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Monday 14 February 2011

Trendline Breaks

Friday's action was a lot more bullish than I expected, and of the main resistance trendlines on equities, only the upper trendline of the main ES daily rising wedge survived the day. Worryingly though, the equivalent on SPX looks as though it may well break, and it could be that the trendline on ES might fail too. That would be a great shame, as if it survives it will be a superb tool to navigate the remainder of the current move up. If it breaks my upside targets will also rise considerably, as the old upper trendline for the wave up to April 2010 would then become the obvious upside target. That's slightly over 1400 at the moment and I've marked that on this chart:
On NQ the upper trendline of the rising wedge that I posted on Friday broke up. That could just be an overthrow before the decline, but equally it might not be. If the break up is sustained I have two other decent resistance trendlines that would be the obvious next targets, and they're some distance above:
I had a close-up look at the broadening top on IWM to see where the upper trendline is exactly, and that broke up on Friday. There's a small rising wedge within the pattern that may restrain any rise in the short term, but I don't think broadening tops overthrow much as a rule, and on an upward break they make target 62% of the time, so that looks bullish:
So what the other signals for direction today? Mondays are generally bullish of course, and copper, where breaks often precede significant moves on equities in the same direction, has broken up from the declining channel I posted on Friday. I was concerned when copper reversed short of the declining channel lower trendline on Friday morning and there has now been a very definite break up overnight. Copper is now close to making a new high, and that definitely looks bullish for equities though it might yet be a double-top:
EURUSD is still firmly in retracement mode, though that hasn't restrained equities in recent days. EURUSD broke down through 1.35 support overnight and hit my target support trendline in the 1.355 area. Since I capped this chart though, EURUSD has broken down through that trendline on an hourly close, and there's some support at 1.34 and 1.325, but the broken trendline is also the sloping neckline on a large HS pattern indicating to 1.3115. This break down is obviously very bearish for EURUSD and that may have bearish implications for equities, though the fall last week didn't restrain equities much of course:
I posted a chart a week ago showing the Transports index having broken down from support but also showing a falling wedge that might return the index to the previous high. That falling wedge broke up in the middle of last week and the Transports are on the verge of making that new high. If they do so then that will be a Dow Theory confirmation of the new highs on Dow, and that would definitely be bullish:
Overall the picture looks mixed this morning, and I'm leaning bearish on balance until we see Transports make a new high, ES break the wedge resistance trendline, and copper make a new high with conviction. A serious break down in EURUSD is the main hope for the short side this morning. The breaks up on NQ and IWM look guardedly bullish however, and it wouldn't take a huge move up today to make the overall picture look very bullish indeed. We shall see.

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