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Friday 26 August 2011

Poised for GDP and Jackson Hole

The two big ticket news items today are obviously GDP at 8.30 and the text of the Jackson Hole speech by Bernanke that I understand is going to be released at 10am. Doubtless Bernanke has already seen the GDP figure and has adjusted his speech accordingly. The market is poised to break in either direction on the news this morning and my job today, as I see it, is mainly to highlight the key areas to watch to determine the direction of that break.

As I suggested they might, but after the irritating BAC news spike near the open, equities broke down from yesterday's consolidation rectangle. Hopefully that didn't chop out too many people. The depth of yesterday's retracement clarified where main support lay on equities, as SPX, NDX and RUT all bounced at the Aug 19th highs. All three also formed ominous looking H&S patterns on those support levels that may play out today if the news disappoints. Here's how that looks on SPX:
As with the SPX version, the H&S on NDX is a bit light on the right shoulder, but valid nonetheless:
On RUT the H&S is sloping down and therefore not quite complete as support will need to break  to complete it. I have marked the H&S targets on all three charts:
I've marked up yesterday's range and today's range on the ES 5min chart, giving 1153.22 and 1166.5 as the levels where a break with confidence should deliver a bear or bull breakout. This breakout should be very significant and deliver the main direction for the next few days at least. It's worth noting though that any break downwards particularly needs to be sustained into market hours to break support on the main index charts:
I'm watching Vix carefully today as on the 60min Vix chart there is a decent support trendline. If we see a bull breakout then that should break quickly to the downside and that would be a very bullish signal for the next few days:
I'm also watching ZB, 30yr treasury futures carefully here. ZB reversed back up before reaching my main  target at 135, as I suggested it might yesterday morning. On the bear (equities) scenario we may be seeing a consolidation rectangle form that would now take ZB back to the highs. On the bull (equities) scenario a break back below 136 should deliver the main 135 test that I've been looking for and a break of that level would look very bullish for equities:
I haven't posted the copper chart much for a couple of weeks because it hasn't been doing much. It has been showing some signs of life in the last two days and has recovered the 410 level. I'm not sure whether that can be regarded as a bullish indicator yet, but a break of the next big resistance level today at 422 certainly would be. Something to watch if we see a break up today:
I've been posting the silver chart every day for the last few days and so far (buffs fingernails modestly) have called the action very well within what is now a simply beautiful rising channel. I've marked the current upside and downside targets on the chart and would that expect silver will probably move inversely to the equities break today:
I'm thinking that a break downwards on equities looks more likely today, and am expecting that GDP will disappoint and that Bernanke won't deliver a new QE3, but  have no real idea what the news will be and today will be driven by the news. We'll see. I'll be doing Monday's post tomorrow as I'm away on Monday morning. Everyone trade safe today as this could be a wild one. :-)

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