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Monday 22 November 2010

Bullish Reversal Patterns

The market often reverses with only subtle and ambiguous signals, but every so often it reverses direction with a series of reversal patterns so clear that the reversal seems to be written in the sky in letters of fire. Today is one of those times, and while it may be that the bullish patterns will fail, I have rarely seen a bullish reversal setup that looked so wide ranging, and so clear, than the one we're looking at at the start of this week.

I am still a little cautious here, because in the bigger picture we are at a key resistance area on many charts, and I posted some of those for a weekend post that are well worth a look. However on many other charts, long term and worldwide, that resistance area has already been broken, and we've been retesting broken resistance over the last two weeks. We might yet go down here, but on the balance of probabilities I think we seem likely to rise further, and the bullish pattern setup this morning on numerous indices looks likely to resolve upwards after a dip today.

On ES we matched the high from a few days ago in overnight trading, and a very nice looking IHS is forming with a target in the 1241 area. I have trendline rising support in the 1194 - 1196 area and that looks the most likely target for the right shoulder to bottom out:

On NQ (Nasdaq) we have another nice looking IHS forming with a target in the 2208 area. The left shoulder bottomed at 2120 and that is a possibility for the right shoulder too, especially as that has been an often visited support / resistance area in the last few days. I do also have a nice looking rising channel with support in the 2136 - 2138 area though, and it's possible that the retracement may bottom there:

I watch silver carefully as an indicator for equities direction and on silver we have another nice looking IHS forming with a target in the 30.8 area. The left shoulder troughed in the 26.5 area, and that is a target for the right shoulder too, but I have another nice looking rising channel on silver, with an unproven lower trendline, and if we should bounce there, then silver should find support in the 26.8 to 27 area:

USD direction is something I'm always watching for market direction and I generally use EURUSD as a proxy because it's 55% of the USD index. On EURUSD we have yet another nice looking IHS forming with a target in the 1.41 area. The left shoulder troughed in the 1.357 area, and that's looking ambitious for the right shoulder but that level has been an important support / resistance area and it could make it back there. I have a nice looking rising channel on EURUSD that would fit with a retracement that deep. I have a smaller rising support trendline in the 1.368 area though, and that could hold the retracement:

GBPUSD stands out from the other charts that I'm posting this morning, if only because there isn't a large IHS forming on it. Declining resistance from the high was tested this morning, and held, but looks likely to break on the next sweep up. Short term there is a triangle forming on GBP with the next support in the 1.598 area, and there is a risk that this triangle may break downwards today towards a target at 1.584 if EURUSD does retrace deeply to make the right shoulder on that:

So there we have it, a very nice series of bullish reversal patterns to start the week. They may not play out of course, and any pattern can fail to complete or play out to target, but momentum is with the bulls as it stands here, and this looks likely to me to resolve upwards this week after a dip to make the right shoulders on all of these patterns today.

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