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Friday, 4 June 2010

Retracement Gaining Momentum

We saw the first consecutive two days of positive closes on SPX since April yesterday, and the uptrend since the recent low seems to be gaining strength. The key resistance over the last week has been the 200 SMA on the SPX daily chart. That has been breached overnight and if we gap up this morning through it then that would be a very strong signal that we can expect to see more upside in the days ahead:

My rising channel on the Vix 60min chart has now also been broken with confidence, which is another strong long signal for equities for a week or two:

The next key declining resistance level on SPX is 1110 SPX, and we may see a retracement from there the first time that is hit. If we go through it though, the next and last declining resistance level is in the 1140 - 1150 area, depending on how long we take to reach it. I have marked what looks increasingly like a rising channel on this SPX 60min chart. If we do see a retracement today, then the lower trendline should provide good support in the 1085 - 1090 area. If we reach that area today, and I'm very much hoping that we do, I would see that as a low risk buying opportunity with a stoploss not far under that lower trendline:

Here's a similar chart on the ES 60min showing the tentative breach of strong overhead resistance in the 1106 area overnight:

USD currency pairs are also showing more signs of sustainable uptrend. AUDUSD and CADUSD seem to have settled into very nice rising channels. Here's the AUDUSD rising channel on the hourly chart:

Even the seemingly hopeless EURUSD has settled into a small bullish falling wedge that is likely to break up soon, though these patterns do break down 31% of the time of course. A break up through 1.223 would target 1.26:

I'm looking for a gentle uptrend to take us through the rest of June. That would fit very well with all three bearish patterns on SPX all targeting the 870 area. The rising wedge, which I have drawn longer than that, has the most likely target at the second touch of the lower trendline at 869.32, and we may well see a retest of that broken lower trendline near the ende of June and in the 1160 SPX area. That would fit very well for the top of the right shoulder of the potential head and shoulder pattern on SPX, and also for a technically powerful potential declining channel that could form here. I've put my take on this SPX daily chart:

If EURUSD and GBPUSD could reach the upper trendlines of their broadening descending wedges in the1.30 and 1.50 areas over the same period, that would also set us up very well for another powerful wave up for USD, and wave down for equities.

I'm going to be away from any broadband connection on Monday & Tuesday next week so I'll update again on Wednesday. Everybody have a great weekend.

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