’s interested, there are still a few of those Charter Memberships left.  Click HERE.

    I’ll post more later tonight.  Have a great weekend everyone!

  • Oops

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

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

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

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

    UPDATE:  12:45 PM

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

    It’s not.

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

    UPDATE:  3:45 PM

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

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

  • Charts I’m Watching: Dec 12, 2012

    In widespread anticipation of the Fed broadening its accommodative stance, the dollar poked down through its proposed (white) channel overnight.

    While the EURUSD is back-testing its recently broken rising channel.

    With expectations high that the Fed and Congress (some of you might have heard recent talk about the so-called “fiscal cliff”) will deliver, the cost of any disappointment could be very high indeed.

    The Fed is expected to replace the upcoming expiration of Operation Twist with new bond purchases, bringing the monthly total to $85 billion (including MBS.)  Whether QE was worthwhile or not is a question for future history books.

    But, there’s no question that each round has resulted in diminishing returns for the market — witness QE3’s paltry 40-pt gain on SPX.  Unfortunately for the Fed, they were up against a worthy foe — a well-established Bat Pattern that snuffed out the rally as we expected [see: The World According to Ben.]

    After the subsequent 130-pt decline, SPX is almost back to its pre-QE3 price level. I find it interesting that, yesterday, 60-min RSI tagged the top of the channel line formed from that brief rally.  It’s all the more interesting that it did so in the form of a back test of the channel that contained the rally from 1343 — and failed to break the previous (Nov 2) high of 1434.27.

    continued for members… (more…)

  • Charts I’m Watching: Dec 11, 2012

    Today marks the 6th session since we shorted at 1423 [see: Without a Net] in anticipation of a strong downdraft.

    The first wave down since then was a respectable 25 points, hitting just below our initial 1400 target.  Wave 2 has since rebounded a little over a Fibonacci 88.6%, but is definitely taking its time.  With the bump up in the futures overnight, there’s even a possibility SPX will go up and tag the actual .618 at 1424.41 as discussed yesterday ( it hit 1423.73 on Dec 3.)

    The markets remain frozen in fiscal cliff headlights, and thus our forecast is becoming stretched.  I’m not overly concerned about this, as it has occurred in each of our previous analogs. I think it has to do with recognition of the pattern, and the efforts being made to avoid a similar outcome.

    The slope of the white channel could potentially be shifted, as illustrated by the above chart.  But, it would take a break out to reach the next higher Fib levels.

    A sustained move up through SPX 1325 would signal a Gartley Pattern to the .786 (1446) or Bat Pattern to the .886 (1459.)  In that event, I’m fully prepared to switch sides and take a stab at re-shorting at those higher levels.

    But, indications are that our primary forecast is about to be realized. The dollar, for instance, has tagged the bottom of the channel after completing a 61.8% retrace of the 1st of a wave 3 higher.  If it can hold the channel, the next move up should be explosive.

    continued for members… (more…)

  • Charts I’m Watching: Sep 21, 2012

    It appears my idea to close out longs because the bounce was done at yesterday’s close was premature dead wrong.  SPX looks like it’ll break out of the little channel on the opening bell.

    We might get a back test as in the past, but it’s difficult to say for sure.  Today is OPEX, so the safe play for traders is to close any shorts on the open and play along on the upside.

    UPDATE:  9:40 AM

    The market broke out of the channel we were watching.  As I mentioned yesterday afternoon, the upper bound is parallel to that of a similar pattern from earlier in the month.  When that TL was broken, SPX tacked on 30 points.  I don’t think we’re looking at the same thing here, but I can’t be sure.


    OPEX warps everything.  If we can drop back into the channel instead of just to its upper bound, then I chased after the upside for nothing.  But, watch for a back test right around 1463.

    I still believe we’ll get more of a reaction off of all those key Fib levels we just reached — chiefly among them the .886 retracement of 1576-666 at 1472.  Twenty-four points just doesn’t seem enough after an 808-pt climb.  On the other hand, after that long/strong a rally, it’s not so easy for the market to stop on a dime — especially after the supposedly game-changing QE3.

    The RSI picture shows a clear break out on the 15-min chart.  Normally, we will get  a back-test of the broken TL, which will also affect prices.  As the chart below shows, we broke through the initial white channel line and are bumping up against a higher, parallel one.

    Note that we’re also testing — for a third time — the yellow channel line (the thin yellow line rising through the middle of the chart.)

    If these levels can hold — and, by the way, they represent no special Fib level — then this morning’s rally will be contained at a 65% retracement of the 1474-1449 drop.  Given that it’s OPEX,  we could bump along the red channel line until EOD, at which point we’d be close enough to tag the .786 (small purple grid) at 1469.28 — call it 1470 (i.e. water torture for any remaining put holders, but no reward for the call holders.)

    But this would definitely be a breakout of the little white channel.  Can we do that without signalling higher prices to come?  The white channel is currently at 1467 — only a couple points below the .786. Is it worth playing the breakout for 2 points?

    Probably not.  But a breakout is a breakout.  And, there’s no guarantee SPX will continue to respect the big yellow channel.  If the rally extends into Monday, the .886 intersects the yellow channel line at 1471.71 — a relatively deep retracement for a corrective wave.

    Bottom line, I’ll likely put on more short-term longs if we break out convincingly above the small white channel — currently around 1467.  But, if we do, I’ll probably look to close out before the end of the day.  I just don’t have that much confidence in breaking the yellow channel line.

    If we reverse off the channel line instead, then we should at least head down to test the just-broken white channel line at 1463, or the bottom of a larger rising wedge (chart below, in yellow) at 1460-1461.

    A break there would open up the possibility of a trip back to the white channel bottom and our 1444 interim goal.

    I remain short, but will dump that position if we break above the top white channel line/yellow rising wedge/yellow channel line.  I chased after a few calls this morning (mostly as a hedge) for nothing, as the market hasn’t been able to seal the deal.  Those are on the chopping block unless we can move convincingly through the resistance mentioned above.

    UPDATE:  3:55 PM

    Market finally shaking loose.  VIX argues for lower prices ahead.

  • Charts I’m Watching: Sep 20, 2012

    ORIGINAL POST:  10:00

    The logjam finally broke.  We slightly exceeded yesterday’s 1464.50 target — topping out at 1465.15.  This morning’s action reached the downside target “A” we established on Monday [see: The Hangover.]

    We got a bounce at the bottom of the red channel — which should reach the 1454-1455 area — the recently broken red channel line and the midline of the white channel. But, I don’t think this move is finished (keeping in mind tomorrow is OPEX.)  More in a few minutes.

    continued… (more…)

  • The Midnight Hour

    The market is wandering at the moment, trying to establish some tone for the day.  It looks weak at the moment, but in the absence of any fresh news/rumors re the German court ruling and/or QE3, I suspect most traders have already either placed their bets or taken their money off the table.

    One of my favorite charts to watch when the market is drifting is the short-term DX — say 15-min.  Currency markets are deeper and less susceptible to retail influences than equities.  I consider them “the grown-up in the room” and believe their tells are often more accurate.

    A bounce off that little red dashed TL (and white RSI TL) and I’ll likely re-short.  A break, and equities will probably continue higher.  Here’s the 5-min chart:

    Remember, the dollar is still trying to battle back from a deeply oversold condition.  The daily RSI fell out of its channel Friday, but is doing its best to climb back.

    More in a few.

    UPDATE:  10:45 AM

    There’s the break down through the TL — should give stocks a boost.  But, there’s support down below at 79.859-79.901, so I’m not inclined to chase it.  I’m in cash now, and expect to be in cash at the end of the day.

    Random thought for the day:  if Treasury, which is joined at the hip to the Fed, knew that QE3 was coming Thursday, would they be dumping their remaining AIG right now?

    *  *  *  *  *  *  *  *

    The German Constitutional Court is scheduled to deliver their verdict on all things ESM at 0800 CET, 3:00 AM EDT — midnight on my beloved left coast.  Will their love come tumbling down?  We’ll have to wait till the midnight hour.

  • Lemmings and Us

    ORIGINAL POST:  9:30AM

    The dollar and the euro each overshot our short-term targets just a tad, but are resuming the path we mapped out for them last week.

    The EURUSD came very close to a key .886 Fib level, prompting many to wonder “was that it?”  I wasn’t so sure, myself.  The resultant sell-off was pretty convincing, taking out the previous low.  It reversed as we expected it would overnight, and appears to be taking a run at 1.2588.  If it can break that level, it would complete a measured move to the .886 at 1.2617.

    The dollar, meanwhile, bounced hard off the channel midline as expected, and has resumed its decline towards the 1.272/.5000 at 80.83 – 80.88.

    Each of them is at a smaller degree .786 or so, meaning they’re due for a pause here.  And, if they can’t seal the deal with a higher high (euro) or lower low (DX), then the party’s over sooner rather than later.

    But, I’m still operating under the assumption that we’ll get one last push in this corrective wave before things come undone at Jackson Hole.  I have yet to see any serious trial balloons regarding an imminent QE announcement.  While not necessary, I would expect the very political Fed to do so, especially given the diatribe coming out of Tampa this week.

    If DX and EURUSD are only in a corrective wave, can SPX break out to new highs as we wondered last week?

    continued… (more…)

  • Moment of Truth

    SPX has been tracing out a channel over the past several months, but its RSI has clearly formed a rising wedge.  The divergence begs the question: “which will prevail?”

    Regular readers know I’m a fool for chart patterns in general and RSI chart patterns in particular.   But, that’s a solid channel that’s withstood some pretty nasty headlines.  And, as we’ll see below, it is exactly parallel to the channel that guided the Dec 2011 to May 2012 ramp.  We’ll see if we can find some corroborating evidence to guide our forecast.

    continued… (more…)

  • Update on EURUSD: July 6, 2012

    The euro is again hanging by a thread.  Recall it already broke down from and is back-testing a big channel (solid red, below) that dates back to 1997.  Its weekly RSI, however, looks like it could have some life left in it.

    First, I should make clear that I think the euro zone is toast.  The only thing holding it together right now is Germany’s indecision as to whether it’ll save money in the long run by going its own way.

    But, one of these days, investors will turn their attention back to the US dollar.  When that happens, there’s a fair chance that the American problems will be judged to be every bit as serious as the EZ’s.  In the end, it’s a dirty shirt contest and either currency could take first prize — especially if everything starts melting down — stocks, bonds, metals alike.

    With that said, let’s look at the charts.  (more…)