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Friday 23 July 2010

The silence of the bears

That was an amazing recovery by the bulls yesterday and though 1099 wasn't broken, some very serious technical damage was done to the bear case for the summer, to the extent that I am on the verge of dumping my road map to 870 as my primary scenario.

Yesterday morning I described the indicators as mixed, but oil broke up yesterday, and AUDUSD broke up through a key resistance level , and SPX broke a key declining resistance level as well, so the indicators and levels that I watch are looking decidedly less mixed today.

Still on the bear side in my view apart from the main bear patterns are long bonds, the baltic dry index, and the 13/34 EMA weekly cross, as well as the still unbroken resistance levels at 1099 SPX (trading hours) and 1099 ES (after hours).

I've seen quite a few times an 'IHS' building on SPX posted by various chartists. It is an ugly and unlikely looking pattern to my eye and I haven't bothered to chart it here. Instead I've charted what I think is a far more likely candidate IHS building, with the neckline at 1130 SPX and the head still unfinished. The pattern would have a target at 1250 SPX:

That target fits well with the diamond bottom on SPX that Pug posted yesterday morning with a target at (ahem) 1250 SPX. That pattern broke up yesterday and Pug's excellent write-up on it is well worth a look here.

In the short term we have a clear rising channel on ES, though we need another hit of the lower trendline in order to firm up the exact angle of the rising channel. The channel is unlikely to carry us through 1099 ES today, though as I've marked on the chart below, it is possible, though not probable IMO, that the upper trendline of the rising channel is an IHS neckline, with a target in the 1130 area:

Of the key indicators and levels that remain bearish this point I am now expecting the July highs on ES and SPX to be broken, and though there is some resistance at the 200 SMA at 1113.16, the obvious next target is the June high at 1131.23 SPX.

If we reach 1131.23 SPX, then the 13/34 EMAs on the weekly chart, which crossed bearishly last week, may well recross bullishly, turning a fairly strong bear indicator into a very strong bullish indicator. Here's an SPX chart showing the last three crosses, including the last failed bear bear cross in 2006:

On long term treasuries there was a sharp pullback yesterday off Wednesday's high for the year, and we are within striking distance of the rising support trendline at 126'11. That may the the lower trendline of a rising wedge, and if so I have marked the wedge targets on a break:

As I mentioned, I am not expecting to see a break of 1099 ES today, though we could see a break of 1099 SPX. Unless there is a major bear breakout, I am expecting action to be confined within the ES rising channel I have posted, and if the lower trendline of that channel were to be reached today then we could see an intraday move to just under 1070 ES

I'm on a sort of working holiday for the next ten days or so, and I'll be trying to keep up my daily posts, but I may not manage it every day.

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