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Tuesday, 11 May 2010

Uncertain Bounce

The week opened strongly and most of the opening gains were sustained on equities, but USD bounced back strongly after a weak start, and on EURUSD the rising wedge that I posted yesterday has largely played out, wiping out most of the gains from the previous two trading days. A head and shoulder pattern may now be forming:


On GBPUSD the IHS that I posted yesterday failed to play out and as often happens when that happens on currencies particularly, a head and shoulder pattern facing in the opposite direction appears to be forming:


The GBP weakness may have much to do with the negotiations between the liberal and labour parties in the UK with a view to forming a very weak, and most likely short-lived, centre-left coalition.

Looking at equities, one of the weakest charts of the main equity indicies in the western world is that of the FTSE, with a broken rising wedge / main support trendline and a nicely formed left shoulder and head of a potential head and shoulder pattern:


Elsewhere though, there is some reason to think that support was touched, but not broken, on some other main indices. On the Dow, where a similarly nice looking head and shoulder pattern may be forming, I can also see a type of megaphone, a right angled and ascending broadening formation. That pattern breaks down two thirds of the time, but it isn't broken yet, and leaves the door open for a new high before it does break down:


On the Transports index, the main rising channel remains unbroken:


On XLF, which I check regularly as a potential leading indicator for the rest of the market, the recent downswing bounced exactly at support on a large rising wedge:


Elsewhere, though the recent flight to safety has reversed slightly, USD and bonds have yet to surrender most recent gains. Gold too is still firmly in a steep rising channel having recently broken out of a shallower one:

If the head and shoulder patterns on EURUSD and GBPUSD continue to form, they nonetheless look unlikely to play out before the close of trading today, as the right shoulders will need a few hours to form. I'm expecting a range day today, with resistance at yesterday's high on ES and support in the 1131.5 area.

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