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Tuesday 7 September 2010

Retracement Targets

I posted on Sunday at slope that my expectations early this week were that I was 'expecting a pullback testing 1084.5 ES on Tuesday, with a slight further deterioration to the support floor / wedge target in the 1074.5 - 1077 area on Wednesday / early Thursday.'

I've not seen anything overnight to change that view. Here is the broadening ascending wedge on ES that I posted on Friday, and which has broken overnight as I was expecting:

I could paint a picture here that we may have made a major interim top, and there are some arguments for that, but not enough of them, and it seems more likely to me that after a retracement we will be retesting the June and August highs at 1130 soon, so I'm just looking at short term retracement targets today.

That's not to say that I'm buying the argument that we are about to see a bullish breakout from 1130 yet. I'm struggling to believe that a major upward breakout could happen with the current economic backdrop, but this is a mainly technical market and it could happen. We'll see how it looks when we get to 1130 but until we see that breakout we're just bouncing within the 1040 - 1130 range that we've been trapped in for most of the last four months.

Short term I gave a target of 1.29 to 1.292 for EURUSD to reverse and it did reverse there. That isn't a good thing from the bear perspective as that is the neckline for a building IHS, and this reversal is probably the precursor to more upside. In the short term I have two retracement targets marked on the chart, and I'm favoring the lower one in the 1.2685 area:

I posted a falling wedge on GBPUSD at the end of August, and said that I expected it to evolve into a declining channel. It has done that, but other USD currency pairs are looking bullish enough that I'm doubtful about the channel holding. The next channel target is 1.51, but I think a higher target at 1.5275 looks more realistic for this week:

Teich50 alerted me to a rising wedge on AUDUSD on Friday and we were kicking round targets for a retracement this week. Overnight the rising wedge has broken and I have marked the two most likely retracement targets on the chart with my rationale. In the event that the wedge plays out closer to the classic wedge target I'm seeing main rising support at 89 and I have an upside (longer term pattern) target afterwards in the 93.85 area so this is looking like a very attractive spec long on this retracement:

I'm seeing a likely major equities interim top coming in the next two or three weeks on my SPX:Vix indicator, and two other charts I am looking at that may support that by then are copper and 30yr treasuries. On the copper chart we have seen a reversal at the 352.50 level I predicted last week, and are retracing to a likely retest of the 340 area. There is an argument that we may have just seen the top of the right shoulder on a huge H&S pattern, but I doubt that, and I'm expecting to see the 352.50 area retested and broken in a few days. On that break the obvious next upside target would be the upper trendline of the megaphone or broadening top in the 390 area, at a new high for 2010. Copper has been much more bullish than SPX over the last two months, and if we hit that target as my other indicators are peaking, that will be a powerful argument that we will see a major interim top there:

On the 30 year treasuries chart the recent top confirmed a rising channel from March, and we are now retracing to the lower trendline of that channel and should reach it within a couple of weeks. What happens then may define equities action for the next few months. If the channel holds then we should see a major interim top on equities there while treasuries start another wave up. If the channel breaks then the equity bulls could get the upward breakout that they are expecting:

In the very short term I've been considering the possibility that we might see a gap fill at the open this morning. ES has been stronger than the USD currency pairs overnight, and it looks possible at the moment that we could see a gap fill and broken wedge trendline retest in the 1104.5 ES area this morning. I'm writing this over three hours before the open though, and if we break down through 1094.5 ES before the open, then I wouldn't expect the gap to fill today.

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