- This blog has a copy of all header posts that I publish anywhere, so that those interested in seeing what my thoughts are on the markets can find them easily.
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Tuesday 31 January 2012

Retracement, Interrupted?

A very annoying feature of this move up since the December 19th low is that the retracements have been shallow and, mainly in consequence, no strong support trendlines have formed. This was looking very good to be the first decent retracement this year, with a clear target trendline in the 1275-85 SPX area (depending when it was reached) combined with a pullback on EURUSD that also looks overdue.

I posted an ES chart on twitter last night that showed the ideal setup there and that was on the 15min chart below:
120130-I ES 15min HS Setup

This scenario started to fray more or less as soon as I posted it however, as ES then broke over the neckline and has traded as high as 1317.50 overnight. That is worrying, as the setup is also clear on the SPY 60min chart, with neckline resistance yesterday backed up by declining resistance from the high. That strengthens the short setup but that cuts both ways of course, as if both break up then resistance is all the more broken. For the ideal bear scenario today the overnight potential gap up on SPY needs to close by the open of real time trading hours, and then SPY needs to stay below declining resistance from the high. If that gap is not closed by the open then shorting this becomes much more risky:
120131 SPY 60min Trendlines

I still think that we should see a decent retracement soon, but if ES holds on to the overnight gains into the open we may well first see at least a test of the highs last week. I've added a double-top scenario onto my SPX 60min chart:
120131 SPX 60min Paths and Trendlines

The key for the main scenario I was outlining yesterday is EURUSD and bonds. On EURUSD we saw a bounce two ticks below my neckline target at 1.308 yesterday, and while it has gone over my ideal right shoulder target at 1.318 overnight, it hasn't made a new high and negative RSI divergence suggests that it won't be making one before some pullback. If this H&S is going to play out it needs to happen quickly as the right shoulder is already looking extended. Regardless of the H&S a break below rising channel support should signal that a retracement has started on EURUSD, and that is the key level to watch today:
120131 EURUSD 60min Rising Channel and Possible HS Forming

On 30yr Treasury Futures (ZB), my target at 145'10 wasn't quite made yesterday, but I'm treating this move as possibly complete. The uptrend is intact as long as the rising channel holds, and short term support is at 144:
120131 ZB 60min Rising Channel and IHS

A couple of nice charts to end the post with today. The first is the gold futures hourly chart, with a very nice rising channel and negative divergence on the 60min RSI after the last channel resistance. Gold looks likely to retrace here and that retracement might well reach the 1680-1700 area. That would be a dip worth buying in my view:
120131 GC 60min Rising Channel

The second chart is something that a trading buddy mentioned to me yesterday, and that is the long term crosses of the SPX daily 200 and 360 SMAs. I've charted this up on the 20 year chart and it is a very nice bull/bear market indicator that interestingly enough has not crossed bearishly since 2008. These are apparently also very useful looked at over shorter timeframes, to gauge trend in combination with the daily bollinger bands, so I'll be having a good look at that:
120131 SPX Daily 200_360 SMA Crosses
For today the short term setup on EURUSD and, to a lesser extent, ES argues for initial weakness on SPX. I'd expect that to last 30 to 60 minutes into the trading day and then the trend for the day will start to become clear. If the potential overnight gap up on SPY is closed before the open then I'd give the bears a 50/50 chance of extending this retracement further. If SPY gaps up then I'd still expect some weakness in the first hour but overall I'll be leaning long. Declining resistance from the high on SPX/SPY really needs to hold. A break above it won't mean that we'll see a test of the highs, but it will mean that we might well see that test.

Monday 30 January 2012

Cautiously Bearish

This retracement on equities isn't breaking any speed records so far, and probably won't. However it looks encouraging and I thinks there's a decent chance that it will reach rising support from the November low, which would be in the 1275 SPX area today. On the SPX 60min chart that would confirm the lower trendline of a rising wedge and deliver an upside target range after the bounce at wedge resistance, which would be very nice to have:
120130 SPX 60min Trendlines

You can see exactly the same rising wedge on ES, which strengthes the setup. One thing i've added on ES that's worth noting for today is that it has bounced at a potential H&S neckline overnight. The ideal right shoulder high would be in the 1318.5 area, and I'll be watching for that if we see ES trade back over the very short term resistance levels that I have at 1306 and 1307.5:
120130 ES 60min Trendlines
30yr Treasury futures are looking encouraging for further retracement on equities. The resistance level at 143 that I was watching on Thursday and Friday broke up and the obvious next move for ZB is a test of the last highs in the 145'10 area. ZB has formed a rising channel from the lows and a break downwards from that would be a strong signal that this bounce on ZB has finished early:
120130 ZB 60min Range Break and Rising Channel

Copper futures are also looking encouraging here for short term equity bears. I showed a chart with HG breaking over 390 area resistance on Friday morning. It had reversed back under 390 by the end of the day. Support levels are in the 376.5 area, the 360-5 area and rising support from the lows in the 340-5 area. If that lower target can be reached that would be a very nice long entry with an easy stop below the rising support trendline:
120130 HG Daily Trendlines and SR Levels
EURUSD is at an interesting level here. Obviously the immediate uptrend is intact as long as the rising channel from the lows holds, but there's some reason to think that it might now break. There's increasing negative divergence on the 60min RSI, and an H&S may well be forming with the neckline at 1.308 support. EURUSD is at 1.3107 at the time of writing and I'll be watching for a bounce there.If the rising channel does break down, then it's also worth noting that an IHS may be forming at the 1.32 neckline. The ideal right shoulder low would be in the 1.286 area, and if an H&S forms at the 1.308 neckline, the target would be in the 1.293 area which is a support area:
120130 EURUSD 60min Trendlines
Oil futures have been kicking round in a narrowish range for a few days, and that has taken the form of a rough falling wedge. I'm leaning short overall, but if the falling wedge breaks up I'd be looking for a test of the last highs with another test of broken support from the October lows. On a break down the obvious target is in the 92.9 area:
120130 CL 60min Trendlines
I'm leaning bearish into Wednesday but there is a distinct possibility of a strong bounce on ES for part or all of today. A break below 1300 would eliminate the H&S scenario I've suggested on ES, and a move over 1307.5 would strengthen it. I'm watching EURUSD carefully as a retracement here would really help a retracement on equities along, though if an H&S is forming on EURUSD we might well see a bounce there as well into the 1.318 area to make the right shoulder.

I've made a few changes to the blog in recent days. I've added advertisements and also taken the domain name www.channelsandpatterns.com. This is a precautionary move really, as I remember when Xtrends tried to buy the Xtrends domain, someone had beaten them to it, so they were reduced to buying the relatively unnappealing Xtrenders domain instead, as an alternative to paying a large sum to the cybersquatter sitting on the domain they should have registered earlier. I've no idea whether advertisements will bring in enough money to be worth collecting but they might, and it will be interesting to find out.

Friday 27 January 2012

Short Term High Made I Think

I sent the following tweet out shortly after the highs yesterday morning:

If we are going to see a reversal on SPX soon, odds favor the high this morning. Hit the top SPX rising wedge. Hit support Vix falling wedge.

After the retracement yesterday I think the odds are excellent that a short term high is in, and my retracement targets on SPX would be a test of support in the 1305-10 area, though that would be disappointingly shallow, then a test of rising support from November in the 1270-80, and if that was broken then main support from the October low in the 1250-60 areas. Those last two targets have ten point ranges because they are moving targets, and the exact target would depend on when those trendlines were reached. The lowest risk long entry IMO would be at the test of rising support from the November lows, with a stop below the rising support trendline from the October lows:
120127 SPX 60min Trendlines

Much depends on the GDP figure this morning of course and if that figure is good then we might discover very shortly that the short term high is not in. I'm expecting an indifferent figure at best though, as if the figure was going to exceed expectations, I think the Fed would have been less doveish on Wednesday.

Subject to that the setup for a retracement here looks very nice. Obviously the rising wedge shown above is breaking down but on the spike down yesterday the lower trendline of a potential huge falling wedge on Vix was hit and confirmed. The open gap just above that was also filled and the overall setup on Vix now looks extremely bearish. Short term, falling wedge resistance gives us an upside target slightly under 22 for any bounce here, and if that wedge resistance trendline breaks, that will be a strong signal to get out of equities:
120127 Vix Daily Falling Wedge

Is this (probable) interim top a major top? I'm thinking not on balance though it's possible. I'll show the MSWorld (ex USA) 10yr chart here as it expresses very well the ambiguous overall setup here. In essence one could view the 2011 lows as a retest of broken resistance from the 2007 high (bullish view) or as the completion of the head on a monster H&S pattern (bearish view). On either view there would be reason to think that this move up from the October lows will run further. There's a lot of interesting information on this chart so take a closer look if you'd like to see that:
120127 MSWorld Weekly 10Yr Overview

I showed the two key resistance levels on copper futures a couple of weeks ago in the 375 and 390 areas. 375 was broken last week and 390 has broken overnight. That looks encouraging for equities and I've marked the next resistance levels on the chart:
120127 Copper Daily Resistance Breaks

30yr Treasury futures have been looking a bit confused and lost since the spike up on Wednesday's Fed announcement. The options look clear enough though and the current trading range is between 141'24 and 143. An hourly close above would invite a retest of the last highs in the 145'10 area. An hourly close below would invite a retest of the last lows in the 140'20 area, and on a move below that to significant support in the 139'25 area. For obvious reasons I'm leaning bullish on ZB:
120127 ZB 60min Levels
EURUSD retested broken resistance at 130.8 overnight and that is now clearly immediate support. Immediate resistance and a possible larger IHS neckline is in the 132 area, and I'm expecting more consolidation until  the lower trendline of the rising channel is hit. The outlook on EURUSD looks bullish unless that rising channel breaks:
120127 EURUSD 60min Setup

 Last chart of the day is the updated gold chart where gold has now broken back above the support trendline from early 2011. The last week's action on gold looks very bullish and gold is back on buy the dip as far as I'm concerned:
120127 Gold Weekly Bullish Breaks

As I'm writing I see that we are only three minutes from the GDP figure so we'll see how that goes. As I mentioned yesterday the stats for yesterday were bearish and the stats for today are bullish. We may well consolidate today.

After a few requests I finally got round to adding to advertisements to my blog two days ago. That's raised about nine bucks since then which is more than I expected.  If this increases considerably I might even find myself making minimum wage for these morning writeups, which is an exciting prospect. :-)

Thursday 26 January 2012

Fed Expects Stagnation - BUY!

Well that was a wild Fed day yesterday and the news was that the Fed is so confident that current policies won't work that it will leave real interest rates negative until the end of 2014. Equities surged on what passes for good news nowadays. Bernanke was surprisingly candid in the questions afterwards, and admitted that current interest rate policies were in effect a massive redistribution from savers to borrowers. No getting anything past that guy it seems. In a country so resistant to tax rises it seems remarkable that this (in effect) massive redistributive tax on savers, worth a conservative $300m per year to the government alone, attracts so little attention. Funny old world.

Overall yesterday had a big impact in a number of areas. On SPX we saw a surge to a high at 1328.30, not far under the resistance in the 1330 area I mentioned in the morning. Looking at the rising wedge on SPX that could go a little higher this morning and if the wedge overthrows a bit we might see 1335. Any break of wedge resistance with confidence would look very bullish and suggest an extension into the 1350s to my eye, but I'd still be surprised to see that:
In terms of the bigger trendline picture SPX has now convincingly broken declining resistance from the 2011 highs and is testing declining resistance from the 2007 highs. A break above would leave the next major resistance at the 2011 high, and seeing that test in the next couple of months now seems more likely than not. Short term this is a big resistance level however. Something that's interesting on this chart is the steady decline in volumes since the October low. The only equivalent to this that I can see in recent years was the reversal in 2010, which was obviously a corrective move. Interesting, though not necessarily significant:
NQ was strangely passive yesterday, and has not yet followed ES over the Tuesday night AAPL earnings high.  A short term triple top might be forming there but overall the move from the Dec 19th lows looks like a decent rising channel:
The really interesting moves were elsewhere however. First on gold, which broke up through double resistance at declining resistance from the 2011 high and also the very important 150 DMA. That is provisionally bullish, but it still needs to break back up through broken support from early 2011. Once that is broken a test of the 2011 highs would be the next obvious target:
Bonds responded very positively to the news that interest rates would be held down for the next three years and briefly spiked over both the 142'28 target I gave yesterday and the 143 resistance level I mentioned just above that. There is no ideal pattern here but this could be read as either an IHS or a cup with handle with resistance at 143. If we see an hourly close over 143 the obvious next move would be a retest of the last highs in the 145'10 area:
EURUSD didn't make my short term double-top target yesterday and reversed up to break the IHS neckline earlier than I expected. The right shoulder is a little small, but the pattern is valid enough and the target is in the 1.35 area. In the shorter term EURUSD is reversing at the upper trendline of a rising channel from the low and I'm wondering about a retest of the IHS neckline and channel support in the 1.306 - 1.306 area today:
Does this bounce on EURUSD have legs? Well I've been watching the declining channel on GBPUSD, with the view that a break up through channel resistance would confirm the bounce on EURUSD, and it broke up yesterday, so I think that 1.35 target on EURUSD looks credible. There is some resistance in the 1.35 area and I'll be looking to see if there is any possible trendline resistance there too. Here's the broken channel on GBPUSD:
The stats for today are bearish and the stats for tomorrow are bullish, based on Fed days in the past with big moves up. There is strong support on ES at 1316.5, and a move much below that would look bearish. From the SPX chart I'm expecting big resistance on ES in the 1325-30 area and that is a very possible interim top area for anyone still keen to short this interminable grind upwards. If we see weakness in the first hour today it's worth noting that the pattern for January so far has been initial weakness with a low in the first hour followed by a grind up for the remainder of the day.

Wednesday 25 January 2012

Wild Card Fed Day

Some are born great, some achieve greatness, and some have greatness thrust upon them.

I'm a Shakespeare buff so you'll to put up with the odd quote. This one is from Malvolio in Twelfth Night and the relevance today is that the same sort of gradation could be applied to trendlines, which might then go:

Some trendlines are clear early, some become clear later, and some arrive so late that you've stopped looking for them.

In this case the low yesterday on SPY and SPX was at rising support from the December 19th low. I've been complaining for weeks that the there was no decent support trendline from there, and I wasn't even looking for it yesterday. Nonetheless, it is now established and it is now therefore also clear that we are looking at a rising wedge from that Dec 19th low. We might yet see a new high within that rising wedge, but it should be marginal. Wedge resistance is under 1330 SPX and I'd be extremely surprised to see the wedge break up with confidence here. Here's the updated setup on the SPX 30min chart with the wave count:
Rising wedges are a classical EW setup and are called ending diagonals there. It's worth mentioning that these tend to be final (5th) wave patterns though it's hard to see how that could be the case here. Something to bear in mind though. If we are near a major top, the first signal would be a break of rising support on SPX from the November low marked on both the chart above and the chart below. The second and much more serious break would be a break, not far below that, of rising support from the October low. If that breaks I would expect that a major top should most likely be in. I have sketched in the highest probability paths from here as I see them over the next few weeks and if you look closely at the chart below you'll see that I have left open the possibility that we see a very short term slightly higher high on SPX before breaking wedge support:
Vix closed up yesterday and the Vix Sell (equities) Signal that triggered at Monday's close is now confirmed. That doesn't necessarily mean that an interim top is in, but historically, with occasional exceptions, it means that a significant interim top should be close. I've marked the last two confirmed buy signals on the chart below and would draw your attention to the declining resistance trendline from the October Vix highs. A break above that in the near future would be a warning signal for equity bulls:
I was outlining the possible reversal setup on ZB yesterday, and the falling wedge evolved into a declining channel which has now also broken up. This now looks like a double or W bottom and a break above 141'25 would indicate to 142'28, just below some resistance at 143. That move on ZB would look bearish for equities:
The setup on EURUSD looks really very interesting this morning. The possible high I was looking at yesterday has held and a double-top has now set up with a target at 1.2845. Now I mentioned yesterday morning that the 1.285 area would be the ideal low for the large IHS that may be forming on EUR, but 1.285 is also a potential H&S neckline that would indicate back to the lows. I'm expecting a move to the 1.285 area shortly, and most likely we will see a bounce there. Somewhere in the (ideally) 1.295 to 1.30 range we would then see a break which should lead to one or the other playing out. I've marked both options on the chart with the short term double-top and the two highest probability paths from here as I see them:
Could the stricken Euro really rally to 1.35? I posted the supportive looking setup on USD yesterday, but my line in the sand is on GBPUSD, which is a better inverse indicator of likely USD direction as it isn't currently suffering from serious solvency issues. The dividing line is clear on GBPUSD, with the black support trendline being the neckline on a monster H&S I've been posting for the last few months as it has formed. Shorter term however I'm watching the declining channel and a break above channel resistance should signal that USD will retrace further and allow EURUSD to bounce to the 1.35 IHS target:
So what are going to see today? The Fed announcement today is a huge wild card that may send markets up or trigger confirmation of the correction that may have already started. Many are expecting QE3 to be announced but with improving economic figures, SPX back over 1300, NDX at ten year highs, and earnings looking generally decent, why would the Fed announce QE3 now unless the intent is nakedly to devalue USD, which might trigger a competitive devaluation currency war that has so far been avoided since the 2008 crash? QE3 enthusiasts seem likely to be disappointed today.

In the very short term support is just above yesterday's SPX low in real trading hours. ZB & EURUSD are both pushing equities south but positive divergence on the ES 5 & 15min RSIs is suggesting a decent bounce before any major support break, supported by a nice looking W bottom on the ES 1min at the moment (at 1307 ES as I write). We'll see. We could see a marginal new high today but the rising wedge should cap any move under 1330 SPX and that should just deliver a better short entry. I'm leaning long on balance for today as long as yesterday's lows hold. If they break or SPX breaks over Monday's high I'll switch to leaning strongly short.

Tuesday 24 January 2012

Looks Promising

The rising support trendline for the current move up on SPX broke and retested yesterday, and the setup for a retracement here looks very promising. That retracement should stay above 1267 SPX unless we see a major bearish break. The rising wedge target is 1277 SPX and an IHS may be forming with a target in the 1296 SPX area. ES has broken strong support at 1305 overnight which is also encouraging:
I have a nice looking rising channel on NDX as well with channel support in the 2400 area. That's worth keeping an eye on as the next obvious trendline support is a long way below:
The moment of truth for gold is here, with it starting to test the double resistance at declining resistance and the broken 150 DMA yesterday. A break above would look very bullish but a failure here obviously just the opposite. Until that resistance breaks this is a short entry level of course:
Given the geopolitical situation on oil, I should be seeing some bull setups on CL (March) here, but I'm not. There is double resistance overhead at broken support and declining resistance, and this chart would at least look less bearish if that is broken. Until that happens however I'm seeing an H&S target at 92.5 and if CL gets below the double-top neckline at 92.9, the double-top target is 81.8. Both targets look ambitious given the current situation with Iran, but unless we see a break up through double resistance not far above, CL has a very nice topping setup here with targets a long way below current levels. From a technical perspective the decent risk/reward swing setup is still short:
EURUSD has so far fallen 18 pips short of the 1.308 target I gave yesterday, but has reversed at a possible alternate sloping neckline for the IHS that I think maybe forming here. Ideally it would now retrace into the 1.285 area to form the right shoulder, and if it were to play out then the IHS target would be in the 1.35 area. Negative divergence on the 60min RSI looks promising for retracement here:
On the bigger picture for USD, a significant bounce for EURUSD should set up the right shoulder on a possible much larger IHS on USD that would target the 90.5 area. There is a question in my mind as to whether the battered Euro can manage a strong bounce here, but a retrace on USD into rising support in the 77 area would set up a very nice USD long play. As ever time will tell:
ZB hasn't made my downside target at 139'25 or declining support in the 140'10 area, but is nonetheless showing signs that it may be making a short term low here. I'm watching the steep declining resistance trendline for a break up. RSI also looks promising:
I'm leaning short today, but we might yet see a bounce from the overnight lows and the gap fill looks possible unless SPX gaps below 1309, in which case it will seem less likely. Retracements have been disappointingly shallow lately, but I'm ideally looking for the SPX rising wedge target at 1277 as my downside target in a retracement that should last two to four days. After that I'll be looking for a move up to higher highs unless we see a breach of 1267 SPX, which would cast my current view on SPX into doubt.

I'd love to call a major interim top here but I'm not seeing that as likely yet. There are a couple of charts that would support that though, and I'll certainly be watching my line in the sand at 1267 SPX in case of a break below. The first bearish chart that I haven't posted today is my 6yr SPX chart that shows a perfect test of declining resistance from the 2007 top at the high yesterday. The second chart is the Vix chart, which triggered a Vix Sell (equities) Signal with the close back within the daily BBs yesterday. A higher Vix close today would confirm that signal and that would promising for a high here, though the track record of these signals is somewhat mixed. We shall see.

Monday 23 January 2012

Monday Thoughts

My post will be a bit different today. As I have mentioned frequently, the current move up from the December low on SPX hasn't delivered much in the way of decent overall trendlines, so I'm going to present the consensus view from the EWers, who have had an impressively good handle on the current move up. You'll have to excuse my amateurish EW labelling and chart, but while I always keep an eye on the EW view, it isn't my thing really, and I rarely mark up an EW count on a chart.

I know that elliot wave counts are anathema to a lot of my readers, but like any form of analysis you get the best results from the best practitioners and I have a lot of confidence is the ones I follow. The shallow retracements on trendline breaks that we have seen on the current move up from the mid December low are also strongly characteristic of wave 3 moves I've seen in the past, so the overall thesis is reasonable, though I don't much care for the idea that SPX is going to rise much higher, as that seriously weakens the case that we are still in a bear market:

Broadly speaking the move up from the October low was a five wave move up for wave 1 or A, and the move down into the November low was an ABC correction. We are currently in wave 3 or C, and at the end of this move up, the key dividing line for whether this is a new bull market or a bear market continuation is whether the major wave that follows breaches the October high, as a wave 4 should never cross back into wave 1 of the same degree. In the current wave 3 or C up, the consensus view seems to be that we are now in wave v up, and as I've shown on the 30min SPX chart below, that is supported by the short term support trendlines that I have also marked on the chart. Where will subwave v of 3 end? The 1320 area is a popular choice though obviously it might go higher. I've also marked in the obvious target for the wave 4 that should start soon, and that is at rising support from the November low:
The next chart has no count on it, but shows the support trendline for the current wave v of 3 move up on the SPX 15min chart. I've mentioned that the support trendline from the November low is in the 1260 area and rising at about 14 points per week. One this to add to that is that the wave 1 high for the current wave 3 was at 1267 SPX, so that should hold any retracement unless this count is wrong. If the count is right then after the wave 4 that should be coming soon, we would start a wave 5 up that should exceed the wave 3 highs:
In terms of the bigger picture the Vix closed below the daily bollinger bands on Friday, which is a strong signal that we are in the process of making a significant interim top. How close might that be? A look at the last Vix close below the daily BBs in April is instructive, as it was followed by a last move up, with the Vix making a higher low. From a trendline perspective Vix is now close to the support trendline of a possible falling wedge and if it hits it, that would also fill an open gap from July. Open gaps on Vix have a tendency to fill so I'm expecting this one to fill shortly:
EURUSD broke the short term support trendline from the low, but then broke back up. I've marked in a four touch resistance trendline that I thought might hold but that has now broken too. The obvious target for this move was and still is the strong resistance level and possible IHS neckline in the 1.308 area:
ZB failed to reverse on Friday, and has broken support in the 142 area. The obvious next target is the November and December lows in the139'25 area, and that level is a possible H&S neckline, which is a concern for equity bears here. I'm pressed for space today so I won't show that chart and I'll show the CL chart instead. I suggested on Wednesday morning that the obvious next move on CL was a test of broken support in the 102.10 area, followed by a return to the 98 area to complete a potential H&S. CL peaked shortly after my post at 102.06 and has now completed that H&S. If it breaks downwards the target would be a test of the December low in the 92.70 area. A lot of H&S patterns fail at the neckline though so we'll see:
I've been having a look at gold and silver over the weekend after the very impressive break up by silver on Friday. Looking at the gold chart first there is a test coming very shortly of double resistance, which is at declining resistance from the 2011 high, and a test of the broken 150 DMA, which was support from early 2009. Until those break I'm leaning short on gold  from that test. If gold breaks up then a major swing low may well be in on gold, and the next resistance would be a test of broken support from early 2011 slightly over 1700. A break there would suggest a test of the 2011 highs:
The silver chart has to be read in the context of the gold chart, as broadly speaking they tend to trend together. Short term the next resistance is a test of the 100 DMA in the 33.2 area, and on a break above I'd be seeing further resistance at 35.70, and a possible test of declining (channel) resistance from the 2011 highs in the 38 area:
I'm leaning bullish today unless the short term support trendline on my SPX 15min chart is breached. That support is currently in the 1312 SPX area. If it is breached then I'll be expecting a short term high to be in, and would be looking for a retracement towards rising support from the November low in the 1270-80 area. On a break below 1269 SPX a major interim top might well be in.

Friday 20 January 2012

Trendline Voids

I've called the last few significant interim tops and bottoms on SPX well, but those all had something in common that we're missing here, in that they all had clear trendline and/or pattern setups. As I have been grumbling almost daily for weeks in my morning posts, that is not something I'm seeing here as yet. We don't always get decent trendline setups of course, but often when I haven't been able to see them in the past that has been because they have not yet been established, as the trend has a lot further to go. That is something that is very much on my mind here.

Short term my SPX target at declining resistance from the 2011 highs has been hit, and this is a good place to expect at least a short term reversal. Immediate support is at the pre-market low at 1299.5 ES and that is a possible neckline for what could develop into a larger reversal:
Vix hit the lower bollinger band on the daily chart yesterday and that supports the idea that a short term reversal at the least is close. Against that I have to add that two of the last four touches of the lower bollinger band were followed by the Vix then rising with SPX for a couple of days and that's something to watch for here:
I was looking at the broken ascending triangle on TRAN again this morning, and that's not supporting the idea that a major swing high is close. The larger pattern on TRAN is a rising wedge and the more modest ascending triangle target would suggest a hit of the rising wedge upper trendline in the 5600 in two or three weeks. On a break above that I have an alternate higher target in the 6180 area, but that would only be in play if the rising wedge breaks up:
If equities are going higher from here, then the overall bear scenario starts to weaken rapidly. The 13/34 EMAs have now made a bullish cross on the SPX weekly chart, something that never happened until after the end of the last two bear markets, and a cross with confidence on these EMAs almost always signals that a major trend change has occurred. We're not quite there yet but equities will have to reverse solidly within two or three weeks to prevent that:
EURUSD went higher yesterday as I was expecting and might now be topping out short term. If so I'll be looking for a higher low to be established to confirm that EURUSD has made a swing low. I've liitle to add to that on the short term chart so I thought that I'd post my long term monthly EURUSD chart to explain what I see on the big picture for EURUSD. On this chart you'll note that there are two big channels. The larger perfect rising channel from 2001 has support slightly under the 1.25 level and that is my key line in the sand for a major breakdown on EURUSD. The smaller and slightly less perfect declining channel has resistance currently slightly over 1.46, and support in the 1.135 area, falling at 0.005 per month. The next obvious move within the declining channel is to channel support, so a break of 1.25 would be a very strong signal that the trend down on EURUSD has much further to go, and on a break of 1.25 that would be the next major target in my view. I've also marked in a possible H&S forming that would target the 0.77 area on a break of the declining channel. That seems apocalyptic but is actually only 5 cents below the lifetime low in 2000, at a time when the Euro area wasn't struggling with major solvency issues, so while it's an ambitious target, it's definitely worth bearing in mind:
Last chart of the day is the ZB 60min chart. Obviously the double-top scenario I outlined yesterday played out, and the move was strong enough to beat both targets that I gave then. I have the next major (hourly close) support at 142 and there's an excellent chance of a bounce there if it can get that far. It might not as we now have a marginal lower low on strongly positive 60min RSI divergence. A short term low may well now be in. The marginal lower low has been made since I capped the chart below:
Yesterday I commented that the short term bull scenario on EURUSD and bear scenario on ZB might well drag equities up. That situation has reversed today, with ZB looking close or at a short term low, and EURUSD retracing, though rising support from the EURUSD low at 1.287 has not been tested yet. If EURUSD breaks 1.287 and ZB holds 142 on an hourly close basis that would strongly support a reversal from yesterday's high, and I'll then be leaning strongly short today. It's opex Friday which is worth bearing in mind, and a close on SPX over 1310 SPX would break the current record for the week after Martin Luther King Day since the holiday started in 1998. I'm seeing potential H&S neckline support areas on ES at the 1300, 1286 and 1273 levels.