We’ve been blessed with a real trader’s market the past few months. Had we simply held our April 2 shorts (at 1422), then covered and gone long on May 23 (at 1298, I was early), we’d be up a respectable 215 points (15%) as of Friday’s close.
There’s certainly nothing wrong with a 15% return in 4 months. It beats the heck out of a buy and hold strategy which would have left us down 33 points (-0.49%)
By paying attention to harmonics and chart patterns, however, we registered 685 points over the same period for a 49.25% return.
Looking back, our forecast was eerily accurate. Here’s the chart I posted on June 11, a slightly revised version of a June 1 forecast [see: Mixed Signals.]
The forecast line is the solid purple line rising diagonally across the chart in the middle of the red channel. I was expecting a quick decline from 1335 to 1308, then a rise by July 25 to 1389. I punted on the likely wave shape, drawing a straight line down the channel midline from June 22 on.
We got the decline the next day (to 1307)… and followed that with a rise to 1389 by July 27 — only two days later than expected. Here is the exact same forecast, superimposed on the actual market results.
I’m not aware of anyone who correctly anticipated the wave moves. I’m glad I didn’t embarrass myself by taking a wild guess. But, the channel worked very well — until the July 12 dip necessitated a slightly tamer slope.
Earlier today, a friend described his attempts to capitalize on the rise since early June using options. He had the right direction, the right target and nearly the right timing. Yet, profits had been anything but automatic.
I attribute the difficulty to the crazy wave structure we’ve seen since June 25. It’s been a tough time to stay ahead of the daily swings. In the past 38 sessions since 1266, only 3 featured daily swings of less than 10 points. Fourteen had daily swings of 19 points or greater.
So, what’s next?
continued…
As I posted back on June 20 [Fed Up Yet?] after SPX put in a Point B at the Fib .618, the potential exists for either a Gartley or a Bat Pattern. Gartleys complete at the .786, which in this case is 1389 — Friday’s high. A Bat pattern, on the other hand, would complete at the .886 of 1404.
It makes a difference, because a reversal at Friday’s 1389/.786 could constitute a new Point B — leading to a Butterfly Pattern that completes at either the 1.272 or 1.618. While, a reversal at the .886 could lead to a Bat pattern that completes at the 1.618.
Between the two, the 1.272 gets my vote, if only because it corresponds roughly with the Fibonacci .886 of the 1576-666 drop from 2007 to 2009 — seen here in yellow — and the 2.618 of the recent smallest red pattern.
But, wait — a significant reversal at the 1.272 means we’d have to put in a Point B at the .786 first, meaning a reversal at our target of 1389. Remember, 1389 was Friday’s high.
This is all supposition, of course. As I posted last month, the question of whether we’d reach 1389 was nothing compared to the question of “what then?” And here we are.
Tell me what Geithner or Draghi or Merkle or Bernanke will announce this week, and I’ll tell you whether we’ll be up or down 100 points. Either is distinctly possible, depending on whether investors get their fix or not.
More in the morning.
UPDATE: 9:35 AM
I believe we’re going to top somewhere between Friday’s high of 1389 and 1404 — with 1394 looking good from a channel standpoint. But, I think most market participants are waiting on headlines out of Sylt (Schaeuble/Geithner) or the Fed.
If we exceed Friday’s 1389 in the short run, it’ll likely be an intra-day push to 1394 or even 1404, so I’ll switch sides and play along.
But, I think there’s more downside risk here, and am keeping plenty of powder dry should things get going.
Interesting goings on in AAPL and NDX. Note the price channel tag and the RSI midline channel tag.
UPDATE: 11:30 AM
Still very quiet, but we’re probably seeing a break down of the little rising wedge on the 15-minute chart.
The most likely initial target is the other side of a potential channel — currently around 1375-1380 (a moving target, of course, as the channel bound slopes upward.)
UPDATE: 2:30 PM
The paint’s not quite dry on this fence, but ain’t it exciting? The pattern that’s been forming on the 15-min chart is due to break down or break out, so we should get some action soon.
I’m becoming more interested in the upside case here, with a tag of the 1394-1404 range before starting down. If we break convincingly above the small red channel line I’m going to switch my small short position to a small long position with stops tbd.
3:55 PM
No breakout/breakdown, no change in position. Holding on to a small short position, will see what tomorrow brings.
NOTE: the first paragraph of the post made at 9:35 EDT this morning was inadvertently overwritten. In it, I mentioned I was taking a small short position at 1387, based on the rising wedge formation (shown above) and the fact that we had reached the .786/1389 target detailed weeks ago. It is a small position because we’re at an obvious fork in the road that could lead to large gains or declines depending primarily on what the Feb announces in the next two days. Expectations are very high, particularly after multiple promises from across the pond to do whatever it takes to protect the EZ.
Comments
16 responses to “The Big Picture: July 30, 2012”
Hi Pw, I’m new to the site. How do we discern between an intraday trade and one that will make it to the results page. ie, are you acually short as of today? Can you give the time of day on your results page as well as the day you officially went long/short/cash? How long does it take to post to the results page? I would think if it’s not done as it happens it dosn;t mean as much as if it had a time/date stamp, kind of like the county recorder. Real time is irrefutable and would validate your 50% to date call. Thank you for all your hard work!
Re discerning between trades, you have to read the posts. I don’t, nor do I plan on sending emails advising folks to “buy now!” or “sell now!” unless something really big is happening. New members should go back a week or two and get caught up with the larger trends. I don’t restate all the previously mentioned scenarios in every post, because of obvious time constraints.
When I post a change in positions, it’s typically in context; i.e. I try to write whether it’s a short-term trade within a larger trend or a major directional change. And, it’s usually posted within 10-15 minutes of making a decision. That’s the time it takes to execute some trades and write it up. The post (and usually an accompanying chart) IS the time/date stamp.
But, it’s not always crystal clear. Over the past several weeks, we have been looking for trading opportunities within an uptrend that targeted 1389-1404. But, now that we’ve reached our target range, there is the strong potential for a major reversal.
However, I write that I’ve taken a small position because there is still potential upside to 1404 in the short term and 1462 in the medium term. The picture isn’t very settled at all compared to the past 100 points. I do my best to reflect my degree of certainty in each post.
I also try to post the alternative viewpoint wherever it seems at all likely. As dangerous as the current market is, the Fed might announce QE3 on Wednesday (or a similarly bullish development out of Europe) and we head up to our higher targets.
Results are only posted once a week, and I go back through the previous week’s posts to see when and at what price I posted changes in direction. In the past, these posts could be rather dense, so I have been making an effort beginning the 25th to provide more concise trade info for those who don’t want to or have the time to digest the nuance of every post (see: https://pebblewriter.com/what-time-is-it/).
Again, I strongly recommend all our new members go back and read the past week or two of posts to get caught up with what’s going on.
Hi Pebble,
I made a similar point earlier today, although Disqus seems to have eaten the post.
I appreciate the great commentary you provide on market direction, but it is often difficult to figure out whether you are long, short, or cash at any given moment. I’m not afraid to dig through your posts for the detail, but sometimes the information just isn’t there. For example, you were in cash over the weekend, and your posts Monday morning gave the impression you had a bearish outlook, but you also said you might “switch sides” to long if we broke above 1389 – which we indeed did during today’s session. I didn’t see any confirmation of your position, either cash, long, or short, until you replied to someone’s comment below.
I am not asking for real-time “buy/sell” notifications. I don’t trade solely based on anyone else’s calls, nor should any of your subscribers. But I value your input, and it would be useful if I could tell quickly and easily whether you were long or short at the moment.
Maybe you could include a sidebar, header, or footer on the site that gives your current position with respect to SPX? Something along the lines of “Shorted 1389 on 7/30” would be helpful.
Thanks…
That’s strange. I must have somehow wiped the first paragraph of my initial post this morning. Probably saved over it. It read something to the effect of “taking a small short position at 1387.” That’s why I showed the chart of the rising wedge and wrote “If we exceed Friday’s 1389 in the short run, it’ll likely be an
intra-day push to 1394 or even 1404, so I’ll switch sides and play
along.” Since last week’s post “what time is it” I’ve been making a concerted effort to state my current position with each post — especially if I’m contemplating a switch. If for any reason you’re ever not sure, please use the comment function and ask. Re highlighting it — I’ve been looking for a widget that will create a text box within the post that would highlight the current position. If anyone has one, please forward the details.
Found a nice little plugin that I can use to highlight positions/changes. It’s at the tail end of the post above.
We have a winner today – $VIX:+ 8%…I wonder…
Hello PW, in case of downside risk, what is the level you are watching for? Last week, you mentioned about 1360. In term of timing, it is a very strange week. BB’s meeting on Tue and Wed. And Friday is the employment report (unemployment report) Should BB decide to act, BB might announce QE before the big economic data. Shouldn’t it the other way around? Employment report first and BB’s response to it.
I’m not ignoring you, Tommy, just having a very hard time pinning that down. First threshold prob around 1375, then 1362ish. Depends a lot on where we were to turn down from. My gut tells me no QE on Wed, but something else that gets an initial rise but then disappoints.
Thanks PW! I understand that you are not ignoring me. It is tough in this kind of market. Meanwhile, I do have a philosophical or logic question since last week. In the 2nd quarter, quite a lot of S&P companies (including Apple) fail to meet the expectation. (it is also in the front page of Wall Street Journal today. “U.S. Profit Streak Hit By Global Weakness”.) Look at Starbucks or Netflix last week. The philosophical question is if individual S&P companies are not doing so great, how can the S&P index creates an intermediate high (target at 1404) or recent new high (target at 1462)?
I am not saying that it can’t happen. I am just wondering about it. Would new QE help to sell more iPhones or more Starbucks coffee?
Sometimes earnings drive markets; often, however, markets are driven by liquidity. QE creates liquidity, not earnings. And, to the extent liquidity can stimulate price increases (not well, lately) then unanticipated increases in inflation can ramp stock prices too. Also, QE might improve earnings for some companies that would benefit from a lower dollar (but hurt importers.) And last, QE might help stimulate sales if it boosts consumer confidence. These things are all double-edged swords, however, as QE has the potential to do as much damage as good.
1394 might be the number…
Yes, it works in a lot of ways. But, we’re likely to see lots of chop in here.
Good post PW. Just wondering if you are short at the moment now that we hist 1389.
Yes, but that doesn’t mean we can’t eek out another 5-15 points on the upside. Check out this morning’s update.
If we close at this level looks like shooting star daily formation. Looks like a pretty reliable turning pattern on the spx.
Looking more like a spinning top at this point.