pebblewriter

Tag: SPX

  • 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.

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  • The Hangover

    Bulls had quite the party last week.  SPX broke through fan lines, Fib levels and resistance galore on decent volume and breadth, reaching our 1472 target in a big blowout party hosted by the ECB/GCC/FOMC.

    We discussed this target as far back as March 18 [see: Big Picture].  It was refined further a few weeks later in my posts re an analog I developed [see: New Analog I’m Watching].

    The timing ended up being off, as we made essentially two right shoulders in that H&S pattern, and thus reached the bottom in early June instead of early May.  It also took longer to get up to 1472 than I expected – 3 1/2 months of gut-wrenching chop instead of the nice 3-wave move higher I charted.

    SPX also fell further than the 1305-1317 target I originally anticipated.  I amended it along the way to as low as 1295, never imagining we’d break the 1292 support level.  But, in general, the analog played out pretty darned well — establishing new highs and turning many bears into bulls.

    The great thing about reaching targets, of course, is the profits.  Our theoretical long/short SPX portfolio is up about 55% in the 5 months since that analog was posted [see: results.]  The scary thing is figuring out where things are going next — as it’s absolutely no fun giving any of it back.

    Are we really on a sustainable path to SPX 2000 now that Bernanke has practically guaranteed the market will never go down?  Or, are we due for a killer hangover — those 208 points vanishing faster than a Vegas bachelor party security deposit?  The answer, as usual, is somewhere in between.  Though, since I shorted at 1474 Friday, you can probably guess how I expect this to play out.

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  • Down the Jackson Hole

    As we anxiously await Bernanke’s big show, the market is putting on a little show — reaching the 1409 target we mentioned yesterday (and then some.)

    If Bernanke disappoints, as nearly everyone now seems to think he will, that should just about do it for this retracement.

    As I’ve posted for the past several days, I’m largely in cash (save for a small speculative short position that’s strangely barely moved this morning, and to which I’m adding at 1410.70.)

    More after Bernanke’s comments.

     

    UPDATE:  12:30 PM

    The EURUSD hit our 1.2617 target this morning.  We first ID’d this level on August 22 [see: Charts I’m Watching], and it looked very touch and go up until this morning’s ramp.

    We could even go a bit higher to tag the 1.618 of the little red Crab Pattern — which is the .886 of the larger yellow Bat Pattern at 1.2666.  Most of the time after EURUSD 60-min RSI peaks, we get another lesser RSI peak that corresponds with a higher price peak (known as negative divergence.)

    But, the daily RSI is still back-testing the channel its been in for over a month (note the negative divergence on the daily) and fell out of on Aug 29.  I see RSI closing at or below the white channel and falling back to find support — initially at the purple channel line before breaking down further.

    A break thru the bottom of the white price channel (currently at 1.2388) will confirm the downside thrust has continued.  Until then, there is plenty of support at the various channel lines.  I don’t see an immediate plunge in value — probably not until the German Constitutional Court ruling on the ESM on Sep 12.

    Note that we’ve officially exceeded the red dashed channel line by a bit.  If we get a reversal today or even in the next few days, this is of little consequence. The channel has been violated temporarily before in its battles with the purple channels.

    UPDATE:  12:45 PM

    The dollar has come very close to hitting our target this morning, falling to 80.96 versus our target range of 80.83-80.88 also discussed on Aug 22 [see: Charts I’m Watching.]  Like the EURUSD, one last thrust lower to complete the tag is possible if the past custom of positive divergence were to repeat.

    The daily RSI has probably broken out of the falling wedge it’s been in since May.  In any case, we’re at or very near the bottom for the dollar.

    Recall that we’re in the final stages of a pullback in a larger uptrend with potential over the next few months to 87.076.  For those with the patience to ride out the inevitable swings, this should be a relatively safe place to earn nearly 10% in a few months.

    I expect prices to snap back into the purple channel and resume their climb; although a dip corresponding to a politically related equity surge is to be expected somewhere along the way.  If/when stocks sell off, we’ll get the greatest move in the dollar.

    If the stock market correction is serious enough, look for the long-awaited threatened QE3 to knock the dollar for a loop.  I wrote extensively about DX yesterday.  For more detail, see Managing Expectations.

     

    UPDATE:  3:00 PM

    The S&P 500 is hanging in there after a pretty wild ride.  SPX closed yesterday at 1399.80, soared to 1410.72 on the opening, fell back to 1398.96, soared again to 1413.09, and has since settled back around the the 1404.64 Fib level — where it’s inching higher.

    The markets were clearly not thrilled with Bernanke’s remarks this morning.  But, I suspect there was a sizable short position at yesterday’s close given Lockhart’s “QE3 is a close call” remarks.  It seems like everyone was thinking the same thing: no QE announcement tomorrow (today.)  In retrospect, it was a great opportunity for a short squeeze.

    In the end, Jackson Hole was a non-event.  Bernanke left the door open for QE3.  Depending on how you parse his words, it might even be slightly more likely.  VIX has settled back down, the dollar didn’t fall off a cliff, and the market is trading roughly where it has been for the past three weeks.

    Count today as the 18th session in a row to trade within 5 points of the fan line from 2007, the 15th to touch it, and the 7th to straddle it.  Clearly, the market is trying to make up its mind whether this is the end of the ride or the beginning of the next leg up.  I’ll spend this weekend trying to sort that out, but in the meantime, some charts are in order.

     

    SPX has formed the early stages of another leg down.  The red channel to the right is the same slope as the larger channel to the left.  If we are heading down, we can expect this channel to broaden; so, the top isn’t necessarily in.   The first peak in the former red channel was exceeded twice before the channel was done forming just the left side of its eventual full width.  We’ll come back to those red channel lines in a moment.

    The dashed yellow line that formed the neckline for the small H&S pattern (indicating 1370) over the past couple of weeks is parallel to a number of other important channel lines — shown above in red.  For the sake of illustration, I’ve changed them all to yellow in the chart below — and added a few more parallel lines.

    It’s easy to see how influential they’ve been over the past several months.  But, in reality, they and their cousins have been influential for years.

    The latest H&S neckline mentioned above stopped a rally in Feb of 1996, touching off three back-to-back Butterfly Patterns in a row that governed the market’s movements for a full seven months.

    The red channels mentioned above guided many of the corrections over the past 20 years.  Most of them were relatively minor, but one stands out from the rest — the crash from 2007.

    There are three more systems of channels I want to chart — along with updating the harmonic picture. But, I’m running out of time before the close.

    I’m going to go ahead and close out my short from this morning before the close here at 1404.50 and reevaluate the next move forward.

    I’ll have lots more charts either later this evening or tomorrow morning — along with a forecast.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

  • 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?

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  • 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.

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  • The Waiting Game: July 31, 2012

    ORIGINAL POST:  11:30 AM

    SPX might be tracing out either a flag or pennant pattern on the 15-min chart.  While either could portend higher prices (2/3 of the time), a flag would mean lower prices first — probably down into the mid 1370s.

     

    At first blush, the market seems to be respecting the last high of 1380.39 on July 19.  I suppose it makes for a more positive wave structure.

    But, I suspect the bigger worry for bulls is the Fib .786 at 1381.50 (in yellow).  This retracement from the 1576 to 666 plunge (Oct 2007 – Mar 2009) was only recently exceeded again, and a real, live bull market shouldn’t have any difficulty retaking and defending it.  Here’s the big picture, again:

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  • Investing and Poker

    Our decision to go long again at 1331 is paying some nice dividends, with SPX up over 30 points in the past two days.  If we can hang on through tomorrow, we should be up over 50% since inception (March 22.)

    A little reminder…  a few days ago I announced a 37% discount to the first 37 new annual members in celebration of our 2nd quarter results (up 37%!)   If you’re already a monthly/quarterly/semi-annual member, we’ll just tack it on the end of your current membership. If you’re already an annual member, tell a friend and earn 3 free months when they sign up.   There are still 11 spots left, so grab ’em while you can.  This deal ends tomorrow, when new rates are announced.  To sign up, click here.

    In my old days on Wall Street, this would be a great time to start indexing.  Institutional asset management is all about beating your benchmarks and quartiles, and every manager I know would absolutely sit on a lead like this and ride out the rest of the year essentially owning the S&P 500.  But, you all know me better than that, right?

    I am an ardent believer in the chart patterns, channels, harmonic patterns and technical analysis that have enabled us to capitalize on rather than fall victim to volatility.  It’s hard work, for sure.  I start around 5:30 am and often nod off around midnight — still charting.

    But, the results are worth the effort.  We certainly won’t be on the right side of every move every time; my goal is to get most of them right by sticking to our proven methodology, and avoid being sucked into positions based on hope or fear.

    One of our members (known here as Beach Justice) is a professional poker player;  he recently offered me the following sage advice:

    There’s a saying in poker: “Don’t be results oriented,” which simply means that just because your play didn’t work out and you lost the hand, that doesn’t mean it was wrong, and thus you shouldn’t bitch about it.  Profitable situations in poker get annihilated by low-percentage cards all the time, but if the expected value of the play was positive, that’s all that matters and the profit will be there over the long run.

    Trading the is the same way, just because a particular forecast doesn’t work out for whatever reason, it doesn’t make the position a bad bet.  If I make 10 trades with an estimated 3:1 risk reward and I get stopped out on all 10 of them, as long as the analysis was good that’s fine.

    Anyway, as simple as that concept is, I never see traders discuss it and just thought it might be helpful in teaching trading.  We’re here to take good gambles (and on pebblewriter.com, learn how to find them) but all a good gamble does is offer an edge, it doesn’t guarantee it will pay off every time.

    Perhaps a blog about something like this will reinforce to any readers (or haters if you somehow have them), that it won’t always work out, and there’s nothing wrong with that.  So just a suggestion in case that’s helpful.

    Thanks, BJ; it’s extremely helpful.  Because, I have no interest in sitting on our lead and/or playing it safe.  God willing, we’ll keep doing what we’re doing and the results will sort themselves out.

    And, thanks to all of you for your emails yesterday.  I will strive to make my posts more succinct for those who want the headlines, and still offer excruciating detail for fellow chart rats.

    More charts coming shortly.

    UPDATE:  3:30 PM

    Not much going on since this morning’s ramp.  Still long, still looking for higher.   Though we tagged the .618 of the most recent dip, so we can expect the usual pull back.  Keep an eye on the 15-min channel for signs of anything more than that.

    I’ve been scanning various indices to see what, if anything, they might have to say — ideally in harmony, if not in unison.

    First, let’s orient ourselves to the longer term channels.  The set shown on the first chart above stem from some pretty authoritative fan lines from the 2007 top and 2009 bottom.

    So, when we chart the various upside targets based on channels and trend lines, they’re not the least bit arbitrary.

    TL 3 is the top fan line off the 2007 top.  TL 2 is parallel to another fan line off the top.  TL 1 is pretty obvious, and has already been broken anyway.  And the purple channel guiding the upside since 1266 is formed by a fan line off the 2009 and another line parallel to it.

    The most likely turning points as we continue upward will be the intersection of these fan lines and key Fibonacci levels — such as the .786 at 1389 and the .886 at 1404.  Remember, 1404 is also the target level of the inverse H&S pattern from June — indicated in white.

    The purple channel itself allows for any of these potential targets, whereas the rising wedge that had been under construction maxed out around 1404.  That wedge still resonates with me, because so many wedges, when they break down, go back and tag the original apex price level.    Here’s what I mean:

    The same thing just happened on DX in a very nice payoff to our call of a top on Tuesday [see: Update on the Dollar.]

    It’s happened so many times to me that I actively look for it now, and I find it interesting that a pretty clean RW can be drawn with a 1404 apex.

    From current prices, the various upside targets represent only a 2.5 – 3.8% increase for SPX.  The other indices are similarly positioned.  NYA, for instance, needs only 3.5% to reach its inverse H&S target, or 4.3% to reach its Fib .786 at 8091.

    DJIA needs 1.3% to reach its .786 and 2.9% for its IH&S target.

    And, RUT is only 6.9% away from its .786 and IH&S target, both of which are at 821.

    Bottom line – not much further to go before it’s do or die time.  I have to run out for a meeting.   I’ll post more later if I can.

     

     

     

     

     

  • Charts I’m Watching: July 23, 2012

    Looks like I jumped the gun Friday, getting back in too early after scoring 15 points on the downside.  We have a substantial cushion, being up 626 points/45% since inception on March 22, but I really hate giving any of it back on a off-hours dump like this.

    As I posted Friday:

    If you didn’t get short ahead of time, the likely downside of this push is the small channel bound at around 1364.  I don’t think it would be worth jumping in at this point.  Of course, if we break 1360, it’s a different story.

    Having a stop at 1360 doesn’t help much when the market gaps open down 20 points.  So, we’ll focus on where we’re likely to end up today.

    While the upper bound of our rising wedge has been pretty clear, the bottom has so far refused to present a crystal clear picture.  Whether or not to include which tails has left the exact slope muddled, which means it’s difficult to anticipate the probable low this morning.

    There is a trend line (yellow, dashed) in the daily RSI that indicates a bottom is already in, but it’s not a TL or channel line I’ve been following, so it warrants further study.

    It caught the tumbles on Apr 10 (-28.25), June 11 (-42.25), June 25 (-24), July 12 (-19.75) and is thus skilled at putting a stop to big drops.  It has just been tagged this morning. (more…)

  • Charts I’m Watching: July 6, 2012

    ORIGINAL POST:  9:15 AM

    The ugly NFP has been called “not ugly enough” to bring on more QE immediately.  Let’s look at how the current 10-pt ES loss might shake out on the opening.

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  • Going For It

    ORIGINAL POST:  11:15 AM

    In something akin to a recess appointment, the market is making a run for our target area (the rectangle in the chart below) during a holiday-shortened trading session.  We’ll look at the chances it has of getting there and the most likely impediments.

    First, the little pullback we had to the midline yesterday was the 10-15 points I’d been discussing.  I wondered whether we’d get something bigger, but this morning’s action lays that option to rest.  It does, however, open the door to a bigger pullback at the 1.272 coming up.

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