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Wednesday, May 30, 2012

SPX: the View from 30,000 Feet

Our charts have grown fairly "busy" lately, what with harmonic patterns, chart patterns, fan lines, channels, etc.  I find it helpful every now and then to take a step back and examine those elements that have had the biggest impact in recent years -- and are likely to continue doing so.

In my opinion, the two patterns that have influenced prices more than any other are Fibonacci levels (primarily related to the 1576-666 decline) and fan lines.  They've played an important role in my most accurate forecasts this past year.



Note how strongly prices reacted to each of the Fib lines off the Mar 09 lows.  Every Fib level played an important role in providing support and/or resistance at pivotal points.  The .236 didn't slow the advance much, but it provided much needed support after a 9% decline.  A tag of the .618 touched off a 17% correction (caught by the .382) and set the stage for the Gartley pattern completion at the .786 a year later.

...continued on pebblewriter.com...

Dueling Bancos

We pick up this morning where we left off last night...the Spanish Central Bank and the ECB duking it out through their respective mouthpieces in the mainstream media.  It reminds me of another famous dueling scene from one of America's greatest movies (obligatory clip below.)



From the WSJ, reports that the EU is  advocating a cross-border banking union to back stop those financial institutions which are: (1) in danger of failing, and (2) those whose host (as in the target of a parasite, not a provider of hospitality) country has already been sucked dry.



And the reply, duly reported 90 minutes later by the Deutsche Borse Group's Market News:



The Germans are right, of course.  But, they're right in a "perfect world" sense, rather than a "politically feasible" sense.  In the end, a deal will get done and the markets will be "saved."  The clue is in the 2d from last paragraph:
German finance minister Wolfgang Schaeuble will meet his Spanish colleague Luis de Guindos in Berlin today... There will be no press statement after the meeting because the talks will be informal.
"Informal" -- that's a polite way of saying someone's going to be squealing like a pig.

...read the rest at pebblewriter.com...

Tuesday, May 29, 2012

The Spanish Fly in the Ointment

~reposted from pebblewriter.com:

Today was one of those kumbayah days when even lousy housing data, consumer confidence and Dallas Fed data couldn't depress equity prices.  The market spent all day reinforcing my faith in our forecast.  Ah, those were the hours...

As everyone knows, the euro zone whack-a-mole game has been focused on Spain lately.  So, the print-our-way-to-happiness bunch was understandably enthused when Spain announced they would truck $24 billion in Spanish sovereign debt over to failing Bankia -- Spain's second biggest bank -- which would then exchange said debt to the ECB for something worth the paper it's printed on.  Presto chango, ipso facto... the boo-boo's all better.

A perfect plan -- except for one small detail:  the ECB wants nothing to do with it.  According to the Financial Times, the ECB wants Spain to implement (stop me if you've heard this one) a serious austerity plan and start living within its means -- maybe even inject some real live capital.  Spain, on the other hand, insists the Portugese, Greek and Irish attempts at same have been "catastrophic" and refuses to go down that road.




Who will blink first?  Good question.  As we learned from Bear Stearns, Lehman, Greece, et al, the first stone doesn't matter so much.  It's the ripple effects (read: contagion) that can send yields soaring and freeze up credit markets.  The more countries that get away with it, the more will try.  And, all the posturing and all the lines in the sand won't make a bit of difference.

Stay tuned.

A Most Lenticular Market

~reposted from pebblewriter.com:

Looking at the markets these past few days, I’m reminded of the prize that comes in a box of Cracker Jacks.  Not a real prize, mind you — but one of those cheap little pictures where the image changes as you shift the angle from which you’re viewing it.  It’s called a lenticular image.

Despite the uncanny accuracy of our forecasts these past couple of months, the road ahead seems to shift a little with every fresh look.  I can’t remember the last time I agonized over a forecast for an entire three-day weekend.

We'll start with a look at currencies.



...continued on pebblewriter.com...
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Thursday, May 24, 2012

The Road Ahead

~reposted from pebblewriter.com...

I've taken advantage of a relatively quiet morning in the markets to finish mapping the road ahead.  There are quite a few harmonic patterns in play right now.  My practice is to map all the apparent possibilities and look for confirmation (or lack thereof)  between patterns -- and then look for ways in which they agree or not with all the chart patterns, channels and analogs I'm watching.

It's fairly exhaustive, so takes a fair amount of time.  I hope to post the results in the next hour or two.   In the meantime, the short-term forecast is still for increasing prices.  This morning's chop does nothing to change that, but does illustrate the importance of using stops.


Like yesterday, l will occasionally post short-term trading opportunities.  For traders so inclined, the idea of shorting at 1328 and buying back at 1298 is a great trade.  But, it requires a fair amount of vigilance.  For the buy and hold crowd who aren't interested in 30 point blips, feel free to ignore such forecasts.

Whichever camp you fall into, please remember to use stops at all times.  These are very precarious times, where unforeseeable events capable of moving markets are unfolding daily.  Please don't get caught with a significant portion of your net worth hinging on any particular forecast -- mine or anyone else's -- without protection.

For those of you who who haven't joined pebblewriter.com yet, prices are going up at midnight tonight (PST.)   Current members are not affected, of course.  And, as before, the first 100 annual members are grandfathered for the life of the site.  If you're a quarterly or semi-annual member, you might want to consider upgrading to annual.  To sign up, click here.
More later.


Update:  2:30 PM

The 5-min RSI just broke out from a falling wedge on positive divergence.  If it can stay above the upper bound this morning’s decline should be erased, and then some.  Watch for a back test of the wedge, which would correspond with a back test of the little red trend line at around 1311.


Still working on the longer term picture.  I’ll send a message as soon as it’s posted.  At this point, all members should be receiving an email within minutes of when a significant post or update is posted.  Please let me know if you’re not receiving these messages.

I’ve put the texting option back in the sidebar to the right.  Just enter your cell phone and service provider and you’ll be notified of new posts.  Note:  it doesn’t notify you of post updates, just the initial publishing of a new post.

UPDATE:  4:05

That worked out pretty well.  The falling wedge paid off as advertised, turning an 8-pt decline into a 2-pt gain at 1310.50 — just a smidge below our 1311 target.  I hope readers were able to take advantage of it.

Since I didn’t complete the longer-term picture before the close, I’ll work late this evening and try to get it up before turning in.

BTW, I get a number of emails during the day from readers, and I’m good with that.  But, I much prefer that anything market related — questions about strategy, investment options, etc. — go into “comments” on the post.  I’m likely to see them more quickly, and more importantly, your fellow readers might benefit from the discussion.  Thanks!

************

For those of you who who haven't joined pebblewriter.com yet, prices are going up at midnight tonight (PST.)   Current members are not affected, of course.  Remember, the first 100 annual members are grandfathered for the life of the site.  If you're a quarterly or semi-annual member, you might want to consider upgrading to annual.  To sign up, click here.

Wednesday, May 23, 2012

Say What!?


I wasn't sure what to write about today until I got a great question from a reader, who hopefully won't mind my reposting it here:
Pebble, I enjoy your analysis, but are you really saying you bought at the low on Friday and you sold at the exact high yesterday?
“After scalping a quick 36 points (going long Friday at 1292, selling at yesterday’s high of 1328.49) I got a little cocky and went long again at yesterday’s low of 1310 — even though it didn’t quite reach my 1309 target.  I got stopped out on the opening and am looking for a good re-entry point — probably just above 1300 from the looks of the 15-min chart.”
DeMark 15 min is saying we will have a bottom shortly in the SPX.
Lately I've been very, very fortunate in my forecasts and trading.  As readers know, I've been calling for a decline to 1288-1323 since April 9 [see: New Analog I'm Watching].  On May 6 [see: So Far, So Good], I refined it to 1295 and wrote:
Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective;  i.e., I think they’ll pull out all the stops to avoid it.
In between, the market hit my upside target of 1415 on the nose, and just about every interim target on the way down.  We arrived at 1295 only two days later than my forecast from six weeks earlier (the purple line below.) So, trust me when I say I was fairly confident going into last Friday's session.



We were completing a Butterfly pattern at 1289.14, a Crab pattern at 1288.69 and were approaching a Head & Shoulders target of 1289.  And, a number of other indicators I watch were all screaming "here comes a bottom."  I really, really expected a bounce.

I had orders ready to go when we hit 1295. I drew a little trend line coming down the face of the RSI on the 5-min chart (purple dotted line, arrow A on chart below) and waited for it to be broken.  When it did, I started selling short positions (at around 1295.)  When RSI back-tested and showed positive divergence, SPX was around 1292; so I took a deep breath and started loading up longs (albeit with fairly tight stops, in case I was massively wrong!)



Was I nervous?  Enormously.  In my nervousness, I devoted practically an entire post [see: Message in a Bottle] to the fact that I'd written myself a note in an April 12 post [see: Analog Details] to bolster my confidence in what I knew would be a very nervous moment a month later.  But, it worked out.

As to 1328, that was much easier. As I wrote yesterday morning [see: On Track] my 1330 target was based on the previous H&S neckline.  But, I was also watching the Fib levels (red Fib lines above) and RSI activity -- which was flashing overbought from the word go.

The rise started slowing as we approached the .500 at 1328.82.  I felt we would probably build a Bat or Crab pattern to the upside, so a turn anywhere between .382 - .618 made sense.  Here we were, slowing at the .5000.  Hmmm...

I went to the shorter term charts (5-60 minutes) to see what they were doing and noticed a trend line was in danger of being broken on the 5-minute RSI (note the red dotted line that runs roughly from A to B.)

Within the next 15 minutes or so, that trend line was broken, and back-tested (the yellow arrow.)  That was all I needed to confirm a good entry point; so, I went short -- with stops a little over 1330 just in case.

And, it worked out pretty well -- except that I got cocky and traded at the end of the day yesterday when SPX very nearly hit my 1309 target (it was my birthday and I was loopy on my wife's incredible pineapple upside-down cake.)  Had I looked at the 5-min chart again, I would have waited.



So, I got stopped out this morning at around 1305 and sat out until 1296-1298 (discussed at 10:40AM, occurred at 12:25PM) which so far is looking like the right move.  Note the back test of the channel -- setting up more positive divergence.  I have stops in just below 1292 just in case, and still believe we're in for lots of chop.

With respect to DeMark, I know a lot of folks who follow him, and it seems we're often of the same opinion.  But, I've never studied his methodology and don't really keep track of his forecasts.  I do take some comfort -- especially when taking a contrarian view -- when smart people express concurring opinions.

I sat watching my daughter play volleyball all weekend and ran into another dad who's very smart and also in the investment management biz.  He asked how I'd done in the markets lately, and I started to tell him about catching the rise to 1422, the decline to 1357, the rise to 1415, and the decline to 1292.

As I talked on, I could see the word "bull****" forming on his lips.  I stopped talking and went back to watching volleyball.

**************

If this is the sort of analysis that might be helpful to your investing success, head on over to pebblewriter.com and sign up today.  Introductory prices expire tomorrow, May 24 at midnight PST.

Tuesday, May 22, 2012

On Track

Our forecast remains on track.  Since calling the 1422 top, we're up a little over 20% on a cash basis (versus -6.5% for SPX) in a little over seven weeks.  We're likely to pause around 1330, as this represents a key trend line on RSI as well as the neckline of one of the most recent H&S pattern.



...continued on pebblewriter.com...

Monday, May 21, 2012

Moment of Truth

 The analog I posted on April 9 [see: New Analog I'm Watching] accurately forecast the move from 1422 to 1357, back up to 1415, then down to 1292. 

As detailed in the last post [see: Why Bother], merely selling short SPX at the tops and buying in at the bottoms we forecast would have earned investors over 17% versus negative 9.4% for a buy and hold strategy.    That's a differential of 26% and gets the new pebblewriter.com off to a great start.  Now, will it continue?


...continued on pebblewriter.com...

Saturday, May 19, 2012

Why Bother Trying to Beat the Market?

MAY 19, 2012

When I first floated the idea of going pro with pebblewriter.blogspot.com, one reader's response really struck a chord:
In getting the economy apparently going again, a serious stock fall would not help...so it won't happen until every card is played...   So it's up and up...  with perhaps a brief pause for technical patterns...a few plateaus to get the attention of the manipulators to get the machine running again.
Sure enough, following the original pebblewriter's phenomenal first few months, I found myself stopped out multiple times as normally reliable chart and harmonic patterns were overwhelmed by the money printers' manipulative efforts.  Was the reader right?  Was it time to throw in the towel and buy an index fund?

Instead, I buckled down and worked harder.  I augmented my techniques with additional indicators.  I learned how to apply harmonics to both price and time.  And, I began a search for more analogs -- the type of pattern that enabled me to score a 28X in July-August 2011.  The new pebblewriter.com reflects those efforts and IMHO is off to a phenomenal start.

How phenomenal, exactly?  Suppose you began following the new site when it went live in late March and did nothing but buy the S&P 500 when I called the bottoms and sold short when I called the tops.  You would have earned over 17% in the past 33 days (4.6% from 1422 down to 1357,  4.2% back up to 1415, 8.7% down to 1292) versus -9.4% if you just held on for dear life.  Yes, really.

Now, a 26.4% outperformance ain't too shabby.  Of course, leveraged ETF, futures and options traders did much better -- as did those who shorted JPM or GS when I called their tops on March 27th.  But, please, don't join pebblewriter to earn 17% every 33 days.  There's no guarantee it'll happen again.

Do join, on the other hand, because over the course of the next year, you'll become adept at the exact same techniques I used to forecast this 130-point decline almost to the penny or forecast the July 2011 crash to the very day. You can dump your WSJ and turn off CNBC, because you'll be able to identify and trade on effective fractals, analogs, harmonic and chart patterns that the main stream financial world doesn't even understand.

If you're a buy-and-hold investor -- that's okay; pebblewriter.com is for you, too.  Who wants to sit around, worrying about the next 20% plunge?  Wouldn't it be nice to see it coming?  Wouldn't it be cool to avoid it, or even profit from it?   Exactly.

The new pebblewriter.com is dedicated to helping members learn -- from me and from each other.  We'll explore new ideas and new concepts in a safe and supportive environment.  No black boxes here -- every forecast I make explains why I'm expecting a particular move.  And, when I screw up (and, I will) we'll talk about it and try to learn from that too.

Now, what are you waiting for? 



Still not sure?  Since starting the new pebblewriter.com on March 22, I've posted the following forecasts.  Could your investment portfolio have benefited from these calls?


March 22 / Charts I'm Watching
Forecast:  RUT, COMP have topped, DJIA will reverse between 13,317-13,338.64
Results:    Was the high for RUT & COMP,  DJIA topped May 1 at 13,338.66

March 23 / A Tipping Point
Forecast:  SPX should top at either 1419 or 1433 (revised to 1421 on 3/29)
Results:    Topped at 1422.38 on 4/2

March 27 / End of the Line
Forecast:  Called the top on JPM at 46.49
Results:    That was the top; closed yesterday at 33.49  (-28%)

March 27 / Lots More Where That Came From
Forecast:  Called top on Goldman Sachs at 128.72, Morgan Stanley at 21.19
Results:    Was top for each.  GS down to 95 (-26%), MS down to 13.35 (-37%)

March 27 / What Do Bankers Dream Of?
Forecast:  Wells Fargo won't break 35
Results:    WFC topped at 34.59 on 4/2; closed today at 30.94 (-11%)

April 1 / The Wipeout Ratio
Forecast:  predicted losses from derivatives would be the "story of the year"
Results:   May 10, JPM Chase announces billions in derivative losses...so far

April 9 / New Analog I'm Watching
Forecast:  S&P will top at 1405 (rev'd to 1415), then decline to 1288-1317 by May 16
Results:    rose to 1415, then declined to 1292 on May 18

April 10 / Bottom Fishing
Forecast:  should reverse at 1364 or 1357
Results:    bottomed at 1357

April 24 / Update on EUR/USD
Forecast:  with prices at 1.3217, called for drop to 1.2721 by May 15
Results:    low for day on May 15 was 1.2721

April 25 / The Bulls Fight Back
Forecast:  head & shoulders pattern will complete by May 2
Results:   pattern completed on May 1

April 26 / On the Verge
Forecast:  Refined S&P top target to 1414-1415
Results:   topped at 1415.32 on May 1

April 27 / VIX Ready to Rumble
Forecast: VIX bottoming at 15.83
Results:   that was the low, closed 5/18 at 25.10 (+59%)

April 30 / Bet Your Bottom Dollar
Forecast:  Dollar at 78.685, will hit 81.59 on May 16
Results:   Closed at 81.585 on May 16

May 1 / New Charts!
Forecast:  called lower top in SPX, DJI, COMP, NYA, NDX and EURUSD; DX bottom
Results:    it was!

May 6 / So Far, So Good
Forecast:  revised S&P downside target to 1295
Results:   closed May 18 at 1295

May 16 / Somewhere Out There, Fibonacci's Having a Good Laugh
Forecast:  stressed importance of 1292 -- should be bottom
Results:  low on May 18 = 1291.98, closed at 1295.22



  Not a bad first couple of months, if I say so myself.  Now, are you ready?



If you're one of the 1,000 -- 2,000 people who read pebblewriter for free every day, I have good news and bad news.  The good news is that I extended the introductory pricing through the weekend.   Those of you with quarterly or semi-annual membership can upgrade to an annual membership to lock in savings before prices go up on Monday,  and I'll even refund the amount paid for the initial subscription.

The bad news is that starting this weekend, all posts related to the current markets (what's going to happen now that we've fulfilled my forecast) will be available to members only.  Tomorrow's post that discusses whether the analog is still in play (and why) will be password protected.  When the markets start moving again, will you be ready or will you be kicking yourself for not joining at the cheaper rate?

I know, it's the ugly side of capitalism.   But, a lot of effort goes into explaining stuff, versus trading my own account.  It takes away from other personal and business interests, and it eats into my own investment returns.   I spend quite a few hours every day racking my brain to help my readers make more money.   A little quid pro quo is fair, right?

Check out recent comments from readers:
You and your analog/bat/crab/butterfly tools are dazzling me!  Thank you for all you are doing to help me learn to use these beautiful new tools!
Wow, great call! We closed right at 1295!
You are one of the few that have it right per my friend.  Your TA has been extremely close to the market trends, and only a few other sites can claim this.
I have been quietly following your blog for some time. I have my own technical system for trading in place, but I do appreciate what your eyes and experience is telling you, I greatly respect your charting, and I think your charts are absolutely worth paying money to view.
...a HUGE thank-you for your diligence and inspiration.  It is a luxury to have your charts and comments.
I have really enjoyed your site since finding it in June. You were actually the only one on XXXX's site I noticed calling for higher and doing it in a nice and professional manner..... Thus, I checked it out and played on the sidelines - thank you again.... Since then, I feel like I have learned a lot, but have really enjoyed your wit and writing style too.....I am not a very good trader, but I am trying to learn and would love to learn more/ become better.....
That's my goal, folks.  I want each and every one of you to be confident enough to dump me this time next year.  But don't.  I have feelings, too.


Friday, May 18, 2012

Message in a Bottle

Back on April 12 [see: Analog Details] I wrote:
To me, a drop to 1305-1317 seems fairly plausible.  The tricky part comes in calling for a reversal after SPX has fallen 120 points from its recent high.
Truth be told, I was really writing this note to myself -- a time capsule that would hopefully provide a little backbone.  I had a feeling that, five weeks later, I'd have my doubts about the analog -- even one that has accurately forecast the exact price movements within 2 days of our original target.

Original Forecast = Solid Purple Line

Now, as we approach (patience, grasshoppers) the 120-point drop at our revised target of 1295, am I still as confident?

...continued on pebblewriter.com...

Thursday, May 17, 2012

Searching for a Bottom

UPDATE:  1:45 PM

So far, SPX has obliged us by tagging every one of our targets.  The 1310 Fibonacci .707 retrace [see below] of the 2007-2009 collapse is our current intra-day low, and we're presently sitting at the 1.272 target of the Butterfly incorporated into the analog I first posted on April 9 [see: New Analog I'm Watching.]


As I mentioned yesterday, I think there's a very good chance we get down to 1289-1295 (depending on whether they can defend the very important 1292.)  As oversold as things are getting, I wouldn't even think about going long except, perhaps, to play a bounce -- unless we're able to break out of the acceleration channel on the 60-min chart.

It's the dashed red channel that's guided prices since 1415 (ignore the solid purple line, that's just our forecast from April 10.)




UPDATE:  10:05 AM

Philly Fed numbers aren't pretty, with a 5.8% drop versus last month's 8.5% increase.  Especially troublesome is the 6-month outlook, which has plunged from 33.8 to 15.0.

A negative 5.8%  is bad enough in and of itself, but it looks especially ugly compared to consensus: +8.8-10.0%.








The Conference Board Leading Economic Index also missed, showing a 0.1% decline versus expectations of a 0.2% gain.  This is the first drop since last September.




If it looks like the leading economic indicator line hooked down over the past few months, that's because it has.  Note the monthly rates of change -- trending down from +0.7% in Feb to +0.3% in March and now -0.1% in April (not the sort of behavior you want to see in a recovering economy.)  Here's the official explanation from the Conference Board:



ORIGINAL POST:  9:39 AM

I'm watching the RSI for clues as to which of our targets SPX will settle on.  Remember, the range is 1295-1323, though the number of unfolding events that could overwhelm our forecast is growing.
The daily chart shows several parallel trend lines that might provide the final stop.  But, of course, lower stock prices often occur on a higher low in RSI -- a phenomenon known as positive divergence, and a sign of a potential bottom.



Here's a little better detail on RSI:



The white dashed trend line (7) is next up.  It stopped moderate declines in April, September and November of last year and probably corresponds with our 1317-1323 target.  Remember, 1323 is the small (yellow) Crab Pattern's 1.618 and 1317 is the larger (purple) Butterfly's 1.272.

The purple dashed line (8) is associated with the declines in November of 2010 and a secondary dip in August 2011 and probably corresponds with either 1300 or 1317 on SPX.
The yellow dashed line (9) stopped the plunges in March and June in 2011, and provided the higher low for the actual August 2011 1101 bottom.  March 2011 is the analogous point in the analog we're watching.

Surfing these RSI channel lines is an inexact science, because turns rarely occur exactly in line with previous highs/lows.  There's a relatively high margin of error, say 5-8%.  So, it's possible that yesterday's RSI low could be considered to have tagged the white line.  If we get a strong rally off the Philly Fed survey or Conference Board numbers at 10am, we'll call it that way.

There is one other Fib level we haven't talked about much -- the .707 from the 2007-2009 decline is just ahead at 1309.67.   Many investors aren't even aware of the .707, so it's often completely left off charts.  But, this is a long-term pattern, so it could easily come into play.

Last, the 60-min RSI shows a pretty good possibility of a bounce in the 1317 range.  Between 1323 and 1317, 1317 belongs to the larger and more important pattern -- the Butterfly.  So, unless the Philly Fed survey is atrocious, we should get some kind of bounce there.

Wednesday, May 16, 2012

Somewhere Out There, Fibonacci's Having a Good Laugh

~reposted from pebblewriter.com

Some of you might remember this post from May 4.  I was struck by the Fibonacci relationships in both time and price between the last two major H&S patterns, and thought it confirmed my view that the H&S top was ready to play out.





We all know what's happened since then, of course.



The reason I bring it up again is that horizontal purple trend line cutting across the chart from the October high (which helped drive prices higher for months.)  I don't think it's a coincidence that it's at the same price as our H&S target -- any more than it's a coincidence that the latest pattern is:
  1.  1.618 the time of the previous pattern; and,
  2.   .618 of the target price range of the previous pattern.
These Fibonacci relationships don't tell us exactly what's going to happen.  But, they're practically screaming "pay attention! This could be important!"

The obvious implication is that SPX will find its way down to 1289, the lowest of our targets initially presented over a month ago [see: Analog Details]  -- though I continue to believe TPTB won't allow a dip below 1292  (too many bearish implications.)

I'll post more after the close.

Bet Your Bottom Dollar: Part Deux

~reposted from pebblewriter.com


UPDATE:  10:45 AM

Last night's calls on the dollar and the euro were timely.  Check out the candle on the DX daily chart -- the completion of both a Bat (purple) and Butterfly (red) pattern.




EURUSD also seems to have put in a bottom, though as mentioned earlier it's going to take ein Akt des Bundestages (literally) to save the euro now.




I think the dollar has more upside, simply because I don't believe equities have quite finished their slide.  But, watch for a back test first.


ORIGINAL POST:  2:00 AM

Back on April 30, I held my nose and plunged head-long into the dollar, also shorting the euro.  I'm pretty sure I invoked that age-old affirmation of confidence: "here goes nothing."  Hopefully, some of you went along for the ride.

In that night's post [see: Bet Your Bottom Dollar] I put up the following chart:


 


























I immediately regretted sketching out the forecast in such detail; and, in fact, I caught a lot of guff from a few readers for so recklessly calling the bottom (you know who you are, wretched givers of guff!)

I didn't look at the chart for a few days, but knew things were going my way.  I just didn't realize how well things were going my way...  Here's the same exact chart two weeks later.



It deserves a close up...if only to show how spooky a forecast it turned out to be.



Throwing caution to the wind, I also posted the EURUSD chart below and wrote:
Meanwhile, the EURUSD shows signs of finally breaking down.  Both the pair and the RSI action show a rising wedge that’s bumping up against a well-established channel.
Note Point D -- the completion of a Bat pattern -- sitting down there all by its lonesome.



It now looks like this:



Yikes!  Harmonics don't always work as well as they have this past month.  But, when they do, man is it fun!

************

As far as the road ahead, EURUSD crossed a incredibly important fan line today.  It's either fallen off a cliff, or it's doing that roadrunner-running-in-mid-air thing.  On the other hand, it has completed a Bat pattern (as has DX) that normally means a reversal. The next 24 hours are critical.







If I had to guess, the RSI leads me to believe we're going to see a big bounce.  But, I'm taking my profits and sitting this one out.  If it plunges below the fan line, there's plenty more downside where that came from.

If it doesn't, it'll be because Merkel and Hollande are caught on video at the Sofitel Brussels, breathlessly moaning "long live the troika" while probing post-election relations.

Seriously, though, a stick save would almost certainly entail a commitment to all things Greek, Portugese, Spanish, Italian, etc. and more LTRO -- lots and lots more LTRO.

Stay tuned.

***********

For the last several weeks I've been double-posting pebblewriter.com stuff here on the original blog.  The other website has been up for nearly a month now, and it's time to start winding this one down. [why?]
If this blog is helpful to you, jump on the introductory prices while they last.  I've extended the 10% off discount for all new members through this Friday, the 18th.  Just enter the relevant coupon code from below:
sign me up!



COUPON CODES:
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Quarterly:       inaug-quart
Semi-Annual:  inaug-semi
Annual:            inaug-semi


Tuesday, May 15, 2012

Slip Sliding Away

~reposted from pebblewriter.com

We're getting dangerously close to our downside target range of 1295-1323, first discussed back in April.
  • 1349.42 -- .886 of the purple Butterfly (tagged)
  • 1343.41 -- 1.272 of the yellow Crab pattern (tagged)
  • 1340.03 -- horizontal support, prev. Point X (tagged)
  • 1323.85 -- 1.618 of the yellow Crab (next)
  • 1317.63 --  1.272 of the purple Butterfly
  • 1289.14 -- 1.618 of the purple Butterfly (and 2.24 of Crab)


I have been viewing the downside as consisting of three basic scenarios:

...continued on pebblewriter.com...

Update on FTSE: May 15, 2012

~reposted from pebblewriter.com


ORIGINAL POST:

In response to several requests from readers across the pond, I'm taking a crack at the FTSE 100.  For some reason, Think or Swim (my trading platform) doesn't quote the FTSE itself, but does the FTSE 100 mini -- 1/10 of FTSE's value -- that goes by the symbol UKX.



UKX had retraced a little over .786 of its 2007-2009 plunge when it topped out in February 2011 at 609.58 (.786 is the normal completion point for a Gartley.)  It subsequently fell 20% to 486.86 last July, then retracing about .886 to reach...


Monday, May 14, 2012

Analog Update: May 14, 2012

Today's action plays out well with the analog I first posted back on April 9 [see: Analog Watch] and charted on the 10th and 11th [Analog Details.]



At the time, SPX had peaked at 1422, one point above a Butterfly target we identified on March 29 [see: All the Pretty Butterflies] and was on its way to our 1357 downside target (tagged later that day.)

The subsequent completion of the right shoulder at the .886 Bat pattern target of 1415 [see: A Swing and a Hit] got the downside started on May 1, and it's been all gravy since then -- complete with the completion and...

...continued on pebblewriter.com...

Running on Empty

ORIGINAL POST:  9:20 AM

With this morning's continuing fallout from the latest JPM debacle, we should see the completion of the smaller H&S pattern we've been watching.  The neckline is around 1338, so look for a bounce around there on the opening.



This plays out well with the analog I first posted back on April 9 [see: Analog Watch] and charted on the 10th and 11th [Analog Details.]  At the time, SPX had peaked at 1422, one point above a Butterfly target identified on March 29 [see: All the Pretty Butterflies] and was on its way to our 1357 downside target (tagged later that day.)

The subsequent completion of the right shoulder at the Bat pattern .886 target of 1415 [see: A Swing and a Hit] got the downside started on May 1, and it's been all gravy since then -- complete with the completion and back test of the larger H&S and now, completion of the smaller H&S pattern.

As we discussed last Thursday [see: Still on Track], the latest H&S pattern targets 1275, but I believe it'll be a challenge getting below 1292.  Remember, the targets I originally laid out on May 6...

Friday, May 11, 2012

There is Nothing Wrong...

~reposted from pebblewriter.com:

I can picture it clearly:  It’s 1963 and 10-year old Benny Bernanke sits staring at the black & white Zenith in the living room of his East Jefferson Street house, captivated by the voice of Vic Perrin…
“There is nothing wrong with your television set.  Do not attempt to adjust the picture.  We are controlling transmission.  We will control the horizontal.  We will control the vertical.  We can change the focus to a soft blur, or sharpen it to crystal clarity.  For the next hour, sit quietly and we will control all that you see and hear. You are about to participate in a great adventure.  You are about to experience the awe and mystery which reaches from the inner mind to the outer limits.”
click above for a trip down memory lane
These were the formative years for the future leader of the financial world.  The idea that anyone could completely alter someone else’s reality must have captivated him then, as it clearly does now.
How else to explain the market’s rise after one of the world’s biggest banks admitted to [tip: think icebergs] a $2 billion trading loss on what they insisted was a matched book?

Now, $2 billion clearly isn’t going to ruin JP Morgan Chase.  They have $1.2 trillion in assets and $112 billion in Tier 1 capital.  The truly ruinous aspect of this news is that they, as some of the smartest guys in the room, have lost control of their derivatives trading.

As every aspiring muppet-master knows, JPM has the largest derivatives portfolio of any US bank — an astounding $78 trillion as of June 2011 (as in $78,000,000,000,000.)  This represents a startling 663 times their Tier 1 capital, meaning a miniscule 0.15% move in the value of their derivatives portfolio would wipe out all Tier 1 capital [see: The Wipeout Ratio.]

Needless to say, the Plunge Protection Team has been mobilized.  In yesterday’s conference call, Jamie Dimon as much as admits that the worst is yet to come:
“Net income in Corporate likely will be more volatile in future periods than it has been in the past.”
It’s as clear as the worry lines on Blythe Masters’ face that they have no idea how ugly this might get [read: much, much worse.]  And, if this guy — the Prince of Wall Street — has such tenuous control on the goings-on in his Chief Investment Office, what are we to think about the rest of his $78 trillion in derivatives?  How about the other $630 trillion held by other bankers? [see: City of Dreams]

The world, Chico, and everything in it...
In one of Bernanke’s first televised post-fed meeting press conferences, Dimon joined in the Q&A, bashing Bernanke for the litany of regulations and reforms that were preventing the financial community from recovering from the financial crisis.  Needless to say, there was no mention made of his role leadership in creating the crisis. Click on Dimon to watch the exchange.

This is analogous to bailing your kid out of jail, only to have him complain about how long the drive home is taking.  I was impressed by Bernanke’s restraint as he provided a thoughtful response, while no doubt thinking: “I save your sorry ass, and this is the thanks I get!?”

There’s an old adage in banking: if I owe you $100 and can’t repay it, I’m in trouble; if I owe you $1 million and can’t repay it, you’re in trouble.  While the TARP loans have long since been repaid, Wall Street’s survival is still very much in the hands of its enablers — the Fed.

As the guy ostensibly at the controls, Bernanke must feel more than a little perturbed that things aren’t going according to plan.  I wonder if Vic Perrin’s words ran through his mind yesterday as listened to the JPM call.  I wonder, as he called Dimon to lay down the law (“no, really, I mean it this time — no more bailouts!”) whether he heard those familiar words from the other end of the line…
“There is nothing wrong with Wall Street.  Do not attempt to adjust the picture.  We are controlling transmission….”

Wednesday, May 9, 2012

3rd Time a Charm

~reprinted from pebblewriter.com  (posted May 8, 2012)


UPDATE:

Down to 1350.76 so far, getting close to the .886 of the larger purple Butterfly pattern at 1349.  We didn't bounce much at all when RSI first hit its fan line, a show of strength for the bearish case.

The next test is the 60-min RSI, which has reached 18 -- the low since August of 2011 and a sign of short-term oversold condition.  A push into the 17 range would be extremely bearish, though I think we'll get a bounce before too long.



A reminder of our downside targets posted on the 6th [see: So Far, So Good]:
  • 1349.42 — .886 of the purple Butterfly
  • 1343.41 — 1.272 of the yellow Crab pattern
  • 1340.03 — horizontal support, prev. Point X
  • 1323.85 — 1.618 of yellow Crab
  • 1317.63 — 1.272 of purple Butterfly
  • 1289.14 — 1.618 of purple Butterfly (and 2.24 of Crab)
I talk a lot about bounces, but watch the market's momentum.  If we slice through one level, consider adjusting stops rather than closing out positions.  We've seen it happen often enough on the upside -- where logical reversal points were routinely ignored by a runaway bull.  The same thing can happen on the downside.  It's just been so long that it's easy to forget, LOL.


ORIGINAL POST:

This push below the neckline looks rather convincing, but -- as before -- the key is a close below it, currently around 1364.  The fly in the ointment is the RSI, which just tagged the fan line from Aug 2011.  It should provide at least a bounce.




More shortly.

Monday, May 7, 2012

So Far, So Good

Over the past 5 weeks, our forecasts have been remarkably accurate.

The Butterfly pattern identified back on Mar 29 [All the Pretty Butterflies] correctly called the 1422 interim top.  As anticipated on Apr 10, we got a bounce at 1357 (the .786 of the 1340-1422 rise) and began tracing out a head & shoulders pattern that fit with an analog of the Feb-May 2011 topping pattern [Analog Details].

The analog been very accurate thus far, although the initial right shoulder bounce had us wondering whether the alternate path to 1462 was playing out.  Our RSI indicators kept us on the right path.  Instead, we got a complex H&S pattern, with a second test of the neckline and subsequent round trip to the shoulder line, accurately forecast in both time and price.

Friday's bounce at 1367 was within 2 points of our 1365 target [2d Time a Charm], with a nice little back test -- as forecast -- to the neckline, where we closed out the week.  The only reason I mention all the above is that, while this degree of accuracy is always desirable, it's not typical and should not be expected.

Regardless of how well your investments have performed the past five weeks, don't forget that they are out to get you.  Even now, as it appears that the analog is playing out nicely, the financial establishment is working overtime to separate you from your money.  There will be more times, such as in January, when perfectly good harmonic and chart patterns don't play out as they should.

Always use stops!

Now, with that out of my system, it looks like the results of the Greek and French election, on top of Friday's dismal non-farm payroll numbers, is going to provide the push we need to get on with the downside.



Remember, our target is 1288-1323, although 1288 has been fudged to 1295 simply because a dip below 1292 would be problematic for the bulls from a wave count perspective;  i.e., I think they'll pull out all the stops to avoid it.

Potential bounces along the way include:
  • 1349.42 -- .886 of the purple Butterfly
  • 1343.41 -- 1.272 of the yellow Crab pattern
  • 1340.03 -- horizontal support, prev. Point X
  • 1323.85 -- 1.618 of yellow Crab
  • 1317.63 -- 1.272 of purple Butterfly
  • 1289.14 -- 1.618 of purple Butterfly (and 2.24 of Crab)
But, I divide the downside into three basic scenarios:

(1)  stick save: Fed freaks over Europe, QEish leak limits downside to 1349.
(2)  top case: normal Butterfly completion to 1.272 (1317) or 1.618 (1289.)
(3)  panic sets in: crash and test bottom or large red rising wedge around 1200.

I expected to be able to update all of the charts today, but my youngest daughter has been home sick with stomach flu while my wife and daughter #2 were at an all-day volleyball tournament.  Needless to say, it wasn't as productive a day as I expected.  Look for updated charts Monday.

*****************

Over the next couple of days, I'll finish converting the new website to a premium site.  Many thanks to those of you who have joined up.  I hope you've been able to act on my forecasts; if so, you've more than earned back your subscription costs in the first week.

To anyone still thinking about it, the end is near.  This site will still display articles of general interest and delayed market updates.  But, members of the new site will enjoy the first and best of what I can put out.  To join now, click here.

Good luck to all.

Friday, May 4, 2012

2nd Time a Charm?

~ reposted from pebblewriter.com

UPDATE:  11:30 AM

I feel pretty good about my downside (primary) case now that things are moving along.  I mentioned back on April 25 [see:  Bulls Fight Back] that we needed to start down by Wednesday in order for the larger H&S to maintain some time proportionality between shoulders.  We got our reversal Tuesday, and have been moving down since.

Also, check out the RSI and MACD on the chart below.  RSI broke the little fan line I threw up a few days ago, and has no support until it hits line k-5 -- presumably below 1370.  MACD just saw a bearish cross and is approaching the center line.  Note, also, that SPX has fallen below its 10, 20 and 50-day SMAs.  The only remaining moving averages to offer support are the SMA100 (at 1342) and the 200, way down at 1276.



I've already seen a few Fed comments, talking up the economy, employment, etc.  And, SPX is pausing here at the neckline.  I assume that even the most fundamentally oriented and/or manipulative powers that be have a smart technical analyst on staff who explains to their bosses what happens when various patterns play out.

So, there's always a struggle at key moments like this. It's interesting, all the same, that if we look very hard at all, we can find chart patterns that provide rationale for the price movements.  Here, at the neckline, we can see that RSI has also reached a midline of sorts in the channel we've been following.



If we break the neckline, look for that back test somewhere around 1364 mentioned below.  After that, not much support till 1340, and then 1323.

UPDATE:  11:15 AM

Here's the big picture, again.  The larger H&S, which completed but didn't play out on Apr 23, is back in play.  If we can close beneath 1370, we'll have a crack at a complex H&S pattern (two shoulders on each side) that targets the low 1300s.



The harmonic picture supports this, by the way.  If the H&S plays out, the little Bat pattern (yellow) under construction becomes a Crab pattern.  These typically extend to the 1.618, but can go further (2.000, 2.24, 2.618, etc.)

The larger purple pattern - a Butterfly - completes at 1317 (the 1.272) or 1289 (the 1.618.)  Hence, my call for a downside of 1295-1323.

ORIGINAL POST:  10:30AM

The Bat, Crab and H&S patterns are doing their thing, and we're fast approaching the target we set yesterday of 1372. That was an interim target of course, because if we complete the larger Head & Shoulders target (again), the potential downdraft is to 1295-1323.




I'm refining the larger H&S completion target to 1370.73 and the nominal target to 1300.
The .886 Bat pattern retracement of the 1358-1415 rise from Apr 20 to May 1 indicates a turn at 1365.23.  So, if the pattern is to play out, that would be an excellent place for a back test to commence.

Of course, TPTB will attempt to turn it again.  Cue the talking heads, or QEeak from deep inside the Fed that will attempt to turn the tide before it's too late.