pebblewriter

Tag: VIX

  • Betwixt and Between

    SPX and ES managed to hold key trend lines and channels yesterday, bouncing from just short of our downside targets to exactly where we expected.  All it took was an 18.3% hammering of VIX — no problem for the Masters of the Universe (real subtle, guys!)

    But, there was no breakout.  There wasn’t even an overnight ramp job.

    This somewhat validates our theory about the oil and USDJPY two-step, meaning we should be looking for a big, sudden move in the currency markets as soon as today.

    continued for members… (more…)

  • Reproach and Retreat

    The first big Republican victory — the repeal and replace of the ACA — has morphed into reproach and retreat.  The net impact: what does this failure portend for the rest of the Trump agenda and, thus, the Trump Rally?

    Regular readers know that I’ve looked askance at this rally from the start [see: Why the “Trump Rally” is a Fraud.]  It was born of a sharp reversal in CL, USDJPY and VIX — the key algo drivers.  Momentum traders jumped on board as it rose.  And, somewhere along the way, mainstream investors convinced themselves that the new and improved outlook justified an 18% rally.

    But, live by the algo, die by the algo.  The yen had to appreciate to compensate for higher oil prices.  Higher US and euroland inflation necessitated a drop in oil and gas.  And, front-running the Fed’s tepid response to spiking inflation was widespread.  With the Trump Rally narrative in doubt, there were simply too many plates to keep spinning.

    Futures are off 22.50 at the moment, leaving us some clues as to what to expect for SPX.  But, the more important side of the equation is where do WTI and the USDJPY dip to?

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  • Horseshoes and Hand Grenades

    There’s an old expression that says “close only counts in horseshoes and hand grenades.”  So, we spent most of the day yesterday wondering whether the day’s 2336.45 lows were close enough to our long-held downside target of 2335.34.The tag was marred by premature reversals in oil and VIX.  Did the guys working the algos not get the message?  Or, were they just a little over-eager?  Admittedly, it’s tough to nail a precise value in an index as unwieldy as the S&P 500.  But, they went to all the trouble of engineering a backtest of a key Fib level.  You’d think they’d care…

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  • Whistling Past the Graveyard

    Only a couple of years ago, central bankers became adept at repairing the damage done to stocks after big shocks.  That changed with Brexit, when the strategy shifted to pushing stocks as high as possible before the damage was done… and, still doing all the requisite ramping after the fact.

    They perfected the technique after the US election, turning a 5% overnight dump in the futures to a breakout above important resistance — where stocks remain, today.

    It made a bold statement — that the market was resilient enough to weather a sea change in the political landscape.  This week should be all about proving how resilient it is in a rising interest rate environment.  Judging from the mild drop over the past week, investors are quite unconcerned.

    Does this make sense, or are investors whistling past the graveyard?

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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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  • A New Analog: EURUSD

    As noted back on Feb 21, the EURUSD has broken down from its rising channel (white) and accelerated to the downside, breaking the Jan 4 1.2996 low and the psychologically important 1.30 level.

    The intersection of the purple .618 and two white channels at 1.38 will have to wait (till my next visit across the Pond, no doubt.)

    Losing the rising white channel hurts momentum quite a bit, but it’s the drop back through the 75% line on the falling white channel that represents the bigger problem for the pair.

    This channel dates all the way back to Dec 06. Reaching the top for the third time is still possible, of course, but it’s that much harder now that the pair needs to retake the higher channel line and mount a fresh attack.  Suppose it doesn’t?

    I’ve redrawn the falling white channel as red and will lower its top (for now) to reflect that possibility.  I’ve also sketched in a more relaxed rising channel (light blue) that reflects potential channel support at current prices (the intersection of the falling red .75 and the rising light blue .25.)

    I don’t know whether the pair needs to retest the falling white midline or not.  The bottom of the new light blue channel intersects with the red .75 in mid-March.  Also there is the .25 of the very large rising purple channel, which provided a huge bounce in Jun 2010.  It’s easier to see in the LT chart below.

    Here’s the really big picture.

    Several months ago, I noticed that the entire chart looks a bit like an expanded replay of the little dip way over to the left.  Playing with channels, I got some interesting results.

    The huge rising white channel seems to matter quite a bit. Note the support it offered from Aug 93 – Jan 97.  When it broke, the pair fell precipitously to the midline, shedding .15 in about six months.

    The midline offered support again through Feb 99, then completely fell out of bed (equities maxed out in Mar and Aug 2000.)

    EURUSD spent 18 months in the penalty box confirming the channel bottom until finally breaking out early in 2002.  It nearly reached the midline again two years later, and spent almost 4 additional years grinding higher – reaching 1.60 at a little over the 1.618  before zigzagging lower to its present level.

    We’ll circle back to these charts Tuesday and take a look at the analog’s implications for the US dollar and equities.

    To be continued…

     

  • The Big Picture: Feb 27, 2013

    ORIGINAL POST:  6:00 AM

    SPX ended yesterday just below our 1497 trigger point at the neckline.  I know the bulls would love to blow through this level and negate the H&S, but I think they’ve really got their work cut out for them, especially given the political mess in Italy and the looming US sequester.

    Bernanke isn’t likely to say anything new today.  And, judging from AAPL’s price action, the market isn’t looking to Cupertino for salvation.  The durable goods data?  Ho hum…  Saying it was a good number if you ignore defense and aircraft is like saying a shark attack was fine except for those pointy things in their mouths.

    Defense is due to get a lot worse starting next Monday.

    I’d put slightly greater odds on a breakdown of the purple channel.  As for targets, I’ve mentioned the 1474.51 level a lot – the Sep 2012 high and roughly where the SMA 50 was at the EOD (hat tip to Mike for the question.)

    I still think this area has potential, as a retracement to the .886 of the 1576-666 decline would set up a move to 1576 itself.  Why?  Think of stair-steps, where each major Fib tag or break is followed by a back test to a significant lower Fibonacci level.

    continued for members… (more…)

  • Charts I’m Watching: Feb 20, 2013

    As expected, equities have sold off since tagging the 1.618 Fib of the July 7 – Oct 4, 2011 sell off — dropping as low as 1522.19 this morning.  While it’s gratifying to see a reversal at a major Fib like this, it won’t mean much until SPX can make some new lows.  I’d be thrilled just to see the purple channel midline broken. I remain full short from 1530.50.

    There’s great interest in the Fed minutes due out at 2 EST.  Will the new FOMC composition affect the language re QE?  How did they take last quarter’s GDP decline?

    Housing starts and permits were released this morning.  Overall, starts fell 8.5% since December.  But, it was multifamily residential that was really responsible — declining 27% from Dec 2012 nationwide, an alarming 41% in the Northeast and 62% in the Midwest (versus 16% and 30% in last year’s Dec/Jan comparison.) The South and West regions rose modestly, as did permits.

    The EURUSD has found support at the .886 (yellow pattern) of the Feb – July 2012 selloff.  The rally fizzled several weeks ago at 1.3710 — just above the Feb highs — after initially reversing at the .786, hinting at a Butterfly Pattern objective of 1.3877.  This is also the 2.618 of the white pattern and the .618 (1.3832) of the purple pattern (May 2011 to July 2012 decline.)

    If the pair manages to hold the .886, it augers well for a move up to that target level.  The next white channel level to intersect 1.3832 is the midline around March 18-20.  The bottom of the white channel is currently around 1.3250.

    The dollar, in the meantime, has retraced the losses sustained the past two days.  In the process, it reached the midline of the white channel since Feb – so, we’ll be on the lookout for resistance.

    Remember, DX RSI broke out of a daily channel (red, below) on Monday and back-tested it yesterday. It also successfully back-tested the midline of the rising purple channel and is poking up above the yellow 75% line — so, the upside case is clear.

    What, then, would a dollar break-out mean for stocks?

    Quick aside: just read the FOMC minutes from stem to stern (available here) and there’s nothing of any importance that I can tell.  This is really no surprise, given that the last statement was virtually identical to the previous one.  Here’s the discussion of the statement:

    The media is reporting “increased concern” about the level of QE and inflation, but there is very little change in the outlook and the hawks are still vastly outnumbered by the doves.  I suspect that as long as inflation stays under control, and the dollar remains in a trading range — meaning no new pressures or relief for importers/exporters — the FOMC will leave things pretty much as they are.

    Getting back to the dollar and equities… It’s always interesting to compare the DX and SPX.

    Stocks are a mirror image of the dollar through from 2010 through October 2011. At that point, however, they generally move in tandem — except that, as DX forms a pretty docile channel, SPX leaps out and forms a rather extended rising wedge.

    DX has been locked in a trading range between the .382 and .618 of its decline into May 2011, while SPX has obviously blown through its May 2011 highs.

    Since last September, the comparison is especially interesting. DX spent about 6 months bouncing between the .382 and .500 Fibs, while SPX retraced 127.2% of its 1474 to 1343 losses (actually more, but it looks like it’ll probably back test to the 1.272 today.)

    Now, if DX starts to make a move, how will SPX react?  Will it react?  The dollar will need a serious push to get through current levels, since today’s equities weakness/dollar strength produced a Bat Pattern completion at the .886 — just as DX RSI also reached the next higher channel line.

    While, SPX has broken channel support…

    …even though prices reached a potentially important channel midline.

    In the end, I suspect it all spells a breather for SPX’s downturn and DX’s strength – at least until the RSI’s are reset and each can take yet another stab at a real breakout/breakdown.

    I’m holding with yesterday’s short-term forecast/scenario [the 2:45 update], but am open to revision if SPX can push strongly through the channel midline.  I should get a chance to post again tomorrow morning.

    GLTA.

     

     

  • What Gives? Feb 13, 2013

    It was worth watching the SOTU last night just to see Boehner’s contortions, trying to scowl in a dignified, statesman-like way.  Nothing much new in the speech or the response.

    More interesting was Mitch McConnell’s comment on CNBC last night that the sequester will go into effect. I don’t know any reputable economist who believes we can go through sequester without a sizable hit to GDP.

    But, the market is ignoring the tenuous economic situation and continues to edge higher.  What gives?  Aside from the $85 billion mainlining into the banks every month courtesy of the Fed, that is…

    Zerohedge ran a BofAML study last night that pretty much says it all.  The market is currently reflecting bullish sentiment that’s higher than almost any time since 2002.  I imagine it’s even a little higher this morning.

    Most past ventures into this sentiment range have not ended well for the markets – especially when there is a huge divergence between soaring markets and faltering economic backdrops, as the charts below show.

    Notably, the market is ramping these past few days on negative divergence in every single time frame – from weekly on down to 5-minutes.  And, it has completed some very significant harmonic patterns at the very top of a massive ending diagonal/rising wedge that’s precisely aligned with several previous tops (Jul 2011, Apr 2012, Sep 2012.)

    SPX surpassed our IHS target of 1522.60 from yesterday.  I’m closing out longs here at 1524 and will play the downside.

    UPDATE:  3:15 PM

    Getting a nice little push to the downside here — now 7 points off the daily high.  The white channel line that had been providing support is now providing resistance at around 1518.60 (the purple Crab’s 1.618 Fib is 1518.57.)

    SPX just completed a little H&S pattern that targets about 1510.80.

    Stay tuned…