In typical end-of-the-quarter fashion, the markets seem to be running in place. But, by one measure, the melt-up might have already finished.
Recall we were looking at 1419 as one of two possible tops (the other being 1433) when SPX was at 1402 back on March 23 [see: The Tipping Point.]
I mentioned it as a target of certain harmonic patterns. We also
recognized it as the .886 Fib price level of a small rising
wedge within a larger rising wedge.
There are actually three potential harmonic targets suggested by the Butterfly pattern that features 1074.77 as its Point A and 1292.66 as its Point B. All of them assume the pattern completes at the 1.272 extension; but, keep in mind that Butterflies can also complete at the 1.618 extension. If you have no idea what I'm talking about, visit Crabs and Butterfly Patterns Explained for more info.
Like all harmonics, Butterfly Patterns begin at a meaningful peak or trough (though frequently you can find smaller patterns within patterns.) The primary requirement is that the Point B be at the .786 Fib level. Here are my three candidates for the pattern we've been watching for the past several months.
#1 is the most bullish and begins at 1370. I like the fact that 1370 was the high for all of 2011, back on May 2. But, it leaves us with a slightly less than ideal Point B -- 14 points below the .786 (1292 v 1306). It would complete at 1451.
#2 begins at 1356 on July 7 and features a Point B only 4 points below its ideal .786 of 1296.19. It completes at 1433. Closer still.
#3 begins at 1347 and (at an intra-day high of 1292) Point B is 4 points above its ideal of 1288.74. The closing price of 1284 was 4 points below. This particular pattern completes at 1421.05 -- just 1.90 from the Mar 27 high of 1419.15.
Could 1419 have been the end of this wave?
I always like it when one harmonic pattern matches up with one or more other harmonic patterns and chart patterns. Here's a channel I just can't get out of my head.
Seems just a little too coincidental that a TL connecting current prices to the 2007 high would be exactly parallel (log scale) to a TL connecting the two major bottoms of the past decade -- all at a time when we're:
Recall we were looking at 1419 as one of two possible tops (the other being 1433) when SPX was at 1402 back on March 23 [see: The Tipping Point.]
I mentioned it as a target of certain harmonic patterns. We also
recognized it as the .886 Fib price level of a small rising
wedge within a larger rising wedge.There are actually three potential harmonic targets suggested by the Butterfly pattern that features 1074.77 as its Point A and 1292.66 as its Point B. All of them assume the pattern completes at the 1.272 extension; but, keep in mind that Butterflies can also complete at the 1.618 extension. If you have no idea what I'm talking about, visit Crabs and Butterfly Patterns Explained for more info.
Like all harmonics, Butterfly Patterns begin at a meaningful peak or trough (though frequently you can find smaller patterns within patterns.) The primary requirement is that the Point B be at the .786 Fib level. Here are my three candidates for the pattern we've been watching for the past several months.
#1 is the most bullish and begins at 1370. I like the fact that 1370 was the high for all of 2011, back on May 2. But, it leaves us with a slightly less than ideal Point B -- 14 points below the .786 (1292 v 1306). It would complete at 1451.
#2 begins at 1356 on July 7 and features a Point B only 4 points below its ideal .786 of 1296.19. It completes at 1433. Closer still.
Could 1419 have been the end of this wave?
I always like it when one harmonic pattern matches up with one or more other harmonic patterns and chart patterns. Here's a channel I just can't get out of my head.
Seems just a little too coincidental that a TL connecting current prices to the 2007 high would be exactly parallel (log scale) to a TL connecting the two major bottoms of the past decade -- all at a time when we're:
- at .618 (in time) of the huge rising wedge dating back to Mar 2009, and;
- within a stones throw of the .786 or .886 retrace (take your pick) of the 2007-2009 decline.
If you're an überbull, there's a potential silver lining. The May 2nd 1370 peak -- a .786 retrace of the 2007-09 drop, could be the Point B of a much larger Butterfly pattern. If it were, we'd have a 1.272 extension up around 1823 and a 1.618 at 2137. And, if you are an überbull, you'll probably want to use the arithmetic instead of log scale and draw your channels more like this:
Of course, that scenario would probably mean $8 gas, 12% T-bills and $3000 gold to go with our $20 trillion in debt. But, that might just be the price of a "healthy" economy, huh Ben?
Interesting work. I added you in my blog list.
ReplyDeleteprofitablerisktaking.blogspot.com
re: Of course, that scenario would probably mean $8 gas, 12% T-bills and
ReplyDelete$3000 gold to go with our $20 trillion in debt. But, that might just be
the price of a "healthy" economy, huh Ben?
100 yards from me, they are paying $8.75, so all this hysteria about high gas prices being a problem, its nonsense. The Fed will print to cover ANY and ALL interest expense. High Gold prices are entirely irrevelent for mr average. The national debt going from 15 to 20 trn is largely irrevelent too in the near term.
--
I keep in mind you had last July/Aug collapse wave pinned correct. The problem I have right now is that you are focusing on the SP. What about the dow, or the tech, or a few other indexes that are already WAY past the equvilent of Sp'1440 - which maybe you'd agree is the nect standard level of resistance?
I really like the Fib' level stuff, but....frankly, a standard weekly and monthly candle chart outguns the fib' charts EVERY time. Hell, even I usea few basic fib charts - some which suggest 1550 is a very viable target.
However, both the weekly and monthly cycles are still going STRAIGHT UP.
Despite all the crazy negative market talk across the web in the past week or two, nothing has changed.
-
*The only true bearish chart right now I have is the commodities.
-
Lets say we top somewhere around here, 1420/40. Even then, its going to take a few months of churn and levelling to form a proper top - as was the case just last year! We saw 11 weeks elapse before the market snapped.
The notion that we just hard-about reverse seems even less probable than the idea we'll not be able to keep going to 1550.
-
I think any bear right now would do well to just go stare at a monthly chart for a few hours. Yeah, HOURS, and then get back to me, and try to convince me that 'the top is in, its all down hill from here'.
Regardless...have a nice weekend, and good wishes for Q2.
Thanks PW,nice charts
ReplyDeleteIt's mutual, my friend.
ReplyDeletePD, with all due respect, please take a closer look at what I wrote. I did not, for instance, say we'd see a "hard-about reverse." Harmonics, which are tools that have made me a lot of money over the past year, don't specify how dramatic the turn will be -- only that there will be a turn. Sometimes it's sudden and massive -- as in July; sometimes it takes a while to play out -- as in May of last year when we completed a Gartley. And, as I wrote just the other day, sometimes it's just a speedbump on the road to something bigger.
ReplyDeleteAs far as "candle charts outgunning fibs every time" I would love to see your research. The technical analysts I most respect don't rely on any one technique -- but a combination. For me, I start with harmonics and look for corroborating evidence from chart patterns, momentum and other TA, and sometimes even candle patterns.
re: "The problem I have right now is that you are focusing on the SP. What about the dow, or the tech, or a few other indexes that are already WAY past the equvilent of Sp'1440"
I chart all the major US indices, but there's not enough time to publish charts on every one every day. Just yesterday, in fact, I posted the Big Picture for DJIA just before this one. In that article, I reference the fact that DJIA has retraced 87% of its 2007-09 fall, while SPX has retraced only 82.7%. In my opinion, the SPX and DJI are both overbought compared to broader indices like the NYSE or RUT.
RE: "Hell, even I usea few basic fib charts - some which suggest 1550 is a very viable target"
As I wrote in this post, Butterflies can and do extend to the 1.618 Fib. In the case of SPX, that would be 1515. It could happen, but it would mean the rising wedge pattern is taken almost all the way to its apex which, while not impossible, would be unusual. They tend to break down around 2/3 of their time span. But, the larger rising wedge with its apex around 1650 in early 2014 is there on my chart for everyone to see.
It concerns me that anyone would think $8 gas, 12% t-bills and $20T in debt are "irrelevant." If we see these things occur any time soon, we will no doubt be caught in an inflationary spiral. I don't know many economists or investors who would find that irrelevant. While markets might very well keep pace, such a condition would hardly be healthy for the global economy or the vast majority of individuals whose earnings can't keep pace with rising prices.
Thanks, Alexander. I'll take a look.
ReplyDelete