Reading the employment reports these days reminds me of the story told by William Goldman, celebrated screenwriter of such classics as Butch Cassidy and the Sundance Kid and All the President’s Men. He was waiting for a producer to get off the phone when the man suddenly cupped his hand over the phone and shouted to his assistant: “Bill, Bill! Which lie did I tell?”
When we learn that the government is unable to keep track of the number of its own employees from month to month, how are we supposed to trust that any other number that purports to tell us how many folks are employed in offices, warehouses and saloons across the nation?
In the “bad news is good news” (more QE) and “good news is good news” world in which we’re living, this morning’s jobs report is — surprise! — good news.
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We’re still long from yesterday’s low, but coming up on important resistance. This morning will be about figuring out when to sell. I suspect 1615-1616 would be nice.
The dollar shot up on the news to an important channel line and the .618 retracement of its fall since Apr 24, but is dropping back. How far it falls could be quite telling.
Stay tuned.
UPDATE: 9:42 AM
SPX just hit 1616.16. I’m shorting here, with stops at 1618. Charts in a minute…
Note SPX just hit the top of the red channel within the broader purple channel, as well as the 1.272 Fib extension of the 1597-1536 drop from Apr 11-18.
There are still a number of higher potential targets:
- the top of the purple channel, currently around 1646
- the IH&S target of 1650 (now that SPX finally crossed the neckline)
- the white 1.618 extension at 1635.25
But, odds are they’ll have to wait for a back test of the lines of important resistance just broken. It’s not that the 1.272 Fib line is that important. There was no meaningful .786 reversal, so this harmonic pattern is much more likely to extend to the 1.618 at 1635.
This was our upside target if SPX was able to break through the resistance it just did. And, we’re at an unusual point on the purple channel — the .625 line. The .75 would be a much more common end point.
UPDATE: 10:29 AM
Looks like SPX is breaking out of the red channel, triggering our 1618 stop. So we’ll switch back to the long side for a likely run up to 1624ish. Stops at 1614ish.
The red channel is drawn with the best fit on the interior points on the 15-min chart. But, by the time you examine a channel on longer time frames, all those precise reversals at the channel lines pretty much disappear. In other words, there’s always wiggle room.
In fact, I’m going to switch back a short position here at 1618 just to protect against the possibility that wiggle room is at work here and the “break out” mentioned a moment ago is a false alarm. If SPX pushes back up through the top of the red channel, I’d be content with an interim long position for a trip to 1624 rather than switching sides all together.
UPDATE: 10:55 AM
We’ve been talking about 1635 a lot lately. There was Apr 29, when SPX came within one point of making a new high:
On the other hand, if it dips below 1592 in the morning, it has downside risk to the channel bottom at 1576 [it hit 1581] where it would likely catch a bid and start a run to 1635.
On Apr 25, when charting the IH&S (before it went circus freak on us) in Best Laid Plans:
That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.
But, my favorite reference was in July, 20 2011 in Ten Lousy Points, as we were about to nail the call-of-the-year thanks to our 2011 as 2007 analog:
There was a Santa after all! The Dow soared 205 points, the S&P; 500 over 21. The next two days tacked on 13 more points. At that point, SPX was just 10 lousy points from completing an inverse head & shoulders pattern that might have sent it up 125 points to 1635.
We all know the rest of the story. Suffice it to say there were a lot of hangovers those next few weeks that had nothing to do with New Year celebrations. SPX dropped 120 points in 2 weeks, 230 points in 4 weeks and 750 points by the following Christmas.
There’s no real connection, of course. After topping the 2000 high, SPX had just missed — by 30 points — completing an Inverted Head & Shoulders Pattern (in purple, below) that would have targeted around 1670. Note that 1670 was also the 1.618 extension of the Crab Pattern that was in the works (also in purple.)
But, all was not lost. After peaking at 1576, SPX went on to construct another IH&S that looked promising. If it completed, it would have targeted 1635 — indicated by the dashed yellow horizontal line.
It came within 10 points on Dec 26, but couldn’t quite close the deal. As I wrote in July 2011, the rest was history. That 1635 IH&S target would have to wait…until now.
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BTW, I’ve extended and expanded the current membership offer through the end of the weekend. Charter Annual memberships at $1,200 fix your subscription price for the life of the site. Annual memberships are slated to increase to $1,800 when this deal is done and $2,500 when the upcoming fund is launched. Click HERE to sign up.
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UPDATE: 2:40 PM
So far, 1618.46 has held as the daily high. We’re seeing a little more movement, back down to the 1.272 Fib and below that gray channel line. We’ll take a look at near-term and ultimate targets in a moment.
First, a quick look around at other indices which, for the most part, are flashing at least “interim highs” indicators.
COMP nailed the middle most 1.618 of the three nestled close together between 3343 and 3435. This is the extension of the drop from 3134 to 2726 in Mar – June 2012 — the equivalent of the 1422 – 1266 drop in SPX (which exceeded its 1.618 way back at 1553.)
RUT hit an important trend line dating back to August 2008, but appears to have potential to 969 and then 988 — call it 1000 — based on Harmonic charts.
The DJIA has reached one 2.24 extension (13,338 – 12, 035 from Apr-Jun 2012) but has stopped just short of the more recent one created by the Sep-Nov 2012 downturn at 15,137.
As for SPX itself, it’s a little early to speculate. The 1.272 at 1614 could provide a floor. But, I suspect the immediate risk is to 1609 or 1603 by the end of today’s session.
We’ll discuss the most likely scenarios below.
continued for members…First, the original channel is probably too steep to last. The one I’ve drawn in above is a stab at something a little less ambitious, but still gets the job done.
I’d put the odds of SPX 1635 at better than 50:50. We can get there directly, with another day like today on Monday. Or we can get there after a little consolidation. I mention the 1609 and 1603 downside targets above. They relate to the IHS neckline and the TL from 1994-2003.
If they should fail, the next most likely downside targets are the 1597 former high and the (red) TL from the 2000 and 2007 highs.
Regardless, the big purple channel will probably continue to provide the best clues for the upside. Note that the red circle sits at the intersection of the .75 line and the 1.618, while the white circle is at the more likely midline/1.618 intersection.
Those who don’t like the possibility of 15-pt downdrafts would do well to move to the sidelines for the weekend. I’ll likely cash out at the close and study the long-term picture a little more. In particular, I want to spend a few hours playing with the different channel possibilities (a very exciting weekend!)
UPDATE: 4:00 PM
SPX managed to hold the 1.272 at the close, 1614.46 vs 1614.03. But, even the most aggressive channel isn’t complete and offers at least a few points more downside.
So, why not stay short? Because, at any point, the Money Magazine crowd could come flooding back into the market. While most of us are wary enough to hear “all-time highs” as a warning, those who hang on Cramer’s every shrill word might decide they’ve missed enough of this easy money, and all call their brokers first thing Monday morning — “before it’s too late!”
I’ll post more over the weekend, updating the other indices and currency pairs. But, I’ll leave you with a couple of interesting ones that are ringing the danger bells quite loudly.
The USDJPY has retraced 78.6% of its last high, but has landed right at the massive resistance represented by the intersection of the purple channel midline and the yellow channel midline.
Remember, the yellow midline is the one that propped up the pair for most of 1999-2000, and again in Nov 04 – Jan 05. Then, in April 09 it was the resistance that killed the attempt to rally back from the vicious 2008 plunge.
Have a great weekend everyone.