Figure Pointing

The dreaded honeypot period continues and the bewildering gyrations of the past few weeks have not offered market participants any further hints as to where things may be heading next. That of course is the sole purpose of a honeypot formation, so let’s take a peek under the market’s hood and lay out some crucial inflection points.

Since early November the S&P 500 has been running nowhere fast. If you take away all the daily noise (something P&F charts happen to be very good at) then you see it priced near where it started out six weeks ago. In case you are not familiar with P&F notation – the little B on the chart stands for November and the C for December. The low pole reversal warning off the lows triggered over two weeks ago and if I would show you a snap shot of this chart back then it would look almost identical.

On paper things are looking more positive as the SPX managed to claw its way back above the 25-week SMA. But if you look at the past half year then one cannot help but wonder if this bull market is running out of fuel. And that despite almost daily Fed sponsored POMO auctions supplying cash to primary dealers.

Some of you old timers may recall a pertinent 2010 article over at tradingtheodds which strongly suggested that nine or more permanent open market operations in one month [historically had remarkable and statistically significant positive implications with respect to the market’s short- (e.g. at least one higher close over the course of the then following 10 sessions) and intermediate term performance looking 1, 2 and 3 month ahead (trading higher 3 month later on all of those 144 potential occurrences/trades).]

Although there is plenty of fuel to boost equities through an almost ritualistic EOY Santa Rally we seem to be stuck right at the gate of an inverse H&S pattern that ought to push us right into new highs. But in order to get there equities will have to bridge a volume hole that has been acting as a brick wall for over two months now. Regarding the H&S I must point out that the left shoulder still looks a bit under developed, so even if we breach that neckline (i.e. volume hole) next week there’s a good chance we’ll see another retest and possibly a bear trap before things proceed higher.

Seasonal odds however strongly support an EOY rally scenario, in particular as we are now pushing into week 50, which is usually when the proverbial rubber meets the road. Of course the odds are only the odds and as such do not account for the occasional statistic outlier that may throw equities across the board in a tail spin. Thus a failure next week or the following may have catastrophic implications and may lead to an early start into what I expect to be a game changer in 2013. To be clear – medium term the odds favor the bulls, but starting early 2013 I am seeing trouble brewing on the equities horizon.

For cracks are clearly visible across the board. The least shining example of which is AAPL, the rising star of the S&P 500 representing over 4% of its entire valuation (and if I recall correctly over 12% of the NQ-100). But it may soon turn out to be a falling star as the past two months have been less than kind to its valuation. Our P&F shows us a rather frightening bearish price objective of 445. There briefly was hope as it registered a low pole flag reversal warning on December 7th. However it since has dropped back near its recent lows and closed at 533.25 last Friday.

The long term panels are not looking any very positive either. The November lows near 505 were followed by a run up to its weekly NLBL which where things fell apart rather quickly. The monthly shows us far below a NLSL, which if not remedied by the end of this year will trigger a monthly sell alert, which in turn may lead us much lower than the bearish price objective proposed by the point & figure chart.

So if you would like to know where equities are heading in 2013 – and I’m sure you do – then I suggest you look at AAPL as that now has become our proverbial canary in the coal mine.

Let’s wrap up equities with the VIX which is now apparently coiling up between two diagonal trend lines. Seasonal odds support us touching the 15 mark, although it’s not impossible we may once again push a bit below if we see an EOY short squeeze. This would by far be my favorite scenario as selling complacency (i.e. buying vega) during a blow off top is one of my favorite past times. A breach of 17 may mark the moment where the wheels finally come off the equities wagon, but even in this scenario the possibility a VIX buy signal (relative to equities) would be likely rather quickly as the upper BB is now descending into the 18 range. The message here is clear – even if you have bearish dispositions, don’t be in a rush. Let the tape lead the way.

The Yen, here represented by the FXY, seems to be sitting at the gates of hades. Despite a relentless sell off the P&F is still pointing to a bearish price objective of 114.3. A drop below 118.5 would probably lead us there, so keep an eye on that this week.

Here’s the USD/JPY as that one charts better than the FXY on my long term interval charts. The weekly up trend here (remember it runs inverse) seems well established and there’s very little in the way. A monthly NLBL that may have offered resistance was conveniently averted and starting Monday only the upper 25-month BB may pose a bit of trouble. After years of relentless selling the USD/JPY appears to have produced a reasonably well tested floor and may now be ready for a nasty short squeeze. Definitely worth keeping an eye on this in the coming weeks and months.

On the EUR side I tried to make a point by drawing a square around the last three months of activity. Which pretty much tells the story – the Euro has been stuck in the bullpen since late fall and given the bearish price objective of 121 it’s possible we’ll see a break down below the 125 inflection point early next year.

Here’s the EUR/USD which thus far has lost its battle with a weekly NLBL. Even if it manages to to breach higher there’s still the matter of the two entangled monthly SMAs which will pose significant resistance. Perhaps there is hope for my Dollar exchange rate just yet.

Crude produced a bonafide P&F bull trap late last month and it’s now at danger of wiping out that bullish price objective near the 100 mark. A drop below 85 would switch us back to the bearish PO which was near 77 if memory serves me right.

I would love to tell you that this may turn into a profitable trade either way but unfortunately things are a bit more complicated. I see some strong resistance on the weekly side but there’s even strong support on the monthly panel. Perhaps selling condors may be the way to go? ;-)

Metals – gold has been rather lackluster as of late and the bearish PO of 1560 remains to be on the table. As you can see a drop through 1680 may lead to further ugliness for our intrepid gold bugs.

The weekly has been sporting awesome resistance in the form of a weekly NLBL – thus far it’s proven to be impenetrable  And most conveniently the 25-week SMA appears to be lining up with the inflection point I suggested on the P&F chart. So let’s keep an eye on that, shall we?

Silver, most definitely being the stronger of the two, has managed to weaken its bearish PO via a low pole reversal warning. This means the bears are on notice but not yet out of the woods (pun intended). What’s disconcerting is that this LPR warning happened three weeks ago and nothing interesting has happened since.

The weekly is however looking positive as silver is trading above its 100-week SMA and also enjoys support via two opposing net-lines. The monthly is clinging to the 25-month SMA and it has successfully survived a battle with its monthly NLBL near 33.3. I’m a bit on the fence here right now and am anticipating some sort of resolution in the final weeks of this year.

While we are on the subject of gold vs. silver – here’s the ratio which in the past has been a pretty decent purveyor of what’s in store for equities. Most recently the ratio has been dropping and that may suggest medium to long term trouble is on the horizon. Admittedly we need a bit more data but nevertheless it’s going to be very interesting to see what happens on the silver front in the coming weeks. If silver loses traction and drops alongside gold then this may be another piece to our equities puzzle for 2013.

Let’s wrap things up with copper – now donning a preliminary bullish price objective, which flies in the face of potentially bad news on the equities front. A bearish PO was reversed in late November and a breach of 3.7 may lead copper (and perhaps equities) into a coveted Santa Rally. There used to be a time when copper was leading equities – unfortunately this correlation has weakened in recent years.

The weekly panel suggests we are similarly at an inflection point. I suggested to you last week to look out for a breach of the weekly NLBL and it seems to be in the process of accomplishing that. If we close above again this coming week then I see nothing in the way until about 3.5ish.

Bottom Line: We are awaiting resolution across various market verticals, which is typical for honeypot periods. Once things start unfolding on all fronts I expect acceleration so this week we should keep our long term charts on a short leash and monitor all inflection points presented above.

Cheers,

This entry was posted on Sunday, December 9th, 2012 at 12:42 pm. Both comments and pings are currently closed.



  • http://evilspeculator.com molecool

    I switched from MySQL over to MariaDB this weekend – so you should notice a significant speed increase when loading pages.

  • Rightside_ot_trade

    “All good things take time”
    This is one of those good things

  • Skynard

    Putting EURUSD back in motion:)

  • Skynard

    /DX bulls taking profit? Short from 80.53:)

  • Microwave_Prince

    Something else looks toppy. Notice the divergence between sep to late nov spot price and open interest.

  • Skynard

    LOL, in due time. May see some rapid force start this week. shorts will be getting closer:)

  • Microwave_Prince

    I’m thinking rapid force too.

  • itcomesupinwaves

    EURNZD: H&S or blown up H&S?

  • Skynard

    Looks good:)

  • Microwave_Prince

    Inverse H&S

  • AmazingLarry

    12″ of snow today. Dammit if Darth wasn’t right with all the “winter’s coming” stuff. :p

    Thanks for the figures of points, Mole.

  • http://dartht.blogspot.com/ Zen_Gerb

    just came in from the back porch.
    53F and hot chocolate.
    Frigid!
    he he he

  • Joe_Jones

    Bucky’s on fire tonight

  • Skynard

    Long /ES @ 1412.75

  • http://dartht.blogspot.com/ Zen_Gerb
  • http://evilspeculator.com molecool

    Very little on my plate this morning so I’ll just add it here:

    E-Mini – right below SMA and hourly NLBL. A breach above may be a nice long trigger.

    EUR/AUD – looking bored but I’m waiting for a NLBL breach here as I’m thinking it’s building a floor.

    EUR/CAD – already long with a stop below the 25-hour SMA.

  • http://evilspeculator.com molecool

    I guess I just take the day off then – LOL :-)

  • Skynard

    In INTC @ 20.1

  • Skynard

    Picked up /QG, tagged the 100 daily.

  • itslance

    I was just looking at that trade, but opted for VZ instead.  Good luck!

  • itslance

    Where is everyone this morning?  Looks like pressure is building for a short squeeze.

  • captainboom

    Recovering from jet lag.  The China trip was productive, but getting stuck in a window seat with the guy next to me barfing wasn’t fun.  Hopefully he was just air sick…

  • AmazingLarry

    Just curious where you put your stop and what your first target is.

  • Skynard

    Target 100 daily with SL @ 19.85. Left some wiggle room:)

  • Skynard

    /ES at support, Buy point:)

  • BobbyLow

    The market remains on life support.

    However, just a reminder that it’s everybody’s favorite – “FOMC Week” which begins Tomorrow Morning and concludes with the announcement Wednesday Afternoon.  These meetings appear to have lost their Juice recently but you never know. 

    On top of this, be on the look out for a white smoke signal coming out of Washington on a budget deal as our leaders want to get home for Christmas Break.    

  • newbfxtrader

    Lol Markets been on life support for over a decade now…

  • http://evilspeculator.com molecool

    That’s it - captain boom is a goner. 

  • captainboom

    Might have to change my user name to H1N1.

  • http://ibergamot.blogspot.com/ i Bergamot

    Grains go critical.
    I can’t trade grain futures, but here is all-grain etf.
    Double-bottom test in progress  on JJG.

  • http://ibergamot.blogspot.com/ i Bergamot

     That picture looks lousy

  • http://dartht.blogspot.com/ Zen_Gerb

    tomorrow morning, grrrrreat.

    Zimbabwe B!tchez
    [old OEX chart]
    http://s14.postimage.org/jyuxolqtt/temp1.png

  • BobbyLow

    Agree.  It has gone beyond “The Lost Decade”.

    This is what happens when the PTB try to engineer an economy through low interest rates and then keep these ridiculously Low Interest Rates for too long.

    Once the Tech Bubble Burst, the Housing Bubble was created via Ultra Low Interest Rates and terribly loose lending practices.  Then that bubble burst.  And in most recent years, the Fed has tried to save billions of underwater housing keeping interest rates excessively low resulting in  an economic shit hole.  

    On the trading front, the strong little bugger NZD keeps bumping up against Both Hourly and Daily Upper BB’s.  I’m still short and could use a little Kryptonite if anybody has any.   :)

  • BobbyLow

    Wouldn’t surprise me at all ZG.

  • ptosh

    anyone else seeing some wobbliness in the QQQ’s?  

  • itslance

    I’m looking to join Skynard and go long INTC during the lunch time shennenigans

  • Skynard

    Watch for 20.01 test.

  • itslance

    Pulled the trigger at 20.05

  • Skynard

    Nice entry, just in time for some Mojo:)

  • itslance

    Thanks.  Wish I would have seen your reply before I jumped in.  Looks like you were spot on about the re-test!  Nice call!

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨ 
    ¨°º¤ø„¸  N E W  „ø¤º°¨ 
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

    (not that you lazy butts deserve it)

  • Skynard

    working it and making coin:)





    Zero Indicator

  1. poll

    • What is your average spread on the EUR/USD?



      view results

      Loading ... Loading ...


  2. search warrant


  3. recent misdeeds

    1. No Crying Over Spilled Milk (Or Beer)
    2. Entries Do Not Matter
    3. Last Chance For The Bears
    4. Three Strikes You’re Out
    5. Binary Proposition
    6. Time To Wield The Iron
    7. Zone of Fuckery
    8. Whipsaw Galore
    9. Fridays Stunning Reversal and What it Means
    10. Eenie Meenie Miney Moe




  4. yes we can!



    NinjaTrader
    Kinetick