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Wednesday, 8 February 2012

Bearskin Rugs

I was joking on twitter yesterday morning that the short-term bearish setup I was looking at looked very tempting, even if people were having to climb over piles of bearskin rugs to get to the screens to see it. Needless to say there was a report early in the day that the Greek are very close to finalising their no-default default, and both EURUSD and ES broke up hard to trash that bearish setup. This market remains in a strong uptrend and JBTFD is still the order of the day.

It still looks early to think about a top on EURUSD and GBPUSD at the moment. I've been posting my big picture USD chart and the obvious target is a hit above 76.72 in mid to late February. I can't see any reason to doubt at the moment that we will see that level hit, and at that point we will see if that rising channel on USD can hold:
120208 USD Daily Possible IHS Forming
On GBPUSD, which broke to new short term highs with EURUSD yesterday, there is a potential double-bottom setup that looks bullish. GBPUSD is entering a strong resistance zone between 1.588 and 1.613 and we'll see whether it can break through that to test the October high. A higher high above that level would trigger a double-bottom setup with a target in the 1.71 area, and would seriously weaken the big H&S that is currently still in play:
120208 GBPUSD Daily Trendlines and Levels
I've been looking at a broad spectrum of charts this morning, and have updated my EEM chart where there is still a large potential H&S in play. The right shoulder might have some more time to form, but a move much higher will weaken the symmetry of this potential pattern. A move above 46 would weaken that considerably and a move above 48 would cause me to write this off. I'll be watching how this develops:
120208 EEM Weekly Possible HS Forming
I was also looking at my long term TYX chart, which is also at an interesting and potentially very (equity) bearish stage here. The next obvious move within this amazing twenty seven year declining channel on 30yr Treasury yields is to channel support under 20 (2%), and the action in recent months looks like a mid-move bear flag. The negative divergence against SPX since early 2010 is very striking, and increasing still:
120208 TYX Monthly 27yr Declining channel
I've read in a couple of places that the Transports index is starting to break down here and I am seeing negative divergence to the extent that it is hitting rising support from the October low here. Until that trendline breaks however the uptrend there is still intact, and the conservative target for the ascending triangle that broke up in December is still a good 5% above the current level:
120208 TRAN 60min Triangle and Rising Support
Oil spiked up yesterday and I'm starting to doubt whether it can reach the possible double-top neckline in the 92.9 area. There is a well defined declining resistance trendline just over 100 and if it breaks up through that I'll be inclined to write off the lower target. Short term the H&S target has been made on the downside and the double-bottom target from the recent lows is in the 100.6 area, very close to that declining resistance trendline which I am therefore expecting to be hit:
120208 CL 60min Trendlines and Possible DT
Short term the trendline setup from the ES low last week looks confused, though I would add to that the observations that short term resistance looks well defined, with more significant resistance in the 1353-5 area  that you can see on the second chart in yesterday's post. In the event that we see some weakness today I'd be wondering about a hit of rising support from that low in the 1330 area, which would deliver a better defined rising support trendline for the current move up:
120208 ES 15min Trendlines
In summary I'll echo Trader1 who would rightly say that the current uptrend is both strong and intact, and that any dips should be bought until that changes. Shorting this runaway bull train still looks very dangerous, and as we saw yesterday, even very nice short term bear setups are still being quickly steamrollered here. This strong uptrend on equities is now being supported by a strong downtrend on USD and as I showed above, there's little reason to think that downtrend on USD will stop at the current level.

One thing we have been seeing a lot so far this year is lows made in the first hour of the trading day followed by a strong uptrend for the remainder of the day. Until that ends any candidate lows in the first hour will look like a buying opportunity.

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