- My June 2010 call of the low area on BP just before the end of the wild decline after the oil spill,
- My February 2011 call of the inflection point area on TYX (30yr Treasury Yields), days before TYX reversed at channel resistance and started a decline halving the long term bond yield over the next 18 months
- My November 2012 call to short the Yen just before it declined over 20% over the next six months
- My June 2013 call for SPX to rise to 1965
There are many others that I should really list on a page on my blog at some point, but my point here is that while this sometimes may appear to be magic, it's actually just good technical analysis. I don't have any supernatural powers, and I cannot see into the future. Any setup I show, however impressive the historical precedents, can go the other way, taking a lower probability path. I have no magical power to see into the future. No technical analyst does.
At school I used to supplement my pocket money by counting cards while playing blackjack for money. It's not an easy skill to learn, but if you can do it you can tilt the odds into your favor to a degree where over a period, and on average, you can win reliably. That's why they watch out for card counters in Las Vegas, and ban them for life from casinos as soon as they are identified. Casinos don't want customers who can turn a game of chance into a game of skill. That's because they don't like losing money, which is fair enough.
Technical analysis is akin to counting cards at blackjack. You can never know what the next card dealt will be, but it is a skill that can tilt the odds in your favor to a significant enough degree that you can beat the market with a reasonable degree of consistency. Unlike casinos you don't get banned from exchanges for using it, which is why trading the markets can be a game of skill in a way that playing blackjack in a casino can't.
When I was looking at the setup yesterday morning I warned that the bears might collapse at the open, that a break back over the the SPX 50 hour MA would badly damage the chances of more short term downside. I flagged a break below the rising channel on TRAN as important for opening up the downside. I tweeted after the bullish open that we might see a retest of the highs. Nonetheless some readers seem to have condensed everything I said into 'market-go-down-now', and were disappointed that didn't happen. Alas, that just isn't the way it works:
The main obstacle for the bull side here remains the same, and that is very strong resistance at the primary rising channel resistance trendline slightly above the current highs. That could break of course, but until it does it is rising at about 15 points per month, and potential upside is limited to that. The SPX weekly chart:
I think we can all agree that the period from the start of 2013 has been unusually bullish by historical standards, so I've started this chart there, and the eight shaded areas on the chart are the areas where SPX has positively diverged from NYMO and either or both of the RSI 14 and RSI 5. There are seven previous instances over this very bullish period and the smallest retracement after these previous seven instances was about 2.2%, which if we were to see that minimal retrace here, would target 1926 SPX, a key retracement target that I've been looking at and also the target on the possible double-top that would form if we were to see a retest of the 1968 high. No guarantees but just sayin'. SPX daily chart vs NYMO and RSI:
Barring that though, and I suspect strongly that the chances of a break up are lower than 25%, and in any case that wouldn't be 25% odds of it breaking up right here and now, which I'd put at no more than a generous 10%, then the main options are the ones I laid out above, which I'll repeat below:
The main options that I am looking at today are that either we saw a 62% retrace of Tuesday's decline yesterday and the decline will resume early today, possibly after a retest of yesterday afternoon's high, or that we will see a retest of the 1968 high, making the second high on a double top targeting the 1926 SPX area. After either we should decline again, with the obvious first real target at a retest of the 1926 low.