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Wednesday 15 February 2012

Topping is a Process

That was a very nice day for the bears yesterday until the rally in the last hour wiped out the day's losses. Overnight ES has broken to a new high and so far the broken resistance area at 1352-3 is now holding as support. Technically however, despite all the drama, nothing much has changed on the SPX chart apart from a double pinocchio of support from Dec 19th that is suggesting a bigger break downwards soon. Short term I have trendline resistance in the 1362 area, and support is now in the 1344-5 area. The 2011 high was at big resistance in the 1370.6 area and that isn't far away now:
120215 SPX 60min Trendlines
I had a few questions about the possible continuation IHS that might be forming on SPX and here it is on the 7 year chart. It's just a (wildly bullish) possibility but we usually see an H&S pattern in either direction at major inflection points on SPX and nothing of decent quality has formed yet. Continuation IHSes are relatively rare but I have marked one that formed during 2008 on the chart:
120215 SPX Daily 7Y HS Patterns
I have a scenario on bonds and USD that would support my view that we will see a decent retracement soon. On 30yr Treasury futures (ZB) the high yesterday was at a possible IHS neckline that would indicate back to the high, and we would be putting the right shoulder in today and possibly into tomorrow:
120215 ZB 60min Poss IHS Forming
EURUSD bounced at one of the support levels I mentioned yesterday and may be forming a declining channel. There is some positive divergence on the 60min RSI now however, so I'll be watching this carefully for a break of declining resistance from the high:
120215 EURUSD 60min Trendlines and RSI
GBPUSD has not made the H&S target, but may be bouncing to form a larger scale H&S. Again there is some positive divergence on the 60min RSI so I'll be watching declining channel resistance:
120215 GBPUSD 60min Poss Larger HS Forming
I'm looking for an interim top in the near future and there are a number of reasons for that. Firstly the trendlines on SPX suggest that an interim top is close. Secondly SPX is close to the 2011 high, which was also the base/neckline for the 2007 double-top, and that is a very strong resistance level. Thirdly nothing goes up in a straight line indefinitely, and this current move is getting long in the tooth. Fourthly my EW guys Pug and Alphahorn are also expecting a reversal in this area, and they've nailed this move very well so far. Nothing is ever certain, but the probabilities here look solidly in favor of a decent retracement soon. This may just be a larger dip of course and unless SPX was to get below 1290 SPX I would assume that it was.

I was given some nice stats at MrTopstep yesterday for the next few days, and posted them on twitter then. They are as follows: Tuesday UP 19/ DOWN 9, Wednesday UP 15/ DOWN 13, Thursday UP 13/ DOWN 15, Friday UP 12/ DOWN 16, Monday after UP 11/ DOWN 17.  As Monday is a holiday you can see that the stats are leaning bearish from tomorrow through Tuesday.

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