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Tuesday 4 October 2011

Big Potential H&S Patterns

Everyone's been getting excited in recent days about the big H&S pattern that may be forming on SPX. H&S necklines tend to big big support levels, so they're natural targets regardless of whether the H&S subsequently plays out. You might be wondering why I've not been posting this too. Old news, I posted it on August 19th, pointing out that the neckline was also the natural target because it also is the 50% fib retracement of the bull market. You can see that chart here.

On the ES daily chart the August low has been beaten, marginally, overnight and you can see that the next natural big support level is in the 1000 area. The bear flag that has just broken down wasn't entirely classical, but that would roughly be that bear flag target too:
The SPX daily close yesterday wasn't far below the intraday low in August, but in bear flag terms it was a big break down. I posted this range and bear flag analysis SPX daily chart last week arguing that the internal structure was breaking down and you can see the scale of the yesterday's break there, as well as seeing that we're close to short term support on the (very rough) declining channel I drew on it:
I was commenting to someone yesterday though that I'm not yet seeing any signs of a low on the SPX 30min chart, where the 30min RSI has been calling the turns very well in recent weeks. We might start to develop some positive divergence on that today:
In terms of short term patterns, they tend to be tough to identify on these sharp declines, but I have an ok falling wedge on the NDX 15min that looks interesting if we see a short term low today. We are seeing some positive divergence on the ES 60min RSI so we could well see a short term low today:
While we're on the subject of large potential H&S patterns today I have two more to show, as important short term support levels on both have now broken, and the next big support is at those potential H&S necklines. The first is on EURUSD where we are nearing a potential neckline in the 1.29 area:
The second is on CL (oil futures) where the potential H&S neckline is at 65. I've noted on the chart that in my experience these huge H&S patterns generally DON'T make the full target, though EURUSD might be an exception to that rule of course:
I thought I'd post the RVX  chart today, and that is the Vix for RUT of course. I've posted the Vix patterns for NDX yesterday and SPX on Friday so this completes the set. As you can see we have a triangle break up on RVX that has already made a new high:
I'm still thinking that SPX is headed for the 1000-20 area, but I'd be surprised to see that this week. I'm looking for a short term low near here and there are some signs of positive divergence on the ES 60min RSI particularly. I have a candidate declining channel on ES with support in the 1070 area and that could be a significant ES low before a bounce to test the 1123.5 or 1143.5 areas. For what it's worth here is that declining channel:
Obviously playing any bounce here is very much a counter-trend play so caution is merited. The greater and intermediate trends are down here, and that SPX bear flag is playing out. Nothing goes straight down however and we might well see a short term bounce here.

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