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Monday 6 February 2012

Bullish Break

SPX broke decisively above declining resistance on Friday, which has eliminated one of the last bearish options on the table from the low in October. There are two main options remaining. The first is that SPX makes a double-top at the 2011 high. That is a very strong resistance level as it was also the base for the 2007 double-top. The second, which would fit with a retest of broken rising support from March 2009, would be a higher high as the end of wave 5 from that 2009 low. As wave 3 cannot be the shortest wave, that would have to finish below 1434.44. Above 1434.44 the path is clear to a retest of the 2007 highs.

Obviously there may well be no bearish resolution here, and given how far this current wave up has come since the December 19th low, any reversal in the near future may just be a retracement of this current move before new highs. With NDX at 11 year highs, and Dow beating the 2011 high on Friday, this is certainly looking pretty bullish at the moment:
120204 SPX Weekly Trendlines
As the retracements on ES and SPX never hit my rising support trendlines last week I don't have any decent three touch trendlines from the October, November or December lows. FWIW that also looks bullish to my eye. Short term however is a different story as a decent rising wedge cum channel has formed from last week's lows on ES. There is a good chance that this will last throughout the current move up, and obviously it will make trading this move much easier if that's the case. I have channel resistance in the 1347-50 area today, and support in the 1330-3 area. The obvious next move is a touch of support but there's also a possible very short term IHS forming at the moment which is causing me to wonder about a test of Friday's highs before we see that:
120206 ES 60min Rising Wedge cum Channel
On ZB we saw the big move down that I was wondering about on Friday morning, and that move doesn't look finished yet. On the bigger picture the large potential H&S I showed then is still very much in play and if that were to complete and play out, that would look very bullish for equities while that was happening:
120206 ZB 60min Possible HS Forming
The situation on EURUSD looks interesting and we have definitely seen a short term top with a lower high and lower low. As I was showing on Friday's USD chart though, there is a very decent technical case for more downside on USD and I am provisionally treating this as a retracement before a second and final move up. I've drawn in a potential bull flag channel that may well confine this if it is a B wave retracement:
120206 EURUSD 60min Rising Channels Broken
The short term high on EURUSD has been confirmed by GBPUSD breaking the tight rising channel there from the lows. Again I have a working assumption that this will be a retracement before another move up and I have a potential larger rising channel that might be established on a retracement to the 1.56 to 1.565 area over the next few days:
120206 GBPUSD 60min Rising Channel Broken
The unexpected possible H&S on copper that I was looking at on Friday failed with a spike back into 390 area resistance. Copper isn't out of the woods short term though, as that has set up a possible short term double-top, If we see a move below 375 I'd be looking for a test of rising support in the 358-60 area. That would look attractive as an area to go long:
120206 HG 60min Possible Double Top
Gold is finally retracing towards rising channel support after making repeated new highs on negative RSI divergence last week. I would very much like to see that support trendline hit and confirmed, to set up a move to rising channel resistance in the 1780-1800 area:
120206 GC 60min Rising Channel
Overall I'm leaning long here, though at some point fairly soon I'm expecting this move up from November to top out, and would expect to see a decent retracement (at least) at that point. On the bigger picture I think we've now reached the stage where a new bull market is more likely than not, though there are still some very bearish divergences that mean that this has been a strange start to a new cyclical bull market. Next major overhead resistance from my perspective is at the 2011 high in the 1370 SPX area, though I know that many are expecting to see an interim top in the 1350-60 SPX area for other reasons. Either way those targets are now close. The more bearish upside targets may be right, as Vix hit falling wedge support on Friday, and a short term high might therefore be close, though SPX and Vix often rise together for a day or two after Vix hits support and bounces there.

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