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Thursday 3 November 2011

Shotgun Wedding

A wild night on the futures. First the rising channel / bear flag broke down at 1225 and looked as though it would break down towards main 1190 area support today, then news came that the greek referendum was most likely cancelled and there was a wild recovery, with ES up over 30 points in five hours. News apart, the development now looks bullish for equities, with a higher low on ES and a possible W bottom made:
On NQ, a new low was made at a key support level and on sharply positive divergence. that now looks like a W bottom very similar to that seen at the October low on SPX. Declinng resistance from the highs has broken and NQ now also looks bullish:
TF has been the strongest of these three indices this week, and partly as a result the setup there looks least bullish at the moment. A possible H&S is forming there that is still in play and TF is close to testing strong resistance in the 738 area that would also be the natural target for a right shoulder top. A break over 740 with confidence would look very bullish however:
At the time I capped the chart the setup on EURUSD looked like a triangle. That has since broken to a new high for the week and looks likely to rise further:
For the really bullish looking forex setup you have to look at GBPUSD though. There the rising wedge that broke and retested the other day has now evolved into a rising channel. That also formed a smaller falling wedge that has now broken up, and the marginal new low overnight was made on strongly positive RSI divergence. Until this rising channel breaks down this setup is strongly bullish:
30yr Treasury futures (ZB) made a new high overnight, which looked bearish until it reversed there, leaving a double top on sharply negative RSI divergence. Once the double top base breaks the downside target is at 138'10, which would be strongly supportive of equities:
On oil I'm considering the possibility that the slightly declining channel there is actually a bull flag. A break to a new high on oil would look strongly bullish:
Overall there's obviously a significant chance we'll see a trend up day today. Against that the (now) 40 point move up from the overnight lows is looking a bit stretched, and the news that the EBC has cut rates in the Euro area by 0.25% has depressed the Euro rather so far, and EURUSD and equities have been very strongly correlated recently. We'll see what happens with this huge gap up at the open, but if it keeps running up then we may well have a trend day.

Regardless of the short term picture, this isn't healthy and the correlation between 2008 and now still looks very striking. The queue of potential Lehman Brothers analogues for the current sovereign debt crisis isn't a short one. Greece may comply with EU demands with a gun at its head, but their enthusiasm may be limited. The lat time Greece was coerced into closer integration by force into a European group headed by Germany (in the 1940s) didn't go that well longer term of course.

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