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Thursday, 2 February 2012

Teasingly Ambiguous

It's often tempting to anthropomorphise the markets, whether describing the movements of the markets, or referring to the dark forces that some feel are manipulating the markets behind the scenes. I don't subscribe to the latter view, as I think that the force manipulating the markets is doing so quite openly, and that force is the Fed, helped by other central banks, keeping interest rates negative and flooding the world with new money in the expectation that rising asset prices will boost the real economy. I do sometimes anthropomorphise the market however, and this week the market is being a tease.

I mentioned yesterday morning that a break above my SPX declining channel would open the way to a test of the highs and that was what we got, to within three points. In terms of direction that resolved absolutely nothing, as the failure at the afternoon high on SPX was a lower high, a potential double-top, and a second test of declining resistance from the 2007 high. Here's the updated big picture SPX daily 6yr chart:
120202 SPX Daily 6Yr Trendlines
Short term some weakness this morning looks likely however, as we have a broadening wedge in play on ES from the lows this week. I posted the chart below on twitter yesterday afternoon, suggesting double-resistance (actually triple resistance with declining resistance from the 2007 high) in the 1325 area, which was a couple of points short of the high:
120201-I ES 15min Broadening Wedge
With a slight modification of the upper wedge trendline I posted this on twitter this morning and you can see that we have a small double top indicating to the 1309.5 ES area. The wedge support trendline is in the 1309.25 area at the time of writing so that looks a high probability target for this morning:
120202 ES 15min Potential DT and BA Wedge
On the short-term bull scenario, most likely we would bounce at that trendline, and confirm a new move up by breaking last week's high with confidence. Hard to say where that might end, but my next big resistance level would be at the high for last year. If that trendline breaks however, a much more bearish scenario opens up, though we'd need to see a break below the low this week for it to become likely. I'll switch to SPX for that scenario, and it would be a double top with a target at 1267.51 SPX. As the EWers have a major bull/bear line in the sand just below at 1267.08 SPX and a retest of the 200 DMA would be in the 1260-5 area (depending on when it was reached) that is an interesting possibility. I think we'd really need to see at least a low below Tuesday's low before I would start to consider that target seriously however:
120202 SPX 60min Trendlines and Paths
On other markets the EURUSD chart still has a bearish cast to it, but the break above declining resistance to a marginally higher high yesterday weakened the bearish setup, and reached the level (above the right shoulder) where I write off any H&S pattern. EUR is pulling back this morning and I'm looking for a lower low to confirm that the immediate outlook is still bearish:
120202 EURUSD 60min Trendlines
ZB broke the rising support trendline from 142 that I highlighted yesterday morning, and is testing the main support trendline from the last lows that I mentioned then as secondary support on a break of the first trendline. We'll see whether that holds today. I've shown the ZB chart today as a big ten week range with only limited breaks above and below it during that time. On this range view, potential upside looks limited without a big break up on bonds, which seems unlikely without a big break down on equities:
120202 ZB 60min Trendlines and Range View
I've been showing the bearish setups on the CL chart for weeks and most recently showed the rough falling wedge on CL. CL hit support on that yesterday, and has broken below it overnight. The obvious target is the potential double-top base in the 92.9 area, and on a break below that the double-top target would be 81.80. CL has been an island of bearish looking technicals in a sea of bullish charts in recent weeks, and it will be very interesting to see whether this plays out:
120202 CL 60min Possible Double-Top
I think the highest probability path this morning for ES is a move to the 1310 area. At that level a bounce would look bullish and a break below bearish. A lower low on ES/SPX below Tuesday's low would then look more bearish, and a break below Monday's low would look very bearish, putting the double-top target at 1267 SPX in play. The bears have a lot to prove before we get below Monday's low however, if there are in fact any bears left after the last few relentlessly bullish weeks. A break above last week's high would look bullish, and a break above that with confidence should confirm that we are in a new wave up with the obvious upside target, to my eye at least, in the 1370 SPX area.

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