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Tuesday, 28 September 2010

Looks Like Consolidation So Far

We saw a small move down on SPX in trading hours yesterday, and a sharper move overnight, but this just looks like consolidation so far. If it is consolidation then the support trendline on ES, currently at about 1125, should be respected. That's also the level of the SPX IHS neckline of course:

Bonds have bounced sharply in recent days, and we've seen a perfect 50% retracement of the recent move down on 30 year treasuries. If equities are to rise much further then I'd expect bonds to fall, so these are looking like an interesting short here:

We're seeing some sideways consolidation on USD as well, and on USD, from a technical perspective at least, there seems little reason to expect a bounce in the near future. Looking at the USD currency pairs I'm seeing possible three drives patterns on EURUSD and GBPUSD with the first two drives completed.

Classical three drives devotees will have to forgive my not having been particularly concerned about the fibonacci retracements after the completion of each drive, but the essence of this pattern for me is the formation of three drives of almost equal size. We have that on both of these, and on EURUSD that has formed so far within a broadening ascending wedge:

On GBPUSD we've had two drives within a rising channel. The recent drive has formed a broadening ascending wedge which gives us a rising support trendline currently slightly over 1.575:

These have been big moves on both of these USD currency pairs and if we see a third drive on each then I'd expect that to be in the context of a move up on SPX taking us to the 1175 area. If we are to see that then I'd expect us to chop around today with a slight upward bias before moving up towards 1175 on Wednesday and Thursday this week. If ES breaks support today then I'm doubtful about seeing any move much below 1125 SPX and I'd expect the retracement to conclude by Thursday.

LATE NOTE:

Since writing this ES has bounced back up to 1142.25 and found resistance there. In doing so it has confirmed today's pattern, which is a little broadening descending wedge. I'm expecting us to continue to trade within this until, most likely, it breaks up, which will be a strong signal to go long. Here it is on the ES 15min chart:

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