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Wednesday, 9 March 2011

Key Break Coming Soon

Mixed signals everywhere this morning, which fits the last couple of weeks really. On ES the upper trendline of the symmetrical triangle is at 1330 dead and a break of that level with confidence will give a pattern target of 1381, which is almost exactly at the 78.6% fib retracement of the bear market and a popular target for the end of the wave up since July last year. An IHS has formed that may get ES through triangle resistance:
However I'll be surprised if ES breaks triangle resistance as the overall setup here still has me leaning bearish. NQ has been underperforming ES in this recent move up which is bearish, copper looks bearish, and Vix has been holding up which looks bearish. On the Vix a break below 19 is required to make the immediate bull case look more convincing, followed soon afterwards by a close of the open gap zone above 17.3:
The big HS pattern on copper looks ominous for the equity bulls. We've seen the bounce from the neckline that I was expecting yesterday morning, but the overall setup looks bearish:
Short term there is a strong case for both bulls and bears on the copper chart. An IHS has formed, the neckline has broken and the neckline has been retested which looks promising for the bulls with an immediate target at broken support in the 445 area. On the bear side a rising wedge (70% bearish) has formed with a target at the main HS neckline just over 425. That could go either way, though a move back to 445 wouldn't necessarily suggest a break up on equities or invalidate the main HS pattern on copper. Here's the setup on the HG 15min chart:
The transports index is looking stronger than most this week and I've been having a careful look at that this morning. Overall the chart for $TRAN is weaker than most and support from August has definitely been broken. A broadening top has formed, which is a neutral pattern despite the name, and the obvious next broadening top target is at a marginal new high, though first resistance has to be at broken rising channel support in the 5200 area:
Overall I'm leaning bearish on the overall setup, though the real test for ES is at 1330. A break above would be extremely bullish with a target at 1381, and a failure there would target triangle support at 1306-7. A failure at triangle support would be extremely bearish, though I'd wait for the break of 1300 for confirmation. A break downwards from the triangle would open up targets in the 1225 - 1260 area.

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