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Monday, 28 March 2011

Some Signs of Weakness

Mondays are generally bullish nowadays, but looking at the charts this morning, there is some significant looking weakness. Much of this may be due to the surprise Fed announcement on Friday that they are looking seriously at raising US interest rates to 2.5% in a year. This has led to a sharp bounce in USD, and weakness in bonds and copper.

I've posted the rising wedge on EURUSD before, and EURUSD is now flirting seriously with a break of the lower trendline. An hourly close below 1.40 would break the current support trendline and open up a move towards main rising channel support in the 1.325 area:
Copper has broken down from the 1.45 area to some serious support in the 435 area. As with EURUSD, no serious technical damage has yet been done, but an hourly close below 434.50 would break the short term uptrend:
30Yr Treasuries have been rallying since January, but have now broken the rising support trendline. If the bond markets take the Fed plan seriously then bonds may well resume the larger downtrend here:
I've been surprised by the degree of weakness in gold and silver overnight and have had a close look at the silver chart this morning. My short term channel on silver has an upside target in the 40 area, but there's a larger rising channel that may prevent that. Resistance is at 38.4 and support is slightly over 35. A break below 35 would open up a return to the larger channel support trendline slightly above 30:
Altogether the picture looks vulnerable to a breakdown, so where does that leave equities? Well, as I mentioned on Friday, the next serious upside target for equities is to break declining resistance from the recent highs. Equities were stalled there on Friday, and they're still stalled there. On ES I'm looking for an hourly close above 1314 to break declining resistance, and there's a possible rising wedge that has formed from the recent low. If support is broken on that wedge with a move below 1303, the obvious next move would be another test of the 1285 area:
NQ is also stalled under declining resistance slightly above 2330. An hourly close above 2335 would break declining resistance but I have a rising channel on NQ that suggests that we may first see a move back into the 2270 area to hit the lower channel trendline:
Overall there's definitely reason for some caution today, albeit this is a Monday. I'll be watching for an hourly close above declining resistance on ES and NQ for bullish confirmations, and I'll be watching support on EURUSD and copper for an early warning that things are going the other way. If ES and NQ reach my downside targets that would look like a very good dip to buy, though if we see hourly closes below those, the uptrend since the recent low will be cast into serious doubt.

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