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Wednesday, 1 February 2012

Looks Corrective

SPX has closed down for four days running now without actually moving down much. That might be a topping process of course, but this looks like a corrective move before a new wave up, which supports the contention of many EWers that this is a wave 4 retracement. That being the likely case, has this retracement already ended? Well we made a higher low yesterday, and on ES we've seen a (short term) higher high overnight, but looking at bonds and EURUSD I'm still leaning short, and SPX has not yet hit the obvious target at rising support from November, though it might not get there of course.

Short term on SPX I'm watching a new declining channel. Resistance is in the 1317.5 area so ES is going to have to drop somewhat from the current area near the overnight lows to stay below it. As long as SPX opens below there the current downtrend is intact. If that channel breaks then the path is open to a test of the highs and perhaps much higher. If the channel holds then the blue trendline within the rising channel is rising support from Monday's low, and on a break of that trendline a possible move to channel support in the 1290 SPX area opens up:
120201 SPX 15min Declining Channel

There was much talk about the golden cross of the 50 & 200 DMAs on SPX yesterday, so I've been looking at that this morning. This indicator has a solid performance history on bull crosses and is definitely worth noting. How much this indicator means in an economy with debt at over 100% of GDP, interest rates held firmly negative, and flooded with newly printed dollars is hard to say, as there are no directly comparable periods for that, but I wouldn't dismiss this signal altogether:
120201 SPX Daily 50_200 SMA Crosses
In terms of other indicators the Vix has retraced to hit the middle bollinger band, which is obvious short term resistance and that might be as far as this goes for the moment. Obviously the huge falling wedge looks extremely bearish but it hasn't broken up through that as yet:
120201 Vix Daily Falling Wedge and BBs
The uptrend on ZB looks solid at the moment, with my target at 145'10 hit yesterday and a marginal new high. As long as my rising support trendline from the 142 area holds this uptrend looks solid, and now that ZB has made a marginal new high without any negative RSI divergence, I'm looking for a test of the December high at 146'11 next. As long as this uptrend on bonds lasts equities should be under some pressure. If my short term rising support trendline breaks I'll be looking for a test of main rising support in the 144 area:
120201 ZB 60min Trendlines and Targets
EURUSD made a marginal new low yesterday on positive RSI divergence and has bounced strongly from there overnight. At the time I capped the chart below it was testing broken channel support but in the last few minutes it has broken up and is now close to making a higher high. That would look bullish short term and if we see that then a new high is on the cards. Until then the setup still looks bearish overall:
120201 EURUSD 60min Reversal Setup
There is a secondary indicator that I'm watching here, and that is the strong support trendline from the lows on the GBPUSD chart. The setup for a bounce on USD should be confirmed when we see an hourly close below that and there was an encouraging pinocchio through that trendline overnight. The big spike to new highs that I'm watching now looks less encouraging however and it may be that the USD bounce setup here is about to fail:
120201 GBPUSD 60min Support Trendline
Gold is making marginal new highs on increasing negative RSI divergence. I've marked in a short term support trendline that needs to break before gold can make a run to test channel support:
120201 GC 60min Rising Channel and Reversal Setup
The overnight action has been very strong on ES and will need to reverse sharply into the open to preserve the declining channel on SPX from last week's high. As long as that channel holds I'm leaning short and the gap fill today looks doable. If that channel breaks up then this retracement may well have ended, and I'd advise caution on the short side. I've been expecting the retracement to last a couple more days but I might be mistaken.

I've added a banner to Amazon.com on my blog today and if you'd like to thank me for my posts, and are thinking of buying anything from Amazon in the US, I'd invite you to go to Amazon through that Amazon banner. I'll be setting up more Amazon stuff on the blog over the next few months including book reviews with links and possibly an affiliate shop but it's going to take a while to set that up.

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