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Friday 13 January 2012

Hammer Time

Multiple daily hammer candlesticks on the indices yesterday, a sign of weakness and hesitation. The support trendlines on SPX and ES now also showing signs of wear and I think the topping process has started for the current wave up. That doesn't preclude new highs, but the writing is now on the wall for this move up in my view. On ES there was a definite break of channel support at the low yesterday and as I've said before, it is often the second break that is the decisive one. ES channel support is at 1286.5 this morning:
On SPX the support trendline break was marginal, but still looks significant. Cobra has pointed out the possible rectangle forming there and that might deliver a last push up into the 1307 SPX target area. If rising support breaks in the 1290 SPX area today however I'd be surprised to see that target made:
I've been posting the falling wedge on 30yr treasury futures every day and that is now breaking up. The target is a test of the last highs in the 146'10 area and I think there is an excellent chance that target area will be made. I'd expect that to happen during a correction on equities, which as I've said, looks close now:
I posted a new support trendline on CL yesterday and commented that it might be an H&S neckline. Actually the picture is more complex than that, as it also works as the support trendline on a broadening ascending wedge. Either way the downside target for those patterns is 96.5. CL has bounced overnight and that has opened up the possibility that a larger H&S will form at the 98.5 horizontal neckline. That would indicate to 93.5, and the arguable double top with the same neckline would support that target as well. All four of these actual and potential patterns are bearish and I'm expecting more downside on CL. If a right shoulder forms at the 98.5 neckline then the ideal target area for the right shoulder high would be in the 101.5 to 102 area and that would look very attractive as a short entry level for a likely move down:
As an aside, the big fall on CL yesterday followed the announcement that the EU oil embargo on Iran wouldn't start for at least six months. Obviously these oil embargoes on Iran from the US and EU are intended to send a message about the Iranian nuclear program, but what message is it sending? If Iran can still sell all the oil it wants, but the price they receive rises sharply, then the message might be 'enrich more uranium and we will reward you with large amounts of money from western consumers' or alternatively 'we are idiots'. Isn't this just rewarding Iran for bad behaviour? Even by the the normally low standards of our political leaders this looks dimwitted.

I'm watching for more definite support breaks on ES and SPX today and a swing high looks close. The obvious target for a retracement is rising support from the October lows in the 1245 SPX area. If that breaks then we've most likely seen a rally high and the case that we are still in a bear market will be greatly strengthened. Cobra is still offering a $10 per month deal for anyone subscribing to his site until Sunday 15th January and the price is going to rise considerably afterwards for new subscribers after that date. Anyone thinking of subscribing to his site should therefore do so today or tomorrow. Cobra is an excellent analyst and I read his writeups every day. The link to his site is here.

I posted a chart on German Bunds the other day (FGB) with a nice topping setup there. I was doubtful about whether these would move with bonds or equities, but since then it has become clear that these are moving with bonds. Given the setup on bonds these now look likely to break up rather than down so these no longer look an attractive short in the short term, though the trendline setup still isn't great and I'd prefer to go long ZB as a bonds play here.

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