pebblewriter

Tag: trend lines

  • So Crazy It Just Might Work

    As a member correctly pointed out in his comment on XLF Update, a ramp in XLF would mean some big returns for important components such as BAC, C, JPM, etc.  This is very true.  Though it pains me to say it, I think banks are ready for a bounce.

    I sold all my remaining JPM, GS and MS puts today.  I jumped on the downside March 27 when JPM was 46 [see: End of the Line], GS was 127, and MS was 20 [see: Lots More Where That Came From.]

    I bought puts, but even straight-up short positions would have made some decent returns over the past nine weeks:

    JPM:       46 – 32 = 31%
    GS:       127 – 92 = 28%
    MS:    20 – 12.50 = 38%

    But, all good things must come to an end, and I think the tide is turning for financials.  Don’t get me wrong…I still think they’re dead meat in the longer term.  I just think we’re looking at a sizable bounce here and now if — and let me be clear, it’s a very important IF — the rumors are true and Kumbaya Banking and Quantitative Whatever are back.

    If not, this entire exercise isn’t worth the bytes it’s written with.  The financials, along with just about everything else Bloomberg quotes, will roll over and die.  OK, with that huge caveat out of the way — and before you laugh me out of cyberspace — here’s what I’m looking at.

    My targets are as follows…

    JPM:  today’s close = 31.99, price target = 38.69 (+21%)
    C:       today’s close = 25.75; price target = 34.79 (+35%)
    BAC:    today’s close = 7.10; price target = 11.34 (+60%)

    JPM:

    CITI:

    BAC:

    My favorite.  It starts with this little H&S pattern back in the 2007 market top.  Keep an eye on those ascending trend lines.

    Here they are again, on the bigger picture, along with some descending ones, and a nice little channel (red) that works pretty well since early 2009.  Couple of nice channels on the RSI, too.

    This one’s a bit of a long-shot, because it means breaking the red fan/channel coming down from the right shoulder up there, but the RSI channel makes me wonder if we might just make it up to that 61.8/1.618 Fib level.  If not, I think 8.89 is a safe bet.

    So, there you go.  Earlier today, XLF July 15 calls sold for .09 and the August 14’s went for .49.  If I’m wrong, they’ll probably go to negative eleventy-hundred.  Then again, it’s so crazy it just might work!

     

     

    Right about here, my attorney would want me to remind you this is not an investment recommendation — nor is anything on pebblewriter.com.  Investing is risky, and options are a particularly effective way to end up living in a van down by the river.  For full risk advisory and other legal disclosures, read this.

  • A Walk on the Arithmetic Side

    I normally construct charts in log scale.  In general, I regard it as a more legitimate way of viewing time and price relationships.  But, I try to remember to check in on the arithmetic picture from time to time.

    Here are a few arithmetic charts to consider…

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  • This Concludes our Test…

    That should be it.  Remember yesterday [see: Dueling Bancos] we talked about the little channel being established while the market searched for a Point C.  The lower bound of the channel was 1304…

    I think the exact price is going to be hard to pinpoint, and will likely depend on the nature and timing of news from across the pond.   But, leading candidates are the afore-mentioned channel bottom around 1304 and the .707 Fib/red fan line (from Oct 2007) that intersect around 1309-1310.  A push any lower should find strong support at 1300.

    We’ve likely just bottomed out just below 1300 (1298.90) and should head back up now.  The RSI hit the channel midline, which should be its low point, too.

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  • A Most Lenticular Market

    Looking at the markets these past few days, I’m reminded of the prize that comes in a box of Cracker Jacks.  Not a real prize, mind you — but one of those cheap little pictures where the image changes as you shift the angle from which you’re viewing it.  It’s called a lenticular image.

    Despite the uncanny accuracy of our forecasts these past couple of months, the road ahead seems to shift a little with every fresh look.  I can’t remember the last time I agonized over a forecast for an entire three-day weekend.

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  • Calm Before the Storm?

    Fridays before a holiday weekend have a tradition of being very, very quiet.  Today seems to be no exception.   Unless something weird happens, we’re aiming for a close around 1323, up a few points.

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  • Say What!?

    I wasn’t sure what to write about today until I got a great question from a reader, who hopefully won’t mind my reposting it here:

    Pebble, I enjoy your analysis, but are you really saying you bought at the low on Friday and you sold at the exact high yesterday?

    “After scalping a quick 36 points (going long Friday at 1292, selling at yesterday’s high of 1328.49) I got a little cocky and went long again at yesterday’s low of 1310 — even though it didn’t quite reach my 1309 target.  I got stopped out on the opening and am looking for a good re-entry point — probably just above 1300 from the looks of the 15-min chart.”

    DeMark 15 min is saying we will have a bottom shortly in the SPX.

    Lately I’ve been very, very fortunate in my forecasts and trading.  As readers know, I’ve been calling for a decline to 1288-1323 since April 9 [see: New Analog I’m Watching].  On May 6 [see: So Far, So Good], I refined it to 1295 and wrote:

    Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective;  i.e., I think they’ll pull out all the stops to avoid it.

    In between, the market hit my upside target of 1415 on the nose, and just about every interim target on the way down.  We arrived at 1295 only two days later than my forecast from six weeks earlier (the purple line below.) So, trust me when I say I was fairly confident going into last Friday’s session.

    We were completing a Butterfly pattern at 1289.14, a Crab pattern at 1288.69 and were approaching a Head & Shoulders target of 1289.  And, a number of other indicators I watch were all screaming “here comes a bottom.”  I really, really expected a bounce.

    I had orders ready to go when we hit 1295. I drew a little trend line coming down the face of the RSI on the 5-min chart (purple dotted line, arrow A on chart below) and waited for it to be broken.  When it did, I started selling short positions (at around 1295.)  When RSI back-tested and showed positive divergence, SPX was around 1292; so I took a deep breath and started loading up longs (albeit with fairly tight stops, in case I was massively wrong!)

    Was I nervous?  Enormously.  In my nervousness, I devoted practically an entire post [see: Message in a Bottle] to the fact that I’d written myself a note in an April 12 post [see: Analog Details] to bolster my confidence in what I knew would be a very nervous moment a month later.  But, yes, after catching the very top, I caught the very bottom.

    As to 1328, that was much easier. As I wrote yesterday morning [see: On Track] my 1330 target was based on the previous H&S neckline.  But, I was also watching the Fib levels (red Fib lines above) and RSI activity — which was flashing overbought from the word go.

    The rise started slowing as we approached the .500 at 1328.82.  I felt we would probably build a Bat or Crab pattern to the upside, so a turn anywhere between .382 – .618 made sense.  Here we were, slowing at the .5000.  Hmmm…

    I went to the shorter term charts (5-60 minutes) to see what they were doing and noticed a trend line was in danger of being broken on the 5-minute RSI (note the red dotted line that runs roughly from A to B.)

    Within the next 15 minutes or so, that trend line was broken, and back-tested (the yellow arrow.)  That was all I needed to confirm a good entry point; so, I went short — with stops a little over 1330 just in case.

    And, it worked out pretty well — except that I got cocky and traded at the end of the day yesterday when SPX very nearly hit my 1309 target (it was my birthday, I was loopy on pineapple upside-down cake.)  Had I looked at the 5-min chart again, I would have waited.

    So, I got stopped out this morning at around 1305 and sat out until 1296-1298 (discussed at 10:40AM, occurred at 12:25PM) which so far is looking like the right move.  Note the back test of the channel — setting up more positive divergence.  I have stops in just below 1292 just in case, and still believe we’re in for lots of chop.

    With respect to DeMark, I know a lot of folks who follow him, and it seems we’re often of the same opinion.  But, I’ve never studied his methodology and don’t really keep track of his forecasts.  I do take some comfort — especially when taking a contrarian view — when smart people express concurring opinions.

    I sat watching my daughter play volleyball all weekend and ran into another dad who’s very smart and also in the investment management biz.  He asked how I’d done in the markets lately, and I started to tell him about catching the rise to 1422, the decline to 1357, the rise to 1415, and the decline to 1292.

    As I went on, I could see the word “bull****” forming on his lips.  I stopped talking and went back to watching volleyball.

    Good luck to all.

     

  • Ship It!

    Today’s rise continues our successful run — now up 18.5% in the 5-6 weeks since the new pebblewriter.com came online (knocking on wood…)  As expected, we got a sizable reversal off the Crab, Butterfly and H&S patterns.

    As discussed in today’s earlier post, the 60-min channel is again being tested – – to the upside, now.  A study of the RSI picture indicates that SPX will likely (more…)

  • Moment of Truth

    ORIGINAL POST:  4:30 AM

    The analog I posted on April 9 [see: New Analog I’m Watching] accurately forecast the move from 1422 to 1357, back up to 1415, then down to 1292.  As detailed in the last post [see: Why Bother], merely selling short SPX at the tops and buying in at the bottoms we forecast would have earned investors over 17% versus negative 9.4% for a buy and hold strategy.    That’s a differential of 26% that gets the new pebblewriter.com off to a great start.  Now, will it continue?

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  • Searching for a Bottom

    UPDATE:  1:45 PM

    So far, SPX has obliged us by tagging every one of our targets.  The 1310 Fibonacci .707 retrace [see below] of the 2007-2009 collapse is our current intra-day low, and we’re presently sitting at the 1.272 target of the Butterfly incorporated into the analog I first posted on April 9 [see: New Analog I’m Watching.]

    As I mentioned yesterday, I think there’s a very good chance we get down to 1289-1295 (depending on whether they can defend the very important 1292.)  As oversold as things are getting, I wouldn’t even think about going long except, perhaps, to play a bounce — unless we’re able to break out of the acceleration channel on the 60-min chart.

    It’s the dashed red channel that’s guided prices since 1415 (ignore the solid purple line, that’s just our forecast from April 10.)

    UPDATE:  10:05 AM

    Philly Fed numbers aren’t pretty, with a 5.8% drop versus last month’s 8.5% increase.  Especially troublesome is the 6-month outlook, which has plunged from 33.8 to 15.0.

    A negative 5.8%  is bad enough in and of itself, but it looks especially ugly compared to consensus: +8.8-10.0%.

    The Conference Board Leading Economic Index also missed, showing a 0.1% decline versus expectations of a 0.2% gain.  This is the first drop since last September.

    If it looks like the leading economic indicator line hooked down over the past few months, that’s because it has.  Note the monthly rates of change — trending down from +0.7% in Feb to +0.3% in March and now -0.1% in April (not the sort of behavior you want to see in a recovering economy.)  Here’s the official explanation from the Conference Board:

     

    ORIGINAL POST:  9:39 AM

    I’m watching the RSI for clues as to which of our targets SPX will settle on.  Remember, the range is 1295-1323, though the number of unfolding events that could overwhelm our forecast is growing.

    The daily chart shows several parallel trend lines that might provide the final stop.  But, of course, lower stock prices often occur on a higher low in RSI — a phenomenon known as positive divergence, and a sign of a potential bottom.

    Here’s a little better detail on RSI:

    The white dashed trend line (7) is next up.  It stopped moderate declines in April, September and November of last year and probably corresponds with our 1317-1323 target.  Remember, 1323 is the small (yellow) Crab Pattern’s 1.618 and 1317 is the larger (purple) Butterfly’s 1.272.

    The purple dashed line (8) is associated with the declines in November of 2010 and a secondary dip in August 2011 and probably corresponds with either 1300 or 1317 on SPX.

    The yellow dashed line (9) stopped the plunges in March and June in 2011, and provided the higher low for the actual August 2011 1101 bottom.  March 2011 is the analogous point in the analog we’re watching.

    Surfing these RSI channel lines is an inexact science, because turns rarely occur exactly in line with previous highs/lows.  There’s a relatively high margin of error, say 5-8%.  So, it’s possible that yesterday’s RSI low could be considered to have tagged the white line.  If we get a strong rally off the Philly Fed survey or Conference Board numbers at 10am, we’ll call it that way.

    There is one other Fib level we haven’t talked about much — the .707 from the 2007-2009 decline is just ahead at 1309.67.   Many investors aren’t even aware of the .707, so it’s often completely left off charts.  But, this is a long-term pattern, so it could easily come into play.

    Last, the 60-min RSI shows a pretty good possibility of a bounce in the 1317 range.  Between 1323 and 1317, 1317 belongs to the larger and more important pattern — the Butterfly.  So, unless the Philly Fed survey is atrocious, we should get some kind of bounce there.

  • Somewhere Out There, Fibonacci’s Having a Good Laugh

    Some of you might remember this post from May 4.  I was struck by the Fibonacci relationships in both time and price between the last two major H&S patterns, and thought it confirmed my view that the H&S top was ready to play out.

    We all know what’s happened since then, of course.

    The reason I bring it up again is that horizontal purple trend line cutting across the chart from the October high (which helped drive prices higher for months.)  I don’t think it’s a coincidence that it’s at the same price as our H&S target — any more than it’s a coincidence that the latest pattern is:

    1.  1.618 the time of the previous pattern; and,
    2.   .618 of the target price range of the previous pattern.

    These Fibonacci relationships don’t tell us exactly what’s going to happen.  But, they’re practically screaming “pay attention! This could be important!”

    The obvious implication is that SPX will find its way down to 1289, the lowest of our targets initially presented over a month ago [see: Analog Details]  — though I continue to believe TPTB won’t allow a dip below 1292  (too many bearish implications.)

    I’ll post more after the close.