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Friday 11 November 2011

Nietzsche's Abyss

My favorite line from Nietzsche's writings is 'when you look into an abyss, the abyss looks back into you'. What did he mean? There's been much discussion. He had syphilis (which attacks the brain in the late stages), and I suspect may have been doing some powerful drugs during his most creative period, but I think what he probably meant was that that if you look into your dark side too much, then your dark side may come to dominate you. Certainly true of some famous Nietzsche enthusiasts, Hitler in particular.

We're looking into a different sort of abyss today, but as I was considering the potential abyss below on EURUSD particularly this morning the quote came to mind, so I thought I'd mention it.

A mixed picture this morning and I'll start with the bullish charts. On NQ I see a 70% bullish diamond bottom in the short term, and that looks bullish on a break up. Overall NQ is near the bottom of the current consolidation area:
On TF I have an ascending triangle at the bottom of what looks like a larger symmetrical triangle. Ascending triangles are 70% bullish and the obvious target on a break up would be triangle resistance in the 750 area:
On ES the short term pattern is a 70% bearish rising wedge, though obviously these break up 30% of the time. There is also formidable resistance in the 1255 area at broken rising channel support:
CL (oil futures) are continuing their meteoric rise within the current rising channel as I posted yesterday. There's some resistance at 100 but increasingly I'm looking at the possible IHS neckline in the 101.50 area:
Bonds aren't trading today though I think bond futures are still trading. On ZB there's little to say other than we are in a consolidation area with a possible double-top in play. A conviction break above 143'10 would look very bullish and a conviction break below 140 would look very bearish. Until then 30yr Treasury futures aren't giving much away here:
I posted a rising wedge on gold futures earlier this week arguing for a reversal at 1800 resistance towards support at 1750. We saw the reversal but support is now looking very ragged so I'm thinking gold might well retrace further into the 1680-1700 support area next:
The overall setup on GBPUSD looks bearish, and on a conviction break below 1.587 support I'd be looking for a return to the 1.534 neckline to complete the big picture H&S forming there. The target for that would be at long term support in the 1.40-1.42 area. Short term though I have another diamond bottom there which looks short term bullish:
The charts which had me thinking of the potential abyss below however are the EURUSD and Vix charts of course. The setup on EURUSD looks very bearish indeed, with a large H&S still in play, supported by a steep declining channel. Upside looks limited and a vast gulf of potential downside yawns below. There is a potentially bullish take to this however, and that is the fairly marginal new low on positive divergence. If the declining channel were to break up then the picture would change. Declining channel resistance is at 1.3735 and dropping fast:
On the Vix the potential IHS there is still in play of course. We'd really need a move below the last low to negate this and until then this is potentially pointing to new highs on Vix in the 50/51 area:
There's the potential for a bullish day today if ES can break over strong resistance in the 1255 area. If it can't then we should all be aware that there's a lot of potential downside on these charts and the bears might well dominate the next few weeks. The setup on EURUSD particularly looks potentially apocalyptic and the slow slide in the French and Spanish bond markets relative to Germany is a sign that sovereign debt concerns in Europe are intensifying and spreading more widely.

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