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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.

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