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Tuesday, 19 April 2011

Major Trendline Breaks

I posted charts on TLT, copper, and EURUSD yesterday, pointing out that they were all testing important trendlines that, if broken, should indicate major trend changes. They all broke yesterday. I thought that TLT might be saved by the S&P announcement yesterday, but having pulled back below the trendline by the open, it broke up through it in the afternoon:
This should be followed by a big bond rally. It makes sense that we would see that here as the recent highs on 30 year treasuries tested the 26 year old declining channel and the trendline was rejected. That's a shame for the longer term bear case, as there could be no better way of bringing current US policies to a close than seeing interest rates set firmly on an upward path, but it is what it is:
Copper broke down yesterday, and here's the daily chart showing what a significant break down this is. I have some support in the 410 and 400 areas but my main target is the 365 support level, which is also a potential H&S neckline if it's going to retrace further:
The trio of major breaks yesterday was completed by EURUSD, which gapped below the support trendline on the rising wedge that has formed since the last low at 1.29 in early January. Harder to put a target on the EURUSD retracement, but the technical target is back to that January low, and as the wedge overthrew, this wedge is unlikely to turn into a rising channel:
Taken together all of these breaks on bonds, copper and EURUSD augur badly for equities, with copper and bond yields particularly tending to track equities closely. My primary scenario is now that the February top on SPX was a major top and that it is now unlikely to be broken for a few months. We're also now coming into the seasonally weak May to November period of the year and this is a logical point to see a retracement on equities. Shorter term we still have two valid H&S patterns of the three that I posted yesterday morning, and they are the large IHS with the neckline at 1337, and the smaller H&S with the neckline at 1300. I'm taking the smaller H&S less seriously now as ES has broken back up over the neckline, though I'd only discount it altogether if ES gets back over 1315:
Equities are bouncing today and the logical targets on SPX are the 50 and 20 DMAs at 1315.25 and 1319.30 respectively. A break back above these with confidence would be bullish but until then they are the key resistance levels here:
I posted my daily gold chart a couple of weeks ago showing the very strong resistance trendline at 1450 and saying that a break above it would be very bullish. Since then gold has broken that trendline, retested it and is now testing the 1500 level. I wouldn't put any money on 1500 holding:
The bulls are on the back foot now and the technical picture favors the bears. The bulls still have the potential  IHS, but the odds on it playing out have worsened considerably.  The bears need a close below 1300 SPX and the bulls need to close back above 1320 SPX. I'm leaning towards seeing a bounce today but it may not get far.

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