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Tuesday, 22 November 2011

Thanksgiving Bounce?

I was expecting ES to hit 1185 yesterday, which it did, and I was expecting that to hold, which it didn't. 1180 held though and on SPX that was an almost perfect 50% retrace of the rally from the October lows. It might hold and deliver a bounce into the Thanksgiving holiday. ES is at 1193 at the time of writing and there's a promising looking falling wedge on SPX that might deliver a bounce on a break up:
On RUT I have a perfect declining channel that should again deliver a bounce on a break up:
There's a lower quality declining channel on NDX that I'm watching, but I'll be looking mainly to SPX and RUT for direction:
Will we see that Thanksgiving bounce? Perhaps. If we do see it we will have to see the current rising support trendlines on DX (USD) and ZB (30yr Treasuries) break down. I have support in the 143'05 area on ZB:
Support is in the 78.12 area on DX. A break below the rising support trendline should deliver a decent retracement that would fit with a bounce on equities:
EURUSD and GBPUSD both look as though they are basing for a bounce. On GBPUSD that would be within an overall falling wedge that might deliver a bounce into the 1.576-8 area:
I've written off the interesting potential IHS on Vix that was forming as the right shoulder has extended too far. I do have an interesting looking triangle that might deliver a decent move in either direction:
Oil might also be basing for an oversold bounce here, though there is some H&S neckline resistance just overhead that might send it further down instead. The H&S target would be in the 92.5 area and that looks a credible target in the next two or three weeks regardless of what happens this week:
I'm leaning towards seeing a Thanksgiving bounce but to see that we'll have to see those formidable support trendlines on DX and ZB break downwards. We'll see whether that happens today but if they break down, and the little falling wedge on SPX breaks up, then I'd expect a strong bounce that should take us into the weekend and might last into Monday or Tuesday of next week. I have marked the key retracement targets on on the SPX, NDX and RUT charts.

If this goes the other way today and yesterday's lows are broken then it's hard to see where equities might find support in the short term. If those support trendlines on DX and ZB hold and they bounce strongly from those, then we could easily see SPX at 1100 or below in the next few days. If we do get a Thanksgiving bounce I'm not expecting that to last more than a few days before the bears take back control of the tape.

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