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Thursday, December 15, 2011

Charts I'm Watching: December 15, 2011

UPDATE:  12:45 PM

I have to be out the rest of the day, but here's what I see going on right now.  We're still in backtest mode on just about everything.  SPX, in particular, is testing the fan line we talk about below.  If we drop below 1214, look for a downdraft to 1200 or lower.

EURUSD completed a bearish Bat pattern this morning, reversing right on the .886 Fib level.  Since then, it's fallen back some but is still loitering around 1.300.  I look for it to fall off more as stocks decline.  Note that it reached its intraday low of 1.2957 around 4am, when the SPX futures were right at 1200.

A return to these levels during cash trading hours would satisfy the ideal fractal conditions perfectly.  It would also complete a falling wedge with positive divergence for SPX, and complete a bullish Bat or Crab pattern for EURUSD.  In other words, promising conditions for a return to SPX 1255 and EUR 1.32-1.33.

I'll post more later after the close.

UPDATE:  11:30 AM

The market caught a bid, and flirted with a return to double-digit gains.  It's more likely, though,  just backtesting the last fan line.  The decline over the past few days has been a textbook example of using fan lines in technical analysis.

Note how each trip to the channel bottom (white, dashed line) produces a new interim low.  If we draw a line between that new interim low and the most recent significant low -- in this case, 1158.66 -- we have a fan line.  We'll mark the point of intersection "A" and the fan lines as the purple dashed lines.

After each new low, the market bounces (otherwise it wouldn't be a low, but a one in a series of lower prices.)  When that bounce reaches the fan line from the previous Point A, it "tests" it.  These backtests are all marked with a Point B.

Sometimes the backtest reaches all the way to the previous fan line; sometimes it doesn't.  But, wherever it runs out of steam, it's now headed back toward the fan line it just created.  Occasionally it'll bounce there; but, regardless, when it breaks through that fan line it can fall hard and fast.

I mention all this because this morning's rally is clearly a backtest of the previous fan line.  For it to have any staying power, it must break through that fan line and reach higher highs.  Otherwise, it's doomed to drop like a rock right through the fan line it just created.  That line runs through about 1212 right now, so watch that price level.

BTW, I've added a TL (solid powder blue) to the chart connecting today's and Tuesday's highs to create a falling wedge. If it holds, it has an apex of around 1181 tomorrow.   This is our secondary downside target, but falling wedges rarely fall all the way to their apex.  I'm still looking at 1200 as a more likely target.

More later.

UPDATE:  10:35 AM

The fizzle is on. We've given up most of this morning's gains and are fast heading towards negative territory.   We reversed right at the .382 Fib (1225.6 v 1225.65 predicted) and closed yesterday's gap in the process.

EUR's bat pattern reversed as expected, with a nice bounce off the upper bound of the channel.  Ditto for the dollar.

Check out the RSI on the 30-min chart.

Each trip between the channel lows and highs suggests a trend line that connects the lowest values in the pattern.  As long as RSI remains above the trend line, everything's good.  But, as RSI approaches the upper boundary of the channel, it has to "decide" between obeying the trend line or the channel.   The channel, being longer and stronger, has ruled so far.

We're approaching the upper channel boundary again.  So, keep an eye out for a break in the trend line.  It'll be a clear signal of further downside.  Conversely, a break out of the channel will be very bullish.


The market is going to open up this morning, but will it be enough to break the downtrend? 

We discussed the possibility of a falling wedge in EURUSD yesterday.  While EUR is up .5%, it's possibly just expanding the wedge into a channel.  We'll see whether it can break out of the solid yellow channel, and whether its RSI remains below the fall-back trend line.  On top of all that, the 60-min chart shows a completed Bat pattern, indicating a reversal at 1.3050.

The dollar, likewise, has had a nice move but hasn't broken down yet -- necessary for a significant stock rally.  Its RSI trend line is intact, and it appears to be backtesting the .500 Fib line.  We discussed yesterday the unlikely possibility that DX would zoom through this important Fib line in 24 hours, while the .382 line took weeks.

If this is a back test, and if EUR is still safely in its channel, look for this morning's rally to fizzle.  In fact, the channels on SPX are still very much intact.

The SPX price channel is unbroken, even after a 13-pt gain -- as is its RSI channel.  A breakout of either of these would mark a shift in momentum.   As currently drawn, the price channel could accommodate a rise to 1237 or so.  But, I don't think we'll reach it just yet.  We're likely going to test the .382 Fib at 1225.65 and the 20-period SMA (1226) and back off from there.

This morning's bump does a slight amount of damage to the fractal pattern.   If we are heading up, I'd rather it have happened following a lower low than yesterday's 1209; but, it's not necessary.  The 1200 figure is a Fibonacci ideal, meaning a 61.8% retracement of the recent rise just like we saw in July.  Yesterday we reached 55%.  It's close enough, but would pencil out better at the higher Fib level.

If this morning's rally does fizzle and we head back down, 1200 is well within the current channel's boundaries today.  But, taking a full day to get there would put us slightly behind the fractal's schedule.

Unlike the 2007/8 analog, this fractal isn't running by the same clock.  About 2 days go by in the current pattern for every 3 in the Mar-July time period.  So, a comparison isn't quite as precise.  I had expected the rise to start by options expiration Friday (tomorrow), salvaging market makers' portfolios.  But, looking closely at the chart, I think the top of the coming rise should come around Wednesday of next week, give or take.  That leaves plenty of time for a 50-pt ramp job.

More later.


  1. Hi Pebble. I just wanted to drop you a quick note to let you know that the Hindenburg Omen is very likely going to issue a signal today. As you may or may not know (I suspect you 'do' know), it's not the biggest deal when it goes off. I mean, absolutely the implications are huge, but the market internal stresses that will cause it to go off have been building and building for days on end. I've been recording it and reporting it on a "as needed" basis for 26 months now at Seeking Alpha.

    But I just wanted to give you this heads up because what is far more important is what the media is going to do with it. ZH will blast it all over the globe to be sure. The MSM... not so sure. But I suspect this time around it's going to be getting a lot of attention.

    I welcome you to follow what I'm writing about it on an hourly basis here:

    I also decided that I've had it with trolls. After years of hard-headedly refraining from starting my own blog, I've finally been forced to do it. I'm proud to tell you that I started the 'blogroll' with a link to your site. The most important page for you and your readers to read 'today' is this one:

    Keep up the great work partner and thanks a million for sharing your insights and opinions.

  2. Euro futures hitting an ABCD pattern on the daily chart right around 1.3, the timing of the pattern is pretty spot on as well, might be ready for a bounce here

  3. Folks, Albertarocks is one of the few consistently terrific technical analysts out there. I'm going to spend some serious time going over his research, and recommend you do, too. For those who don't know, the Hindenburg Omen is a big, big deal.

    According to Wikipedia: "From historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77% [The Wall Street Journal 8/23/2010 article cited below states that accuracy is 25%, looking at period from 1985], and usually takes place within the next forty days. The probability of a panic sellout was 41% and the probability of a major stock market crash was 24%. Though the Omen does not have a 100% success rate, every NYSE crash since 1985 has been preceded by a Hindenburg Omen. Of the previous 25 confirmed signals only two (8%) have failed to predict at least mild (2.0% to 4.9%) declines."

    This coincides with my own expectations, derived primarily from Harmonics and chart patterns. IMO, it's worth taking very seriously.

    Thanks AR!

  4. I continue to like the cut of your jib, Pebbs. Hi Alberta.

  5. Hi Morla. Your pretty. (Geez... having said that I sure hope you're a female, lol)

    Those were very kind words that Pebble wrote, but he and I met fairly recently on a third party site and I liked the cut of his jib immediately as well. It's true I 'do' try to put forth some pretty neat technical analysis but I'm not able to submit stuff every single day unfortunately. As fate would have it, my arm was twisted a year ago by a few people who had read various comments I had made on Seeking Alpha, wherein they were trying to convince me to write more.

    I never knew I had any writing talents so I was very surprised at their repeated suggestion and very reluctant to write anything other than the occasional comment. After a year of making up one excuse after another, I finally gave in and wrote three articles which I submitted over a period of time to Global Economic Intersection. Much to my sheer shock and horror, those articles were a big hit. In fact the one which appears at the top of this list:

    ... was subsequently published on MoneyMorning as an 'article of the week' from GEI. With a mailing list of 700,000 people, all of a sudden I felt the overpowering urge to vomit. I have no idea why my stuff is popular but whatever the reason, at first it scared the hell out of me. And whatever it was, maybe Pebble saw it too. Like I said, I didn't know I had any writing skills. Technical skills... yes. But writing skills? Not in a thousand years... so I thought. It's all very new to me although I'm no longer a handsome spring chicken. I'm now a handsome older rooster ;-)

    I'm pleased to call Pebble a friend now and I just like the way he thinks. Regarding that $CRX article, I'm working on a rewrite and GEI is just chomping at the bit to publish it because, wow is it ever evolving as I suggested it would. The evidence is now overwhelming and the implications are that we're going to be entering a deflationary phase, probably lasting for years. So if you like, you could keep your eye on my blog since I think I'll (for the first time ever) use it as the platform to write an article. Prior to this, I've always used a facility at Seeking Alpha to put together articles. I've probably written maybe 20-30 or so by now. This next one should be ready within a week. I'm thinking probably next Wednesday night or so.

    It was nice to meet you. Wishing you the happiest Christmas ever.