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Friday, 9 December 2011

UK Isolated in EU

The first thing to mention today is that I'm switching over to the March contracts for all equity futures. On ES that means that the figures that I give are 5.75 lower than for the December contracts. Oddly that disparity, which is effectively the house cut for offering these contracts, is only 3.75 on NQ, which is less than half in percentage terms relative to ES. I've always wondered why that is. The percentage on TF is about the same as NQ.

We finally saw the break downwards which I was expecting on equities and had a trend day down. The first thing to say is that might be all that we see on the bear side here, though I'm still thinking that we might see more after a bounce. That bounce today looks very likely. I did a chart on the very nice double-bottom setup on the ES 60min chart as soon as I saw the chart this morning and posted it on twitter. Since then the double-bottom has broken up with a target in the 1249 area on ES, so that would be about 1255 on SPX:
The Vix filled the gap as I was expecting, and hit the middle bollinger band (or 20 SMA) on the daily chart, which is natural resistance. That could be it for this move and in the context of the ES chart I'm expecting some reversal here:
I've been posting the 30yr Treasury futures chart (ZB) very regularly to highlight the potential very bullish (for equities) setup there. ZB peak almost exactly at the left shoulder highs yesterday and the potential H&S forming on ZB is looking increasingly good. In the event that this breaks downwards towards the target (on the chart) that would look very bullish for equities over the next few weeks:
EURUSD fell sharply yesterday but has recovered to test important 1.343 resistance overnight. We might see a further fall to make a double-bottom on EURUSD but the bigger picture still looks bullish for the next few weeks in my view:
David Cameron of the UK walked out of the Euro talks last night after refusing to integrate more closely with Europe in the absence of guarantees over financial regulation, and a firm understanding that any UK role in a rescue of the Euro would be limited. There's a lot of talk about how this leaves the UK isolated in Europe, but having dodged a bullet by opting out of the Euro at the beginning, stepping back in front of that bullet now that the Euro is demonstrably a disaster wouldn't be a vote-winner in the UK. The market reaction to the UK walkout seems positive so far and as with EURUSD, the bigger picture setup looks bullish for the next few weeks:
We should see a bounce today, and the double-bottom target on ES is at 1249 as I said. That target may well be made today as these patterns tend to be good performers. Longer term I'm definitely seeing the potential for more downside here, and will be watching the bounce today with great interest to see how far it gets. Looking at the ZB chart particularly there is the potential here for a very strong move up on equities over Xmas and bears should be correspondingly wary of that possibility. In the short term the move down on equities could be played out now. The ascending triangle target I gave on NQ (Dec) yesterday was the 2265 area, and the overnight low was at 2269. Pretty close. I won't post the NQ chart today but there is a double-bottom on there too with a target at 2315 (Dec) or 2312 (Mar).

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