- WE'RE JUST RANDOM SPECKS OF DUST IN A TORNADO TO THE MARKETS .......
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Monday, 24 October 2011

Technical Damage

Looking at the charts this morning there's little to cheer the bears in the medium to long term. SPX broke above the trading range of the last eleven weeks on Friday, and is close to challenging the last major bear market resistance level on SPX in the 1249-58 area:
Vix retraced on Friday as I was suggesting it would, and the bounce in recent days has the look of a completed bear flag that is ready to start playing out at any time:
On 30yr Treasury futures the large rising channel broke on Friday. ZB is bouncing from that at the moment but more downside looks likely when this bounce has finished. That would obviously look bullish for equities:
Most ominously of all for bears EURUSD has now completed the IHS that I've been suggesting might form for a couple of weeks and has followed as it has. The IHS target at 1.467 looks very ambitious but for EURUSD to move much in that direction would obviously also look very bullish for equities:
Frankly, this all looks as though the bears are finished for the moment, and once SPX closes above 1260 I'd be inclined to write off the bear case until until next year. The bear case would start to look interesting again only if SPX moves below strong support at 1190 and until then I think we're back to buying the dips.

That brings me to the one ray of light here for the bear side, which is the short term bearish look of the ES 60min chart. On ES the short term support trendline from the last low at 1193 broke overnight and that was a decent support trendline. With the strong negative divergence on the 60min RSI, I'm expecting a dip today and possibly tomorrow and it might well be a deep one. That would fit with the usual expectation of some retracement after a strong opex week. :
There was no agreement at the Euro summit yesterday and no announcement of any substance, but it's clear that the markets are expecting the Euro area problems to be papered over for a while. Unless SPX can break back down through 1190 with conviction, a continued rally into the end of the year seems likely. Whether that will take equities to new highs is another question though. I was posting some of the large IHSes that would need a multi-month rally to form the right shoulders in August and September, and I'll be posting some of those over the next few days with targets for the right shoulders.

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