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Thursday, 29 March 2012

Another Inflection Point

SPX was very weak yesterday, breaking my first support level and bottoming in the next support zone in the 1395-1400 area. The move broke below rising support from the March low and a first look at the charts suggests a test of the lows on Friday, with rising support from November and the middle daily bollinger band in the same 1387ish area:
However there is a strong case that yesterday's low was a significant low, and that any break below there would be a major technical signal of weakness. The reason is that the low yesterday bounced at the support trendline on Dow from the October low. That is a very strong trendline with five touches now, and is the key trendline to watch on equities here. A break of the trendline would not tell us that the top is now in, but it would signal that a significant top is at least close, and a move over the 1442 SPX pivot would then look much less likely. Here's how that looks on the Dow 60min chart:
If we were to see a strong bounce here, that would most likely be in the context of a strong move up on EURUSD as well. EURUSD retested the IHS neckline yesterday, and has done it again overnight. The setup there looks bullish unless we see a move below rising support from the last low, currently slightly over 1.325:
Looking at bonds my next ZB target has not been reached, but it might not be. The rally has established a decent quality support trendline that looks like the support trendline of a rising channel. A break below would look bearish and a move below 137 would suggest strongly that this bounce has been a bear flag which should then play out to a target well below the last lows. There is some negative RSI divergence here and this could well break down soon:
I was talking about the CL break below rising support from October as a significant sign of weakness there earlier this week, and that has broken again yesterday. CL is trading in a rough consolidation range between 104.5 and 108.65 and a break below that at this stage would look very bearish:
The last chart for today is an interesting long term chart of SPX since 1980 on log scale. In this I have treated the secular bull market from 1980 (or arguably 1982) to 2000 as a rising channel, and the secular bear market since 2000 as a right angled and descending broadening formation, a direction neutral pattern. The obvious next move within that pattern would be a test of the 2000 and 2007 highs area and I'd only really expect to see that pattern break up in the event that the secular bear market had finished, though that might be mistaken of course. Worth noting there is that would assume that the secular bear market ended at the March 2009 low after nine years, whereas historically these last 15 to 20 years on average. Food for thought at the least:
The next couple of days are very important from a technical perspective, and the bulls need a move up to new highs soon if we are indeed still in a strong uptrend. On the bull side it is Thursday today, the most bullish day of the week since October, the low yesterday saw a touch of rising support from October on the Dow, which is the key equity support trendline here, the EURUSD IHS has been retested and is still very much in play, and there are some signs that this rally in bonds may be petering out. This is a potentially very strongly bullish setup for equities.

If we see a move below yesterday's low that breaks that strong support trendline on the Dow, it would be a major technical sign of weakness. It wouldn't mean that the top is in, and I would still favor a further move to test the 1442 SPX pivot, but it would suggest strongly that the current move up on equities would fail there. If we do see further weakness then I see strong support for SPX in the 1387 area near Friday's lows. A break much below would look very weak and clear the way for a deeper retracement over the next few days.

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