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Tuesday, 12 July 2011

UUP Breaks Up

A shorter post than usual today as I need to make my children some lunch and there's not honestly much to see today on the shorter term equity futures charts apart from to say that ES, NQ and TF have now all hit oversold on the 60min RSIs.

The possible H&S on SPX is still in play, though the right shoulder went a bit higher than I would have liked, and the equivalent patterns on RUT and NDX are looking very stretched (RUT) and trashed (NDX). NDX made a new high of course so whatever is happening there, that was not a right shoulder for an H&S pattern. I've added the bollinger bands to this SPX chart and would note that I'd be looking for support at the middle bollinger band in the 1300 area:
The overnight low on equities might well be it for this retracement. Looking at 30yr treasury futures on ZB a large megaphone is forming. Technically this would be a broadening top I think, a directionally neutral pattern that is a poor performer on breakouts, but within the pattern the next downside target would now be in the 120-1 area. If ZB heads there then I would normally expect equities to bounce while it did so:
The really interesting things to watch here though in my view are USD and EURUSD. EURUSD is now approaching rising support from the 2010 low. This is a very key support level and a break below it would look very bearish:
It is the UUP chart that looks really interesting for USD though. I posted the big falling wedge there a few weeks ago and also marked up (black dotted line) a symmetrical triangle forming at the bottom of that wedge. Yesterday morning UUP gapped up to close over both. This is a very bullish development and suggests strongly that USD has bottomed and is now in a wave up. If so that will limit gains on equities but not prevent equities from moving up. It's worth remembering that USD bottomed five months before the equities high in April 2010:
On Friday I forecast a retracement into today or tomorrow, and on Sunday night I gave an H&S target at 1304. ES troughed at 1295.25 overnight and has recovered 20 points since then at the time of writing. Looking at ZB as well, the overnight low on ES was a very good candidate for the low this week. I'm cautiously long equities here.

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