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Tuesday 8 February 2011

Wedge Hits

There's fair amount of art as well as science to drawing trendlines. Sometimes it's easy enough with a series of well lined up points, but sometimes, particularly with candlesticks, there are judgement calls that need to be made, and the trendlines are somewhat mushy as a result. I'd drawn the upper trendline of the SPX rising wedge a little lower as I thought the first high under 1300 might be a marginal hit, but the high yesterday was a perfect hit, so I've restored it to its original angle. As well as the wedge trendline hit SPX is also showing strong negative divergence on the daily chart, so I'm expecting a retracement today and tomorrow. I still have two alternative lower trendlines though and I'm expecting the next low to clarify the lower trendline too:
On ES the action for recent days has crystallised into a triangle, which overthrew slightly at the high yesterday and has not yet broken downwards. Triangle support is at 1312, and the target for the triangle is 1262, but we're not going to make that unless the wedge breaks down, which would surprise me. I'll be looking for the low in the 1274-1290 area with the probabilities weighted towards the higher end of that range, and there is strong support in the 1300 area that has to be broken first. :
NQ looks less ambitious. The short term rising wedge broke down into a rising channel overnight, and as I suggested was probable on the chart, the channel has now in turn broken down. The wedge target is in the 2295 area and we have some decent support in the 2318 area to get through first:
I've been giving the copper chart a lot of thought. As I mentioned copper broke through my long term resistance trendline but it isn't quite as clear as that. Very long term resistance is definitely broken, and copper might well now go higher, but in the short term it has reversed at one longer term trendline and also at a previously unproved medium term rising channel upper trendline. There's also negative divergence on the weekly RSI and MACD, so the odds of a multi-week retracement look good here.
The copper weekly chart is arguing for a deep retracement here to somewhere between 355 and 380 depending on the time taken to retrace, and I don't know whether we'll see that, but on the hourly the short-term support trendline is broken and a small H&S has formed with a target at 443:
Overall the short side is looking very good today, with a dip more than likely coming our way. I'll be expecting to buy that dip, though I'll be watching in case the rising wedge breaks down. We're coming close in time and price however to my upside target near 1381 SPX in late March or early April, and I'm becoming doubtful that we'll see a deep retracement before then so unless we see that break I'll JBTFD.

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