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Tuesday, August 2, 2011

Intra-day: August 2, 2011


Posting this pretty late at night, only because I needed a long walk on the beach after a day like this.  Don't know about you, but my head's still spinning.

We got exactly the move I was looking for; just didn't expect it all at once like that.  The goal was 1250 by Friday, as has been indicated on my charts for the past 2 weeks.   This could mean there's more momentum here than expected, which might indicate a deeper drop.  On the other hand, it could mean we've achieved the capitulation that's typical of a short term bottom and bounce (sorry... temporary cessation of crash-like behavior).

We saw a good amount of divergence toward the end of trading, especially on the 60 minute chart.  And, we're just 5 points away from horizontal support from the Mar 16 low.  We also nearly tagged the TL I've been expecting to bring a pause to the decline.  And, last,  S&P surprised no one by caving (see the 1:40 post below) on their downgrade threat.

Add that all up, and I made the decision to take some profits on almost 1/2 of my positions -- a little bit at the 1265 level (my H&S target) and a bit more at 1258 (the Jun 16 low.)  I thought we'd get more of a bounce at 1258, and I'd have a chance to buy back in a little cheaper.  Instead, I'll be looking for a good spot in the morning, maybe around 1268 or so.

If I'm wrong, and we get no bounce at all, I'll likely chase after it like a drunken fool with about half the funds I pulled out today (leaving the rest on the sidelines just in case.)

I know we're technically oversold.  I know there are others who see this as a huge buying opportunity.  I know the put-call ratio is probably through the roof (not even looking tonight.) 

But, I am fairly well convinced our economic goose is cooked.  Has been for a while...but the secret's out.  And, now that our own little crisis is averted for another 15 minutes, we can start worrying about the train wreck across the pond.  So, yes, I'm as bearish as ever... at least until further notice.

Bottom line, I'm gonna "dance with the one what brung me."  The 2007 pattern has worked beautifully till now, and I see no reason to abandon it at this stage.


We hit our H&S 1267 target (see below), bouncing at 1265.59 just a bit ago.  Whether the bounce has any more juice in it or not is unclear to me.  But, I did take profits on a small percentage of my portfolio.

My best guess at this point is we close somewhere between 1269 and 1274 today, then trade in a range of 1250 and 1275 through the end of next week before turning down in earnest.  But, as we near a potential turning point, the exact time and place of the turn gets a little murkier.

I'm not really looking for a bounce any higher than that unless: (1) unemployment numbers are miraculously better, or (2) S&P and Moody's follow Fitch's lead and leave the credit rating alone.  We can only imagine the level of pressure they're getting from Washington.  And, who would be surprised if they caved?


The H&S pattern is playing out nicely so far, with SPX down to 1275 and gaining momentum.  We might run into some resistance at the -2 std dev line of our regression channel, which is also yesterday's low (bottom purple dashed line.)

If we can break through, the dashed red trend line has offered fairly strong resistance in the past, but will fail -- either today or in the near future.

For those wondering when/where/how big the bounce.... the comparison with 2007 suggests it will be limited to a 38.2% Fib retrace.  Based on yesterday's low of 1274.73, that would mean 1301.91.

That's also where the regression channel  -1 std dev line is now, and where the 50 day SMA will be in a couple of days.  There's also a pretty good trend line intersection at that same level.    It's anyone's guess whether it'll reach that high, but I'd put it at 50-50 if a bounce began right now.

Naturally, the .382 level changes if we make new, lower lows.


SPX continues to slip and slide, reaching 1279 -- near its opening low.  In so doing, it has completed a little head & shoulders pattern, indicating a downside of 1267.  Should play out in the next 15-20 minutes.


Still watching the ES vs USD/CHF relationship, which does a great job of showing how well equities and the dollar continue to correlate.

I show the Swiss Franc because it has performed the best relative to the dollar and is as strong a currency as there is.

Here it is, compared with the DX, which is a basket of non-USD currencies -- primarily the Euro (58.6%) but also including the Yen (12.6%), Pound Sterling (11.9), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%).

The chart suggests that, while the USD continues to slide vs the CHF, it seems to have bottomed relative to everything else -- particularly the euro.


  1. Awesome work Pebblewriter! Let me express my concerns (and my only real concerns) about the bearish scenario. A year ago, Kevin Depew and others at Minyanville were adamant in getting bullish in August. Those included Todd Harrison, James Kostrohyz, Kevin ("most bullish in more than ten years") Depew, and maybe a few others I read. This was as a bunch of us at Daneric's site were looking for a big crash wave "3" down, and instead got what most of us think is the big "C" up through May 1, 2011. Since then, James Kostrohyz just last week got bearish (but not crazy bearish it seems), Todd Harrison has been calling the range as simply 1250 to 1350. But here's the rub.

    The TD folks were calling for weakness from May to August, and also suggesting that some companies that were performing well would be rewarded, particularly some tech stocks and a few other groups.

    As of yesterday, they are now saying that a buy setup on the S&Ps in the TD system is recorded yesterday for dailies, and confirms if they get a bullish price flip. So they are suggesting that we are actually getting closer to the end of market weakness they were expecting.

    This just as Barry Rittholz, James Kostrohyz, and boatloads of others are getting more cautious. So now it looks like a battle between systems. My heart is and has been bearish for longer than I can remember, but still just want to point out that some out there still are looking at easy credit and excessive bearishness, and suggesting that the future is optimistic for a few more years before it all comes apart.

  2. Thanks for the comments, JP. Gotta think about that some more, but my brain's fried at the moment. Maybe give it another go in the a.m.

    In the meantime, have a peek at tonight's piece.