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Tuesday, 27 March 2012

Bull Patterns Break Up

Well the bull flag setup I was looking at yesterday morning broke up, and I'm expecting to see more upside. How much is uncertain as SPX is nearing a key resistance level in the 1440 area. That area is also the retest of the broken support trendline from March 2009 into the high last year, so it is a significant level. On a break over it the path is cleared to test the resistance levels near the 2000 and 2007 bull market tops, and they are in the 1520 and 1550 areas. There is a high probability that we will see a major pullback from a failed test of one of these three key pivot levels. As you can see from a look at the 2010 and 2011 highs , they both failed at lower pivot tests, so on a break of one level, the next one up becomes a strong target. Here's how that looks on the 15 year SPX chart:
In the short term the bull flag that broke up yesterday has a target at 1460, with the caveat that it will have to get through 1440 SPX resistance first, and with the note that if SPX clears the 1440 level, it may well then run up towards 1520. I have marked a provisional rising channel on the 15min chart below, but it is very steep, and most likely we will see a break below it in the next few days to establish a less steep support trendline:
On the SPX 60min chart the high yesterday was at the (already broken once) old resistance trendline from November to mid-March. This is a natural level to see a bit of retracement, but I wouldn't expect it to hold long:
I've been having a careful look at the Dow chart I posted yesterday, and as I said then, the next obvious upside target is in the 13400 area. That is decent resistance and should fit fairly well with a test of 1440 on SPX. In the event that breaks up, I have marked in a channel trendline that would be the following obvious target, and that is currently in the 13700 area and rising fast:
The Transports index has diverged from Dow and SPX over the last two months, and is currently located in a bizarre parallel universe where overhead resistance is strong, and stocks can retrace significantly. It's still a decent indicator for resistance levels and swings though and the current pattern there is a broadening descending wedge that would indicate to a test of the 5390 resistance area on a break up. I'm expecting that wedge break soon, but we may see some retracement first. That test, when we see it, may well also fit with a test of the 1440 pivot on SPX. On a break above, as with SPX and Dow, I'd be looking for a run considerably higher. I'll be coming back to this in future posts as the overall setup on TRAN is very interesting:
Supporting the break up on equities is the break up from the IHS on EURUSD yesterday. The target is 1.356 and that fits well with my USD chart, so I think there's a very good chance that target will be made. We may see a pullback soon to retest the broken neckline, and if that test is today, it could overshoot to hit rising support in the 1.322 area. This would obviously look like a dip worth buying:
ZB held up well yesterday, clinging on to 137 support against stiff equity headwinds. The bounce might well run further before resuming the downtrend that seems likely on the bigger picture. On the TLT 60min chart you can see why I'm wondering about a possible test of broken support in the 115 area:
I thought I should finish with the oil chart today, where there was a bearish break of the support trendline from the October low on Friday. That trendline has since been recovered, and if CL can break over strong resistance at 108.66 then the (sort of) triangle setup would suggest a test of main resistance in the 113 area. I'd be looking doubtfully at that broken support trendline though and that might well be a warning of a more definite support break in the near future:
Yesterday was a trend day so the odds today favor a consolidation or retracement. The odds also slightly favor a higher close than yesterday's close. The gap fill odds are good. Any low on SPX under the 1395-1400 area would be unexpected and suggest that we have not yet finished the consolidation of the last few days. I would provisionally expect early weakness, a low in the first hour or so, and then strength for the rest of the day.

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