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Monday 17 October 2011

W Tops and M Bottoms

What an amazing move up this has been. Over 150 points up from the lows on SPX without a meaningful pullback which is a very strong move indeed. Obviously there will need to be some meaningful pullback soon, but in the short term there's still some room for SPX to move up further. SPX and RUT are close to the upper bollinger band on the daily charts and NDX has already reached it. The SPX upper bollinger band is at 1232.37 today and that is an obvious target, close to the late August high at 1230.71:
On the 15min chart SPX may be establishing a new support trendlinne, but already has a decent resistance trendline with a lot of upside room underneath it after the short retracement on Thursday. That's worth noting as the stats for today, the Monday of October opex, are pretty bullish and I'll be giving those later:
I saw someone post a chart on Friday that identified the SPX reversal as a W double bottom. I've had a look at that on Bulkowski's site and I don't think it is really. You can see the relevant page on Bulkowski's site here, and you can judge for yourself but the rangebound low looks too choppy to me, and the double bottom not ideal either. I've added this to my SPX daily range chart to compare. What's also worth noting on that chart below is that the close on Friday closed above my range, making it the highest close on SPX since early August. Obvious next resistance in the 1230 area and in the 1250-60 area:
The W bottom has an inverse twin in the M double top however, and there is an excllent one of those on 30yr Treasury futures (ZB). ZB bounced at my 137'27 support area on Friday, but broke down from it overnight. There's good support in the 135 area, but if that breaks then the M top target would be in the 132'20 area. You can see Bulkowski's page on M tops here, and it's worth noting that neither the W bottom or the M top is a high probability pattern :
SPX broke resistance at the close on Friday, and what looks good for bulls here is that Vix also broke the support floor at 30 on Friday and retested the break later in the day. There's some positive divergence on the 60min RSI that's worth noting, but Vix below 30 favors the bulls while it lasts:
Oil and EURUSD look promising for a reversal at current levels. Oil futures (CL) have now touched the declining resistance trendline from the highs and we could well see a reversal here:
I posted a series of potential IHSes last week, most of which have had the potential neckline levels trashed since then. Not on EURUSD yet however, where the potential neckline at 1.391 was reached overnight and has held so far. EURUSD is retracing from this level so far and might form a right shoulder here:
Last chart of the day is the GDX daily chart, just for anyone interested in trading this really. What's worth seeing on this chart is the symmetrical triangle that has formed on GDX in the last few weeks. That's a decent pattern and worth keeping an eye on:
The Gap Guy is saying that on the past 30 setups like today's an upside opening gap closed 27 of those times. That looked more interesting earlier with ES over 1230 but if there is a significant upside gap at the open it's worth remembering. It's the first day of October opex week today and the Stock Trader's Almanac has these up 26 of the last 31 years on the Dow for an average gain of 0.92%.

There's nothing major to suggest reversal down on equities today though after a run up as strong as this there should obviously be some retracement soon. If EURUSD reverses to form a right shoulder here then that might start today. The SPX close above the range on Friday as it also broke the monthly 20 SMA looks bullish though, and the Vix break down through 30 looks bullish too. Shorts should be cautious here.

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