Charts I'm Watching: May 20, 2013

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~reposted from pebblewriter.com:

Nothing much has changed since Friday's close.  There's a slight negative bias, which could be nothing more than consolidation after Friday's rally.  We'll play along on the downside, with the understanding that 1673 is still on the table.  In other words... tight stops.

Price has been on a tear, but the underpinnings of the rally have been fading the past several days -- as seen on the 60-min RSI chart.

We went to cash at the close Friday because of the conflict between short-term and long-term patterns such as are displayed in the currencies.  The euro and dollar have hit short-term targets, but have more room to go before the tide turns.

UPDATE:  10:10 AM

SPX just pushed above 1667.  I'm going to switch to the long side with stops at 1667 in the expectation that it's headed to 1673.

Note that we're currently above the yellow TL connecting the 1994 and 2002 lows, and at 1667.50 have pushed above the top of the purple channel itself.

As I mentioned earlier, this might be nothing more than an intra-day move. But, we can't ignore the possibility of a breakout here.  It's visible on both the short-term and longer-term RSI charts -- the action immediately ahead of us will determine which it is.

The most logical move, given the degree to which we're overbought, would be a reversal off the channel tops.  But, we'll see...

UPDATE:  12:47 PM

SPX got within .16 of our 1673 target and is rolling over.  Watch for the latest even-more-steeply sloped channel (white) to catch it around 1669-1670.  A drop back through the top of the purple channel would argue for 1663 (yellow dashed TL) for starters, maybe lower.

I'll likely take a crack at an interim short position with any push through 1669.60.

UPDATE:  12:56 PM

Here we go... interim short here at 1669.60.

Totally jumped the gun on that one.  Stopped out with a bounce at the top of the purple channel.  Should have been more like 1669.  Too bad, because the dollar's confirming a drop here -- as is SPX RSI.

I'll just wait for a push through 1669 itself.

To give you an idea of how silly this has become, the little white channel slopes up through the red channel which slopes up through (and has, for the moment at least, departed) the purple channel.
This is, by definition, exponential: increasing at an increasing rate.

UPDATE:  1:19 PM




Just got the break.  Full short here at 1669.  Charts in a few...


For the bears, a move back through 1663 is necessary to generate any real downside potential.  Otherwise, this could be viewed as a backtest of the yellow TL.

As always, watch for the back test of the broken channel/TL -- in this case, stops around 1670.50 should be safe.

UPDATE:  2:40 PM




Got very close to the yellow TL and bounced.  It's not clear yet whether that was the extent of it.  But, I'd expect SPX to at least tag the red channel midline -- currently at 1663.75.


UPDATE:  3:55 PM

Holding short into the close.  The dollar and euro appear very ready to reverse, and SPX is still back below the purple channel top, meaning a reversion to the midline is the most likely scenario.

There is a good possibility that DX will sell off a little more first -- say 83.609.  But, that could easily happen overnight.  If not, look for SPX to retrace to 1670-1672 before any additional downside.  In other words, a potential gap and crap on the opening bell.

GLTA.

Which Lie Did We Tell?

Reading the employment reports these days reminds me of the story told by William Goldman, celebrated screenwriter of such classics as Butch Cassidy and the Sundance Kid and All the President's Men.  He was waiting for a producer to get off the phone when the man suddenly cupped his hand over the phone and shouted to his assistant: "Bill, Bill!  Which lie did I tell?"

When we learn that the government is unable to keep track of the number of its own employees from month to month, how are we supposed to trust that any other number that purports to tell us how many folks are employed in offices, warehouses and saloons across the nation?

In the "bad news is good news" (more QE) and "good news is good news" world in which we're living, this morning's jobs report is -- surprise! -- good news.

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We're still long from yesterday's low, but coming up on important resistance.  This morning will be about figuring out when to sell.  I suspect 1615-1616 would be nice.

The dollar shot up on the news to an important channel line and the .618 retracement of its fall since Apr 24, but is dropping back.  How far it falls could be quite telling.

Stay tuned...

UPDATE:  9:42 AM

SPX just hit 1616.16.  Shorting here, with stops at 1618ish.  Charts in a minute...

Note SPX just hit the top of the red channel within the broader purple channel, as well as the 1.272 Fib extension of the 1597-1536 drop from Apr 11-18.

There are still a number of higher potential targets:

• the top of the purple channel, currently around 1646
• the IH&S target of 1650 (now that SPX finally crossed the neckline)
• the white 1.618 extension at 1635.25

But, odds are they'll have to wait for a back test of the lines of important resistance just broken.  It's not that the 1.272 Fib line is that important.  There was no meaningful .786 reversal, so this harmonic pattern is much more likely to extend to the 1.618 at 1635.

This was our upside target if SPX was able to break through the resistance it just did.  And, we're at an unusual point on the purple channel -- the .625 line.  The .75 would be a much more common end point.

UPDATE:  10:29 AM

Looks like SPX is breaking out of the red channel, triggering our 1618 stop.  So we'll switch back to the long side for a likely run up to 1624ish.  Stops at 1614ish.

The red channel is drawn with the best fit on the interior points on the 15-min chart.  But, by the time you examine a channel on longer time frames, all those precise reversals at the channel lines pretty much disappear.  In other words, there's always wiggle room.

In fact, I'm going to switch back a short position here at 1618 just to protect against the possibility that wiggle room is at work here and the "break out" mentioned a moment ago is a false alarm.  If SPX pushes back up through the top of the red channel, I'd be content with an interim long position for a trip to 1624 rather than switching sides all together.

UPDATE: 10:55 AM

We've been talking about 1635 a lot lately.  There was Apr 29, when SPX came within one point of making a new high:

On the other hand, if it dips below 1592 in the morning, it has downside risk to the channel bottom at 1576 [it hit 1581] where it would likely catch a bid and start a run to 1635.

On Apr 25, when charting the IH&S (before it went circus freak on us) in Best Laid Plans:

That way, the Inverted H&S Pattern would feature a neckline that’s roughly the same as the purple channel .25 line, and would target the same price level as the 1.618 extension of the 1597-1536 slide: 1635.

But, my favorite reference was in July, 20 2011 in Ten Lousy Points, as we were about to nail the call-of-the-year thanks to our 2011 as 2007 analog:

There was a Santa after all!  The Dow soared 205 points, the S&P; 500 over 21.  The next two days tacked on 13 more points.  At that point, SPX was just 10 lousy points from completing an inverse head & shoulders pattern that might have sent it up 125 points to 1635.

We all know the rest of the story.  Suffice it to say there were a lot of hangovers those next few weeks that had nothing to do with New Year celebrations.  SPX dropped 120 points in 2 weeks, 230 points in 4 weeks and 750 points by the following Christmas.

There's no real connection, of course.  After topping the 2000 high, SPX had just missed -- by 30 points -- completing an Inverted Head & Shoulders Pattern (in purple, below) that would have targeted around 1670.  Note that 1670 was also the 1.618 extension of the Crab Pattern that was in the works (also in purple.)

But, all was not lost.  After peaking at 1576, SPX went on to construct another IH&S that looked promising.  If it completed, it would have targeted 1635 -- indicated by the dashed yellow horizontal line.

It came within 10 points on Dec 26, but couldn't quite close the deal.  As I wrote in July 2011, the rest was history.  That 1635 IH&S target would have to wait...until now.

continued on pebblewriter.com...

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