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Friday 16 July 2010

Pinned at 1100 SPX for Opex?

When I first drew the rising channel on ES a week ago it was tentative, the last hit of the lower channel trendline was at 1016 and ES traded only in the top half of the channel after 1037. This week though ES has touched the top of the channel and then fallen to bounce at the bottom of it, so the channel has been thoroughly confirmed now, and until ES breaks down from it, the short term trend remains up, and this is a wide enough channel that we could rise a lot further within it. I am long ES until we see that channel break with conviction.

That said, since we hit the top of the rising channel at 1099 we may have been forming a right-angled and descending broadening formation, and if that continues to form, the next move down will break the lower trendline of the channel. If so, I would expect to see another high made near 1099 beforehand.

We are going to break out of the current range, one way or the other, before the open on Monday. As resistance we have 1099, tested three times and unbroken so far, and as support we have the lower trendline of the rising channel, currently at 1087 and rising at ten points per day, so by Monday's open the current trading range will have compressed almost to zero, and we will have seen a break one way or the other.

We have had a strong run up to here, on on the SPX daily candles at least, without any significant declines on daily closes. While 1099 ES remains unbroken, it may yet hold as an interim top, and there are some divergences to suggest that this rally may yet fail here.

USD broke key support yesterday, and to my eye the USD rally now appears to be over, but though I was expecting that 30 year treasuries would fall through rising support as well, they have instead bounced strongly after hitting it. That is strange to say the least, and if this equities rally goes up much further then that must reverse IMO:

The Vix has been rising for the last three days, and that is a divergence that we saw before both the January and April tops:

I use the Baltic Dry Index as a loose indicator of the health of the world economy and it looking very sick at the moment. That might just be because all the ships ordered in 2007 and early 2008 are been delivered and are depressing shipping rates of course, but it is still striking to see the BDI only just above the March 2009 low:

EWI posted, and TK reposted an interesting nine day turn cycle that has been important on SPX over the last three months. We are on day nine of the current cycle, though as CC Rider pointed out the other day, the intraday low of the last cycle was actually on day eight:

I'm expecting that SPX may well be pinned at 1100 SPX for opex. We may have to wait until after the weekend for anything really interesting to happen.

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