If you just received a text telling you about this new post…it’s not. It’s from May 17 but was “lost” in the move from GoDaddy to Hostgator. I managed to retrieve it and am reposting it for posterity sake.
* * *
With the futures pointing north this morning, we’re left to wonder whether that massive sell-off yesterday (-0.5%) was all we can expect.
As usual, we’ll play along on the opening. We’ll go long, but watch for any sudden reversals.
Why? For starters, the EURUSD continues to crumble. Here’s the big picture:
But, the 60-min chart shows an 88.6% retracement of the latest move up — a natural place for a for a reversal. If it doesn’t however, and breaches 1.2744, that pretty much kills off the purple pattern, which is the best hope for an end to EURUSD’s slide.
And, a tag of the yellow .618 — the most natural place for a reversal and potentially a stronger attraction for the pair than the smaller scale .886 — would kill off the yellow pattern (Point C cannot be lower than Point A.)
DX is likewise coming up to an important target at the 1.618 extension (Crab Pattern) we’ve been forecasting.
But, while the yellow pattern signals a reversal, the larger light blue pattern is still not done. Its 1.618 Fib is up at 85.075.
And, the even larger purple pattern still argues for at least the 1.272 at 85.746 — along with that big channel line up there. Bottom line, DX has thrust up through two channel midlines in the past few days. This is the kind of momentum that’s every bit as powerful as the equities markets. And, it’s hard to say whether the smaller pattern completions can reverse it.
UPDATE: 9:40 AM
SPX just hit the neckline of yesterday’s little H&S pattern and almost reached the .886 of yesterday’s push down. I’m going to try switching back to the short side here at 1658 with tight stops.
We’ll keep a very close eye on those currencies.
UPDATE: 9:57 AM
Consumer sentiment just came in at 83.7 vs expected 78 and SPX has leaked up a little higher. Leading indicators come out in a few… Key level for shorts is 1660.28 — the .886 of the move down from 1661.49.
UPDATE: 10:02 AM
LEI came in at 0.2 vs expectations of 0.3% and the prior reading of -0.1%. SPX nudged just past the .886, but still hasn’t bested it — so far, just a deep retracement. I’ll probably switch sides on any move through the previous high of 1661.49. Otherwise, I’m holding short for now.
I still like the odds of the currencies punching through resistance/support as discussed above. Look at the 60-min RSI for DX — a nice clean break through the midline.
I could be wrong, but we seem to have crossed over into “good news is bad news” land — where suspicions of a strengthening economy stoke fears of the Fed withdrawing the QE IV.
And, this market needs a correction, as even the die hard bulls would admit. Do you allow a little reset and allay the overbought condition, or keep it going strong in hopes of sucking the retail investor back in?
I imagine that very question is bouncing around Washington/Wall Street right now. My gut feeling is that this spurt this morning was designed to shake out the weak bears and trap a few unsuspecting bulls — using the consumer sentiment results as bait. We’ll know the answer soon enough, after TPTB position themselves accordingly of course.
Watch your stops, because my gut doesn’t matter nearly as much as whether SPX leaks past 1661.49.
UPDATE: 10:25 AM
SPX just topped yesterday’s high (which I’m sure bugs the EW guys) but still not Wednesday’s 1661.49. Remember, that high tagged the TL from 1994-2002 — one of the last natural bastions of LT resistance around.
Meanwhile, the USDJPY just reached an important channel line, but faces a quandary similar to the other pairs. The small scale 2.24 is nearby and might make a suitable target if currencies go sideways for a few days.
But, the 2.618 and — more importantly — the large scale .618 are also close by. I suspect the pair will seek out 105.57 — where it intersects the purple channel upper bound on Wednesday the 22nd. More on this in a little while.
UPDATE: 11:00 AM
Getting a little action on the downside finally.
The 15-min RSI is looking nice and bearish…
But, the 60-min RSI chart shows that SPX has climbed back into the broken channel and might take a shot at remaining.
If so, watch out for a potential IH&S Pattern to set up. More charts in a few.
UPDATE: 11:15 AM
Here’s the scenario we need to keep in mind. The target from a completion later today would be right at 1673.50 — the 2.24 of the 1597 to 1536 decline that began on April 11.
BTW, the larger IH&S, with the dip to 1650 on the 15th as the left shoulder, would complete at a lower price. But, the target would actually be a point of two lower since the neckline is a little flatter.
As Matt Bear points out below, today is a massive POMO day with $5.75BB being delivered to Wall Street as we speak.
It’s also OPEX, which is almost always a lot of fun for anyone betting on a sell-off. But, corrections that are pumped and primed very often get going on the Monday following OPEX. Something to think about…
UPDATE: 12:20 PM
I just figured out the way the MM could screw over the greatest number of investors — which means, I think I know how the market’s going to play out today. Doesn’t mean it has to, but remember we have heuristics for these things.
Most people would agree with Occam’s Razor:
The simplest explanation is usually the right one.
And, Hanlon’s Razor is a favorite of mine:
Never attribute to malice that which can be adequately explained by stupidity.
But, where market makers are concerned, I swear by Pebblewriter’s Razor:
Never attribute to random chance that which can be easily explained by market makers’ malice.
continued for members…
By now, most people who notice such things will have noticed the IH&S (in red, below.) It hints at a 12-pt rally, just as the traditional H&S (in yellow, still in play BTW) points to a 12-pt decline.
I wonder how many people have noticed, however, that the necklines of these two patterns converge at the close of trading today and, drum roll please, intersect there with the TL from 1994-2002.
In the absence of any earth-shattering news that sends the market plunging, I think we’ll get a sell-off to at least the red midline (1655-1656) then a recovery just before the close to 1662.50.
This will complete the IH&S and exceed the previous 1661.49 high — which will trigger all the bears’ stops
But, a close right at 1662.50 would also mean that the larger IH&S is triggered and in play. So, the market has to pull back just enough to close at or below its neckline (around 1661.)
The bears will all be cleaned out by the move above 1661.49. And, the bulls will pile in at the worst possible time — just before the big gap down on Monday.
Remember, the traditional H&S targeting 1644 is still in play — and will remain so under this scenario. Given the slope of the neckline, this pattern wouldn’t bust unless SPX crosses 1669 or more.
If I’m right, it would play out something like this:
Suppose that’s right…how to play it? I certainly wouldn’t go long to try and capture the 4 point rise into the close. And, I wouldn’t close out at the EOD if I’m expecting a gap down Monday.
Though, we have Bernanke’s testimony and existing home sales coming in at 10AM, so I’m not sure about the “gap” part (could Bernanke possibly say something that spooks the markets?)
So, playing the downside means sitting tight over the weekend — holding short, even with a last minute rally that will feel like fingernails on a chalkboard.
A close above 1661.49 would be problematic, as the IHS would officially be activated. But, we’ve seen more than a few H&S patterns go bust lately. Rules can be broken, 401(k)’s wiped out and lives ruined as long as there’s an extra buck to be made.
Here’s how it could play out if things really get going…
D-1 is probably the better of the two targets, as it would leave the Apr 11 high unscathed. And, I see the low coming on May 28 as DX hits the white .786 at 85.471
There’s a risk in laying this forecast out like this. And, no, I’m not talking about being embarrassed. God knows that happens daily whether I like it or not. I’m talking about those of you who might take it as gospel and sink every last penny into the SPY 159 puts that expire next Friday (and are trading for .05.)
Putting some “play money” in, sure. But, please don’t go out and do something silly just because I got some lame idea that probably won’t work out. We all know it’s bad karma for me to even chart out a forecast like that.
Don’t turn my bad karma turn into you karmageddon.
Of course if you do something really, really stupid and buy those puts anyway, and they’re trading at .75 each by, say, next Wednesday, I hope you’ll have the good sense to make your own little deposit in the karma bank.
As long as I’m laying it all out, I think that if/when we do tag the bottom of the purple channel, we’ll most likely get a very nice bounce.
The purple channel can’t go on forever, obviously, but I think it’s safe to assume we’ll get to the Butterfly Pattern target of 1823 sooner or later.
UPDATE: 2:50
SPX just pushed past the yellow TL, so I’ll play along on the upside here. 1667 or 1669 look like reasonable targets. A close up there would not be good for the forecast I laid out above.
Taking an interim long position at 1662.70, and will leave stops right there in case it suddenly collapses.
I feel good about it coming back down, but so good that I want to risk finding out otherwise at 1670.
Remember, the key (if it’s going to follow the rules) is a close below the neckline. How high it gets to first has very little bearing on whether the pattern will play out. Note that the Point B in the purple harmonic pattern is at the .886, which indicates an extension to the 1.618 at 1669.45.
A close at or below 1662.70 is what we’re looking for. A close above that, and I’ll likely capitulate and go to cash for the weekend.
The nice thing about this rally is that it’s allowing RUT to tag the last of its targets — the red 2.24 at 998.64.
Even GOOG is tagging some interesting resistance.
SPX is getting very close now. Check out the 15 min RSI — either breaking out or should reverse in the next 10 minutes.
And, the 60-min chart is looking just as good.
UPDATE: 3:40 PM
That’s probably good enough. I’ll close out the long position here at 1667 and go full short. There might be a couple more points upside, but we’re running out of time.
Someone made the point here the other day, and I think it’s a good one, that being up 1,000 points from the Mar 2009 lows is a great proof statement for SPX. Makes for great headlines.
A reminder, I am switching hosting companies this weekend. I am told the site could be down as long as 48 hours — though it will probably be faster than that.
UPDATE: 3:55 PM
Now or never…
