The New Website is Live!

After 385 posts over the past year, the original pebblewriter has reached a crossroads.  The blog has taken on a life of its own, as the number of hits would attest.  Many other blogs do a fine job on technical analysis, swing trading, harmonics, Elliott Wave theory or economics (I list several favorites in the column to the right.)  But, I couldn't find many that did a great job of wrapping everything up in a nice, neat actionable package.

So, I tried to build a blog that did everything -- and in a way that educates its readers -- for free.  But, my other business interests suffered.  And, for some reason, my wife and kids expect a little attention, too (my wife has these wacky ideas about me coming to bed at night, taking vacations, etc.)  I tried cutting back on blogging this past Fall; but, frankly, I missed the challenge and excitement.  And, the diminished focus hurt performance after a phenomenal 2011.  The solution, it seems, is a premium blog that delivers premium information to readers who value it.

For all these reasons, I introduce the new and improved pebblewriter.com. I believe the layout is cleaner and easier to use.  The concepts and principles I use in my forecasting are integrated and explained more clearly.  I'm assembling a great collection of resources for those who, like me, want their propaganda from the source instead of through the MSM filter.  And, for the first time, I'm charging a little coin to defray my costs (not to mention establishing a reserve for marital counseling.)

Over the next few days, I'll complete the migration of each and every post from the old blog to the new website.   And, I'll also begin posting all the charts for the various indices/currencies/commodities I watch.  Most major indices will be updated regularly -- with big picture updates usually on a weekly basis (or as needed), and shorter term views more often -- typically daily for SPX and every few days for the others.

I will also post intra-day when I see interesting chart or harmonic patterns setting up or noteworthy news that IMHO isn't being covered properly by the MSM.  Once the conversion is complete, members will be notified of important posts by email.  And, over time I will add more information about chart patterns and technical analysis.  To mangle a perfectly good metaphor, my goal is to teach others to fish rather than simply providing a daily catch.

The site is up and running now, although the migration won't be completed for another few days.  I plan on leaving this site up for archival purposes, and will continue to post items of general interest there from time to time.  I'll also repost pebblewriter.com entries when I get around to it for those whose needs aren't terribly time-sensitive.  Ditto for comments and questions -- the new blog will be addressed first.

The current Blogger site gets about 1,000-2,000 hits every day, representing about 500-1,000 unique readers.  This feels like a good number to me.  I'd like members to be the first to know when I come up with interesting research -- not after thousands of other casual readers have already acted.  I also like the idea of a small, interactive community, where readers can ask questions of me as well as learn from each other.  I'll cap membership if it grows too large.

The 55 current pebblewriter followers (as of April 23, see here) will be offered a $100 discount on the first year of an annual "charter" membership through May 2.  And, while I work out the inevitable kinks and get all the charts online, a 10% discount will be offered to all new members, regardless of whether you're a follower or not.  Use the following coupon codes through May 2.

• Quarterly:       inaug-quart
• Semi-Annual:  inaug-semi
• Annual:           inaug-annl

In addition, the first 100 annual members who sign up by May 2 will be grandfathered at their initial rate; i.e., no increases -- ever.  How cool is that?

And, members will have whatever membership they're on extended by a free 90 days for each referral that results in a new annual membership.  So, a handful of referrals could buy a whole extra year or more.  Just drop me a line, and have your friend mention your name/handle when they sign up.

The introductory rates will be as follows:

• Quarterly:  $200
• Semi-Annual: $350
• Annual:  $600
• Charter:  $500

I will consider discounts for selected non-profits and charitable organizations.  Contact me if this applies to you.  Ditto for other subscriber blogs who'd like to exchange professional courtesy.  I also consult for a few independent asset management firms, advisors and family offices.  This customized service includes telephone and even in-person consultations and is more strategic in nature.  Again, contact me for further details.

There are certainly cheaper subscriber sites out there, though there are many which are much more expensive.  My feeling is that one decent trade every few months will pay for any of these memberships many times over.  I don't plan on offering monthly or trial memberships.  My past work is all on display -- every great and not-so-great call I've made for the past year.  So, it's easy enough to get a feel for my thought process and style.

I've tried to incorporate the many suggestions I received when I first broached the idea of a premium site several months ago.  Some investors don't like paying for information; I get that.  But, the vast majority of responses I received were very supportive.  Whichever camp you fall into, feel free to drop me a line with your thoughts (michael at pebblewriter dot com.) Thank you for your support.

CLICK HERE TO VISIT THE NEW SITE

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As always, the information I present on pebblewriter.com is for educational purposes only.  It is not investment advice and is not intended to address the specific goals or circumstances of any individual reader or subscriber.  The full Disclosures and Use Agreement can be found here.

Going Out on a Limb

Reprinted from pebblewriter.com

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

In spite of the indecision evidenced by this morning's post, I'm seeing a channel set up on the RSI that's tilting me slightly more bearish.  It's the dashed, red channel on the chart below.



Remember, everything that's happened since April 4 is technically a back test of a broken rising wedge -- unless we break above 1422.  It's possibly a replay of the events of Feb-May 2011 [see: Analog Details.]   This back test correlates with a back test of the dashed, yellow TL on RSI (redrawn this morning.)

Viewed through this prism, the new channel makes a lot of sense.  In 2011, a similar channel sent SPX down 45 points or so -- but that was after the H&S pattern had played out.  In the current time frame, we had a bounce at the neckline and no follow through since.

One more thing: the purple trend line intersecting with that RSI channel.  Previous failures to push through it have proven disastrous to SPX.   All things considered, I'm going to layer on more bearish positions -- with tight stop.

Stay tuned.

Go Away in May?

reposted from pebblewriter.com

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

Maybe it should read "be put away in May?"

It occurred to me over the weekend that Friday's posts probably sounded a little schizophrenic.   "Next Stop 1462?" does seem somewhat out of step with "VIX Ready to Rumble."  Is it me, or is it the market that's schizophrenic?

This morning's drop does little to clarify things.  Again, we reversed right at the H&S pattern shoulder line -- dropping as low as 1395 on the Chicago PMI survey (off 6 points to 56.2 for the third monthly drop in a row -- see details below.)


Furthermore, the RSI TL we were watching so closely last week appears to be holding.  It broke on Friday, but has snapped back to the point where we can probably ignore Friday's action.



As anticipated, VIX did do a little rumbling this morning, up almost 7% to 17.41, currently loitering at 17.30.  These RSI channels have done an amazing job at forecasting VIX over the past couple of months.



Unfortunately, we're no closer to resolution of last week's "analog vs alternative" quandary.  For a long, tedious discussion please re-read the past few posts from last week.  The cliff notes version is: "50:50."  That is, both options are on the table, and will be until we see some sort of break out. I'm keeping my powder mostly dry until the path forward is more clear.

I'll continue to watch the red-dashed RSI TL on SPX above.  I'm also watching the McClellan Oscillator, which is often a good indicator.  Like many other indicators, it's on the verge of a breakout or breakdown.  Now, if we can only figure out which one...



The economic data continues to forecast slowing.  But, at what point will the market care?  As we've discussed many times -- good news is good, and bad news is good (if it stimulates another round of QE.)  It seems the only thing that might quash the QE hopes is an announcement from the Fed that it's off the table (don't hold your breath.)

Stay tuned.

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

The April PMI survey isn't pretty.  The production component dropped a huge 11 points -- the largest drop in 11 months.  But, the Buying Policy component is particularly telling.  It asks respondents to report how far in advance they must order what they need for their businesses.  It's a good handle on the tightness in the supply chain.  This month, it fell dramatically -- from 45 to 28.  In other words, there's plenty of capacity -- not a good sign for those expecting the economy to heat up.

VIX Ready to Rumble?: April 27, 2012

Back on the 18th [see: VIX at a Crossroads] we charted VIX's future, observing that it had fashioned a perfectly good falling wedge into a downward sloping channel.  We talked about how a drop to 16 would be the ideal level for an Inverse H&S pattern to develop.

Guess what?

It's interesting that VIX is reaching its ideal shoulder line just as SPX is reaching its.  To make things even more interesting, the RSI channels support the idea of a reversal here.

Stay tuned.

Next stop 1462? April 27, 2012

Reprinted from pebblewriter.com

Yesterday we explored the alternate path in detail, noting that one of the two RSI trend lines we've been watching had broken, and the second was coming into play.

There is the possibility that the downward sloping red, dashed TL will catch it on the way up, but the yellow TL just broken was a major feat.  A close above the TL would imply a definite momentum shift.

This morning, the second (red, dashed) trend line just gave way, lending more credence to the alternate path higher if -- and this is key -- we can manage to close above it.

As can be seen on the chart above, there's very little in the way of resistance between here and 1462.  We're at the H&S shoulder line now, and it's possible that the pattern will still play out.  But, as discussed in Bulls Fight Back, the pattern will start looking lopsided with much higher prices or passage of a few more days before it resolves.  It fails definitively at 1422.

Harmonics give us some ideas as to the path forward and potential turning points.  

Here's the bullish case -- a Crab Pattern (the larger purple pattern) with the 1.618 At 1462.55.  There's a good possibility that we'd see a reaction at 1414, which is the .886 of a Bat pattern and the 1.618 extension of the smaller Bat (in red, labeled in white) that's nestled in the last two legs of the larger purple pattern.

But the ultimate target is Point D at the 1.618 extension of 1462.  This is the apex of the rising wedge pattern (yellow) we've been in since 1074 and intersects with the SPX channel mid line (red, dashed.)

Yet, there are plenty of reasons for the market to turn down and complete the H&S pattern, including the very faint possibility that reality sets in.  Here's the bearish case -- a Butterfly Pattern (in red) -- that points to a low of 1305-1317.  BTW,  red Point C can go as high as Point A, but no higher, in order for the pattern to hold.

That red, dashed channel mid line at which either alternative ends is a biggie.  Here's the view of the past 20 years...

And, the even more stunning view since 1935...

There's the possibility of a slight miscalculation when graphing anything over 77 years.  So, when I say it comes in at 1462, that's an educated guess based on my best interpretation of what I can see.  But, it's helpful to know that it corresponds with the Crab patttern 1.618 --and is darned close to the Fibonacci .886 retracement level of the 2007-2009 drop at 1472.

I believe we're destined to tag that line again before the next big downturn.  But, whether we get there directly from here or after a more extended wave 4 is not clear to me at the moment.  For now, the momentum is clearly with the bulls, especially when we can rally off of horrid economic numbers.

Personally, I'm reigned in quite a bit right now -- at least until the picture is a little clearer.

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

The EURUSD has also defied logic, gaining slightly on the day to the point where it's exceeding the channel that's guided it for over a year.  But, the last month has traced out a Gartley that could see prices reverse around the .786 retracement of 1.3297.  Our high for the day so far is 1.3269.

Stay tuned.

S&P Downgrades Spain

S&P cuts Spain two notches, from A to BBB+, based on contracting economy...cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain's key trading partners.

This could be the catalyst for the turn we've been wondering about.  It could be the difference between the H&S and analog playing out versus our top alternative.  Notice that we did break the RSI trend line identified the other day (yellow, dashed) but were stopped by the 2nd one we discussed earlier today.  Today's high was right at the shoulder line of the H&S pattern, and retraced a Fibonacci .707 of the recent 1422-1357 decline.

Keep an eye on the CDS and bond rates for Spain/Portugal/Italy and key regional banks.  Remember, all these rates are available on the new website: pebblewriter.com.

Click on economics, then select market data.

On the Verge: April 26, 2012

UPDATE:  5:35 PM

S&P cuts Spain two notches, from A to BBB+, based on contracting economy...cites declining disposable income, private sector deleveraging, front-loaded fiscal consolidation and an uncertain outlook for external demand in many of Spain's key trading partners.

UPDATE:  3:25 PM

Here's a close up of the alternative path, which looks stronger with every uptick.  I haven't altered its course since first charting it a couple of weeks ago.  Remember, it remains only an alternative until the H&S pattern busts.

As we originally discussed, the thick, red dashed line is our target.  It's the center line of a channel that goes back to 1935.  Really.  The rising wedge apex intersects with it at around 1462, which is the 1.618 extension of the purple Crab pattern detialed below (Point X at 1422.38).

FWIW, it's also the 3.000 extension of the small Crab pattern (yellow) nestled in the B-C-D legs of the larger Crab.

UPDATE:  3:15 PM

Interesting that today's ramp has come without any help from the euro zone.  EURUSD continues to stall at the channel line discussed in this morning's update on the euro.

ORIGINAL POST:  1:45 PM

Yesterday we examined the fact that SPX had broken a 26-session channel and was in danger of following our alternative forecast higher -- the purple dashed line marked "alt." in the chart below.  Remember, that alternative calls for a strong move to 1462-1472 in short order, while the analog calls for a breakdown first.

We took a close look at the RSI trend line that, broken back on the 5th when the rising wedge was broken, was being back tested big time.  I mentioned I'd be watching it like a hawk, as I felt it would hold the key to which way this confusion resolves.

As of right now, that RSI trend line is being broken.  While it's possible this is an intra-day head fake, I'm not so sure that I'm willing to bet cold, hard cash.  Note the highlighted circle on the RSI portion of the chart below.

And, expanded here...

There is the possibility that the downward sloping red, dashed TL will catch it on the way up, but the yellow TL just broken was a major feat.  A close above the TL would imply a definite momentum shift.

From a bearish perspective, one small Bat pattern that indicated more downside busted when we moved above 1392.  The larger Butterfly (labeled in red) will need its Point C moved over to today's high, but won't bust until/unless we exceed 1422 (where C > A.)

From a bullish perspective, the Bat/Crab pattern marked below in purple correlates very well with the smaller yellow Crab -- which, until this morning, was just a Bat.  Remember, Bats terminate at the .886 retracement, and Crabs at the 1.618 extension (or more).

The small yellow Crab's 1.618 is 1413.74, while the larger purple Bat's .886 is 1414.97.  When two targets are in such close proximity, it lends additional credence -- all else being equal.    Technically, we could get a move to 1414ish and still have a valid H&S pattern, but as we discussed yesterday, it puts additional strain on the pattern -- and the analog -- playing out, unless we see a very quick reversal.

As we approach 1400, the market should at least pause.  It's the original H&S "idealized" shoulder line, the 1.272 of the small Crab pattern, and a nice round number.  But, unless we reverse in the next hour and see that RSI dip back below the TL, I'm increasingly positive about a move to at least 1414-1415 to fulfill the Crab and Bat.

Remember, this is still a back test of the rising wedge.  But, I've been studying rising wedges a lot lately; and, as we discussed many times [see: In a Fix], it's not uncommon for a back test to go on up and tag the original apex -- faking out all who were playing the broken wedge.

More later.

Update on EURUSD: April 26, 2012

ORIGINAL POST:  5:15 AM

A couple of days ago, I updated all the EURUSD charts [see: Update on EURUSD], commenting that the pair was facing a crucial test of the channel that's guided it for the past year or so.  With this morning's mildly positive action, things have gone about as far as they can.

Note in particular the dashed, red channel and the corresponding RSI trend line.   It looks more like a very strong back test than anything else.  If so, and things get going on the downside again, we should finally complete the H&S pattern (lots of those lately) and reach Point D (1.2721) of the presumed Bat without any difficulty.

One thing of particular interest to bears is the series of fan lines from the Jan 16 lows.  Each has very clearly provided stair steps lower over the past two months.  The latest to be back tested is highlighted in yellow and happens to form half of a rising wedge over the past 16 sessions.

This rising wedge is about 2/3 of the way to the apex (1.3335), which is also the .886 of the little Gartley or Bat that's under construction.  We reached the .707 earlier this morning, poking just above the red, dashed channel line intra-day.

A close outside the channel and above the RSI TL would be wildly positive for the euro; I must admit, I just don't see that happening given the conditions in the euro zone vis-a-vis the craptastic picture everyone's painting on this side of the pond.

More later.

The Bulls Fight Back: April 25, 2012

The market is parading around in yesterday's Apple earnings report like a glamor queen in a mink stole.  An economy that can pump out eleventy zillion iPhones is very pretty, indeed.  Then, along comes the stink of a very disappointing durable goods report.  And, that mink stole is suddenly, jarringly out of place in this economic favela.

It was a nice overnight ramp.  It's taken us past the channel line we identified as key for the bears in yesterday's analog update.   But, is this the hard bounce at the neckline we've been discussing?  Is our alternative playing out (the purple, dashed line) or is this yet another in an endless series of head fakes?

Looking at the daily RSI, we're back testing a trend line (yellow, dashed) going all the way back to last August's lows.  We broke it on the 9th -- remember that 16-pt tumble out of the rising wedge?  I'm going to watch that TL like a hawk, as I believe it holds the key to which way this latest confusion resolves.

Bottom line, you can't break down from an eight-month, 400-point rising wedge and not expect the bulls to put up a little fight.  That's what back tests are all about.  It's a case of the bulls not being ready to give up, and the bears not having enough conviction.

Just like confirmation of a H&S pattern has its levels of certainty, so does the bust of a H&S pattern.  One key indicator to watch is whether we exceed the previous shoulder -- 1392.76 on the 17th.  So far we haven't, reaching only 1390.81 this morning.

Another is whether this ramp causes the overall pattern to start looking malformed.  In this case, the left shoulder was very lumpy and drawn out to begin with -- a complex H&S left shoulder with two touches of the neckline.  So, a complex right shoulder with two touches would actually be in keeping with the existing pattern.

Remember, we had originally been looking for 1400 in order for the right shoulder to be proportional to the left.   We never did reach the parallel shoulder line, and so an A-B-C move to 1400-1408 would leave the pattern looking slightly better.

The only issue with that scerario, though, is that the analog doesn't fit as well if the right shoulder extends more than a few additional sessions.  In 2011, the H&S pattern took 41 sessions, with the left shoulder lasting 13 sessions (32%), the head lasting 18 (44%) and the right shoulder lasting 10 (24%).  Thus far, this pattern has taken 57 sessions, with the left shoulder lasting 22 (38%), the head lasting 24 (44%) and the right shoulder (so far) at 11 (19%). 

While no particular proportionality is required of H&S patterns, it is for analogs.  I'd be a little leery of the analog playing out if the right shoulder lasts too much longer.  By Tuesday of next week, the right shoulder -- and the entire H&S pattern -- will be roughly proportional to the 2011's.  That means whatever bump this pattern has in store should run its course pretty quickly if the analog is going to hold.

Bernanke speaks at 2:15 EST.  I suspect most of the fireworks is done till at least then.

Stay tuned.

Analog Update: April 24, 2012

The analog we've been watching since April 9 is playing out nicely so far.  We got the original bounce at 1357 as forecast, followed by a rise to the middle of our 1380-1400 target range.  The H&S pattern we expected did, in fact, set up and complete yesterday.

Now, we're back testing the little channel (solid yellow) formed by the right shoulder.  It was broken during yesterday's plunge.

As we discussed yesterday, if the wheels fall off the analog, it's going to happen here -- at the H&S neckline.  A hard bounce would likely send SPX up to tag the initial rising wedge apex at 1462-1472 (the purple dashed line.)  It can be viewed as a Crab pattern with the 1.618 at 1462 (in purple, points not marked.) 

But, I think we're more likely to see the analog continue to work.  The key will be a failure of this morning's rally/back test and a close below 1363.  Note that we've also established a channel to the downside (red, dashed) that coincides nicely with the harmonic picture.

The pale blue Bat/Crab indicates a potential to 1335-1340, which would be a nice spot for a back test of the H&S pattern itself.  From there, the larger red Butterfly pattern takes over, with potential to 1317 (the 1.272) or 1289 (the 1.618.)  Though, a drop below last October's 1292 would be a challenge.

The key levels I'm monitoring today are 1378 -- at which point the back test starts to intrude into the previous channel, and 1382 -- at which point the larger red, dashed channel is jeopardized.

Good luck to all.

Charts I'm Watching: April 24, 2012

As we discussed yesterday, SPX pierced the H&S neckline at 1363.  But, the next step in confirmation would have been a close below the neckline.  Didn't happen -- yet.  Instead, we've been watching a back test of the channel that guided 4/10-4/20.

This morning, we completed that back test and should see the downside resume if the H&S pattern is going to play out.  With all the economic news out today, and Apple's earnings after the bell, there's plenty of wiggle room in the cosmos.  As always, use stops -- just in case The Universe has other plans.

More later.

Update on EURUSD: April 24, 2012

From pebblewriter.com...

From both a fundamental and technical standpoint, the long-term, medium-term and short-term pictures are all negative on the EURUSD.  Yet, it keeps hanging in there, the beneficiary of a great deal of ECB and, yes, Fed intervention.

Here's the long term picture as of this morning.  EURUSD has been stuck in that purple channel for years, and isn't likely to break out anytime soon.  Note the fan line off 2000-2002 coming into play again soon.

From a harmonic standpoint, the purple pattern calls for a trip to the .886 at .9115, but not anytime soon.  The red pattern has more immediate import.  There are plenty of candidates for a Point B -- near the .382, the .618 and the .786.  While it's possible we've completed a Gartley, it normally requires a bit more precision than this, so I'm assuming that was a near miss.

There's a good chance we'll target at least a Bat pattern with completion at the .886 of 1.2226 -- spitting distance from the larger (purple) pattern's .500.  But, to get there, we'll have to continue following the red dashed channel and not be waylaid by the fan line.

The channel is fairly strong -- in place for over a year.  And, there's a fan line just above current prices for reassurance purposes.  The close up picture below gives us an idea what to expect in the near term.

This potential Bat pattern calls for a move lower, to at least the .886 level at 1.2721 -- which, coincidentally, is right at that fan line.  We can also see that the last fan line off the presumed Point X leaves a rather narrow margin of safety for the next move down.  A break of 1.3110 would start the ball rolling.

The H&S pattern we've been watching for what feels like forever has resisted playing out, though the channel will force its hand soon enough.  It's mirrored by an RSI trend line which is there for the breaking after another crash into the upper TL.

Investors who play the EURUSD would be wise to use stops.  The ongoing problems in Greece, Italy, Portugal, Ireland, etc. have been exacerbated by election angst in France and the failure of the Netherlands government.  But, the ECB has learned much from the Fed about propping up markets.

While their efforts don't promise of a return to prosperity anytime soon, they've grown very fond of the stick save press release.   They'll be using it a lot in the coming weeks.

Do or Die: April 23, 2012

UPDATE:  10:20 AM

Just like life, there are degrees of certainty in H&S patterns.  The first is completion of the pattern -- a touch of the neckline.  Done.  In order, the next degrees are: (1) a decisive move below the neckline, (2) a close below the neckline and (3) a back test of the neckline; and, (4) reaching the nominal target.

For this reason, investors who missed the initial decline I forecast should get another shot if/when the pattern back tests (the strongest ones don't, as we were reminded last July.)  The most logical spots for the bounce would be horizontal support at 1357, followed by the 1.272 of the smallest (yellow) Butterfly pattern at 1347.76.

Pushing through 1340 will also take some doing, as it complicates various wave counts -- humbling both bulls and bears whose scenarios need reworking.

All of the above assumes we close at or below 1363.  If there's a stick save (Fed or otherwise) we'll revisit the road ahead.  Otherwise, my target of 1305-1317 remains -- although we could technically approach the Oct 27 high of 1292.66 without too much difficulty.
 
Like the H&S pattern, my confidence in the analog is progressing.  The solid purple line above, charting the expected market movements, hasn't changed since I first drew it back on the 9th.

ORIGINAL POST:  9:21 AM

The head & shoulders segment of the analog we've been watching is within a few points of playing out on the e-minis.   An SPX completion comes at about 1363-4.

As a reminder, the alternative case is that we come close but don't quite complete it.  A hard bounce here at the neckline would likely send SPX up to that apex target of 1462 without all the theatrics in-between.

If the H&S does complete, look for an initial downside of 1347.76 with a possible back test to the neckline, followed by a decline to our 1305-1317 target.


More later.

A Recommendation

Regular readers know how fixated I am on the ballooning national debt.  I think it represents the single biggest threat to our future.  So, I get pretty excited when I come across an important step in the right direction.

Some friends of mine have put together a coalition that urges our leaders to end their partisan bickering and get on with the job of putting this country back on course to financial solvency.

I'll post more later, but as you head into the weekend, please take a minute to check out this incredibly important message.  If it resonates (you're in the wrong place if it doesn't!) please pass it along.

The Common Sense Coalition

Have a great weekend, everyone. 

OPEX Games: April 20, 2012

SPX reversed right on schedule at 1370.  While my comment about the little channel intersecting with 1400 today was delivered somewhat in jest, the analog -- which called the recent bottom at 1357, top at 1392 (middle of our 1380-1400 range) and now yesterday's 1370 stick save -- has been remarkably accurate so far.

Our original chart from July 11th [see: Analog Charted] is looking rather prescient.

July 11 Analog Forecast

Actual

Yet, as we discussed last week, the key will be a break of the neckline [see:  Analog Details].  A failure to do so in the next few trading sessions means we're going up to tag the apex sehr schnell. 



More later.

City of Dreams

I've been harping on the incredible threat represented by the $250 trillion in almost entirely off-the-books, unregulated derivatives market -- 95% of which is should be but isn't on the books of the top five US banks.

It's an astounding 550 times the tier 1 capital on the books of these same banks -- all of which are considered too big to fail.  Looking at it another way, a two-tenths of 1% decline in the value of those derivatives could wipe out all tier 1 capital altogether [see: The Wipeout Ratio.]  If that weren't bad enough, it's dwarfed by the global derivatives market of $707 trillion.

It's hard to appreciate just how much money we're talking about.  But, demonocracy.com does an outstanding job of putting it into perspective, focusing on the 9 largest banks' $228.72 trillion in exposure.

Take the time to read this, and please pass it along. Click anywhere on the nice pretty picture below.

Going, going...

I'd be impressed if the bears were able to deck OPEX -- the perennial champ -- and let the H&S pattern play out just yet.  But, here we are, at the bottom of the nice little channel that's guided the upside since 1357 on April 10.  I suspect the sell-off will be limited to 61.8% of the rise, or 1370. 

The nice thing about the .618 is that it leaves open the possibilities of a Gartley, with a reversal at the .786 at 1365, or extension to a Crab's 1.618 at 1335 -- which would be a nice level at which to start a back test of the neckline.

If there's one thing you can count on these days, it's the market's insistence on maintaining maximum ambiguity for as long as possible.

Speaking of which, if the channel does hold, it will intersect with the shoulder line at 1400 tomorrow.  Hmmm...

Who We Rooting For, Again?

It's a sputtering economy in one corner, OPEX in the other.  But, wait, that's no ordinary boxing ring; it's a house of mirrors and Ben Bernanke is the referee.

If bad news is bad, this is bad.  Unemployment claims are up.  Housing sales are down.  Philly Fed survey numbers are down.

Then again, maybe bad news is good.  The slumping economy has the QE crowd salivating again (you'd think they'd run out of spit sooner or later.)

Even if we could forget the economy, QE and the 5/6ths completed H&S pattern, tomorrow is OPEX.  And, as we all know, that means the fight is rigged -- at least until Monday.
 

VIX at a Crossroads: April 18, 2012

Reposted from pebblewriter.com:

Where there was once a falling wedge, there is now a channel.  The April 10 breakout that looked so promising completed a Bat pattern and promptly reversed nearly 61.8% of the move from the 13.66 bottom.  Is this the end of the ride, or are there bigger and better things in store for VIX?



I have tentatively added another channel to the RSI to accommodate the latest spike.  It would likely guide the next leg down, if indeed that's forthcoming -- which I mostly doubt.



Of course, every time we complete a Bat pattern with a Point D at the .886, we're also establishing a potential Point B in a larger Crab pattern.  In this case, that would result in a completion Point D at the 1.618, which is 27.12.

That's an interesting number, because it equates with the 2.618 of the small Butterfly pattern potentially setting up on the hourly chart below.


Things get real interesting when you back out and look for competing or complimentary patterns.  On the 60-min chart, we can see that the move off the bottom conforms to a upward-sloping channel (in white) so far.  This channel will intersect with the downward sloping main channel (yellow) on Friday -- which, of course, is OPEX.



It's only fitting that the point at which VIX must commit to one channel or the other arrives on OPEX.  The situation reflects the alternatives we've been discussing for SPX.  The analog we've been watching indicates a short-term top is at hand, and we should see a brief but scary sell-off in the next few days.  This would correlate with sideways action in VIX, followed by a breakout of the yellow channel to follow the white one -- probably topping out at the 27.13 level at the bottom of SPX's decline to around 1305-1317.

The alternate SPX view is that we go on up and tag the rising wedge's apex without the sell-off first.  There's certainly enough important news in the pipeline over the next few days to bring either course to fruition.  Such a movement in stocks would mean the white channel breaks down and the yellow one holds -- knocking VIX back to the 14.5 -- 15.8 range.

Of course, such a move would complete most of an inverse H&S pattern (in yellow) and set up the next upside break out.  Technically, we have enough of a right shoulder as it is, but a drop to around 16 would be ideal.

In summary, my leading assumption is sideways until OPEX, then a breakout up to the 23-24 range to complete the IH&S that correlates with the SPX's H&S move down.  We should then see a back test of the yellow neckline and subsequent push to the 27-30ish range to correlate with SPX's move to 1307-1317.

It would be a break of the yellow channel (which has a grand total of two anchor points on its upper bound) that would be similar to the Mar 16, 2011 breakout to 31.28 (see below.) But, such a move would bring it back the midline of the long-term channel that's been such a magnet for breakouts over the past few years.

That midline, by the way, is in the same neighborhood as the Inverse Head & Shoulders target of 28.20, which would be very doable if SPX were to plunge 70-80 points over the next week.

 

But, keep the alternatives in mind.  The market is exceedingly hinky lately; and, as much as I like the analog, it's certainly not guaranteed to play out.  As always, please use stops.

Good luck to all.