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Friday 14 January 2011

Pattern Festival

I'm posting six charts again today, so I'll have broken my usual limit of five for the third consecutive day. However after what might be best described as a major channel and pattern drought in December, we now have decent tradeable short term patterns seemingly everywhere, and even with six charts daily I've been excluding a lot of the very interesting charts outside ES, NQ, oil, copper, EURUSD & GBPUSD. I'll try to post some of those in a holiday post on Monday.

First ES today. I was leaning short near the close yesterday but the INTC earnings shortly afterwards changed the picture considerably. We now have a rectangle that has formed on ES with an upside target of 1292.5 and a 68% probability of breaking up. Together with the still unmet IHS target at 1292 on ES the picture is looking fairly bullish and I'm leaning long. Within the rectangle ES is a buy at 1276.5 and a sell at 1284, though for obvious reasons it is a safer long than short:
The picture on NQ is more complex. The rising wedge had broken down when the INTC earning's were released yesterday and then NQ broke back up into the wedge. Since then it has broken down again and we may see NQ retreat to strong trendline support currently slightly under 2290. I've marked in a shorter term megaphone that may well confine price moves today until it breaks up or down. An hourly close above the upper green trendline would be very bullish:
I posted some ambitious upside targets on EURUSD and GBPUSD yesterday morning and they both delivered the expected big rises to my target areas. The move on EURUSD particularly looks very impulsive and I am now working on the assumption that EURUSD has made a major interim low, though we'll have to see EURUSD break above 1.35 to confirm that. Short term I'm expecting some retracement that I'd expect to see bottom in the 1.31 to 1.33 area. An odd pattern has formed on EURUSD that I and others have seen before and could be an previously unidentified bottoming pattern. I'm provisionally christening this pattern the 'resting bat' reversal pattern as it looks somewhat like a bat's head with two long ears. Credit to my friend Bloodwine for coming up with the bat's head description:
GBPUSD rose to just under 1.59 to the potential big IHS neckline and has since pulled back. This is an obvious area to see some retracement as well so I'm looking for some retracement into the 1.55 to 1.57 area to make the right shoulder and then, if USD has really made a major top, a move to the IHS target at 1.644:
I posted a speculative IHS on copper yesterday morning and sketched out a potential path to make a right shoulder on that potential pattern. Since then copper has been forming that RS within a decent quality declining channel, and I'm looking for an hourly close above that channel to signal when the RS has bottomed. The IHS target is an ambitious 460 and that would be a very nice move to catch if this plays out:
Oil made a perfect channel touch and bounce when and where I predicted yesterday, and bounced to make a double top with negative divergence on the hourly RSI. It then retreated to form an H&S pattern with a target at 89.2 and has broken downwards. I'm expecting that target to be made unless oil can break back above the pattern neckline at 90.8:
While I've been writing ES is showing signs that it may break down from the rectangle, which is unexpected, though these rectangles do break down 32% of the time. The downside target is 1268.25 though the probability of making the downward breakout target would only be 63%. I'd be inclined to watch the support levels on NQ for a decent level to buy the dip if we see an hourly close below the ES rectangle. I currently have NQ megaphone (declining) support at 2295.5 and (rising) trendline support at 2286.

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