Currency markets have been quiet the past few days, with the dollar showing some indecision as investors try to wrap their minds around a potential new high for equities.
Since we hit our downside target at the white .786 on the 13th, DX has been non-committal. My best guess is a repeat of the .786/.886 retrace down to the red zone before DX takes off higher, but this is neither assured nor necessary for our equity forecast to play out as expected.
continued for members…
The large white rising channel has held for almost two years now, and I see no reason for it to yield at this point. Note also that the recent falling red channel is essentially a repeat of the one traced out between Apr 2010 and Aug 2011. So, a breakout would be very dollar bullish/stock bearish.
The white .786/.886 at 85.47 – 87.07 intersects nicely with the purple 1.272 and 1.618 at 85.78 and 87.69. So, this remains my medium-term target. First, however, DX will have to contend with the top of the purple channel — which might not be all that easy.
I sometimes play around with the purple channel (I lead a very exciting life, I assure you.) If we shift it slightly, the action since Apr 2012 looks more like a breakout and backtest. Note that the latest falling red channel features the exact same slope as four previous channels. Each has been followed by a strong rally.
The above chart also illustrates the essential conflict between the falling white channel and the rising red channel — and why my 87 target is iffy. If one combines the top of the white channel and the bottom of the red channel, it forms a pretty obvious triangle (highlighted in yellow) that’s gradually narrowing. The apex is way out in 2021.
But, before DX can even get close to either bound, it must first break out of the smaller triangle formed by the bottom of the small white channel and the last two highs (highlighted in red below.)
The top of this triangle is currently around 83, which is roughly the .618 of the June 2010 to May 2011 plunge from 88.91 to 72.86 (white pattern below.) It intersects with the big red channel midline and rising white channel midline at that price level in the next few days, which supports my notion of an imminent top.
I’m still working on a longer-term forecast, but I think the most likely case at present is a ramp up to the .618 (the shaded circle) that coincides with an equity sell off from 1509-1515, followed by a pull back (corrective wave in equities), then a push higher to test the .786 or .886 around April – May.
Comments
6 responses to “Update on DX: Jan 25, 2013”
Hello PW, the current SPX is about 1502 and it keeps climbing. And you suppose an equity sell off from 1509-1515. No offense. But how do we know SPX would have a sell off at 1509-1515? SPX is not restricted by any boundary so far. Thanks!
I hope you know there are absolutely no guarantees in investing, and no security is restricted by any bound other than 0. I present my best guess based on 35 years of experience and charting for 10-12 hours every day. That’s the best I can offer you.
No offense. But your recent bearish calls since last December have not been perfect. It is not about your method. Rather, it is the current behavior of SPX may be different now. The old approach may not work with the new SPX’s behavior. That’s why I am wondering. Again, no offense.
No offense taken. Perfection is not attainable. Expecting it is a futile distraction and has blown up lots portfolios (foolproof strategies, Bernie Madoff, etc.)
Harmonics is a game of playing the odds where we try to get it right most of the time. Anything over 50% will make you money; my calls over the past 9 months have been right about 84% of the time (https://pebblewriter.com/performance/) and returned close to 100%.
I note reversals at key Fib levels and draw conclusions which are based on the exact same principles that have worked ever since H.M Gartley developed them in 1935.
When we get a reversal at the .618, for instance, it signals a potential .786 (Gartley) and/or .886 (Bat) pattern reversal. Once we go beyond the .886, things are harder to predict because of the possibility of a double top (such as SPX 1576 in Oct 2007.)
Once we clear 101% of the previous high, the double top is technically off the table and we can look forward to the 1.272 and 1.618 Fib levels.
In short, it’s that .90 – 1.02 level that’s always the most problematic. We can look for other chart patterns, sentiment, etc for hints, but as I said before, all of these things are indications, not guarantees.
If you can find a manager who has never had a flat month, I strongly recommend you put every dime with him (only if custody is at a neutral, reputable 3rd party and statements come directly to you.) But, I don’t think they exist.
In the meantime, I’ll take the outsized returns (and occasional flat months) that harmonics offer any day. Hope that answers your questions.
PW, With the anticipated rally in the USD to the .618 (82.776)…and the SP moving up to 1509-1515…What is your lower target (correction) for the SP in this upcoming equity selloff?
I’ll be fine tuning it this weekend, but it’s safe say a return to the bottom of the wedge is the initial target — currently around 1437.