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Tuesday, 13 March 2012

Bullish Action Overnight

ES held the first support level I gave yesterday morning at the 1360 level, and has broken up through the previous high overnight, holding it as support since. That was impressively bullish, though there is some negative divergence on the 60min RSI. Looking again at the IHS on ES this morning, and how it has developed since I first posted it last Thursday morning, the right shoulder formed on Thursday, it broke up on Friday, the neckline retest was yesterday and it has made it over halfway to the 1384-5 target since that retest. Obviously we may see that IHS target made very soon. Short term I have support at the previous high in the 1371.5 area, and rising support from the low last week is currently in the 1365.75 area.
On NQ the previous high in the 2645 area has now been broken with confidence, and as rising support from last week's low is now there as well that level is now strong support. I have no upside target on NDX at the moment after my IHS target there at 2560 is made, which it will be at the open if equities hold up near these levels:
The uptrend on ZB yesterday reversed quickly, and I'm wondering whether the sideways trading on ZB that we have seen so far this year may be coming to an end. My blue support trendline just under 140 is what I'll be watching there, and if it breaks we might see ZB go quite a bit lower:
My main reason for thinking that bonds might make a break lower here is best seen on the TLT weekly chart. You can see there that this consolidation on bonds looks somewhat like a pennant or a flag, but actually it looks more to me like a descending triangle with a slightly rough support trendline. If we do see a break downwards the obvious target would be the rising support trendline from the from the April 2011 low:
I'm leaning bearish on EURUSD and GBPUSD since EURUSD broke rising channel support and GBPUSD broke 1.565 level support. We've seen some oversold bounce since on both but I'm expecting more downside:
Two charts to finish with that offer some bearish seasoning to today's bull soup. The first is my daily Dow vs TRAN chart, where I commented yesterday that I'd be surprised to see the broadening descending wedge on TRAN break up before a more meaningful retracement. I was asked why that was yesterday, and the answer is that a break up like that would look very bullish for TRAN, and to an extent very bullish for equities generally. With my strong SPX trendline now in the 1395-1400 area, potential upside just looks a bit limited under that trendline for a bullish break of that magnitude here. If we do see that break however, it will be confirmation of continuation upwards:
The second equity bearish chart today is the Vix chart. Now this is more bullish for Vix than bearish for equities, as the last two moves up on Vix from the lower to the upper bollinger band saw SPX rising regardless for the first part of those moves, but Vix closed under the daily lower bollinger band yesterday, and we may well see a strong bounce on Vix start in the next day or two. I've marked on the chart below how well Vix has been performing within the daily bollinger bands within the last few weeks, and a close back within the bollinger bands would also generate a Vix Sell (equities) Signal, which would then need to be confirmed by a subsequent daily close up on Vix.

I think these Vix signals are very hit and miss, but what has tended to be pretty reliable in the past has been the tendency of open gaps on Vix to fill within a few days. We have four open gaps on Vix from the last four days do that and the hit of the lower bollinger band are suggesting a decent move up on Vix starting soon:
Overall the setup on ES and NQ short term looks bullish, with the caveats that both look a bit overbought short term and Vix looks likely to start a decent bounce soon. It's also FOMC day today and the stats for those are 68% bullish since December 2008. You can see stats on those at Bespoke Investments here. It's worth noting from those stats however that since March last year only 50% have closed up, and that these have closed up on even months and down on odd. March is the third month of the year so if that continues we would be due a down close today.

The short term upside target on ES is in the 1384-5 area. Broken resistance turned support is at 1371.25, rising support at 1366 and yesterday's low at 1360.25. There is some reason to think equities might fall here, but unless we see a break of yesterday's low, the presumption has to be continuation upwards. Strong resistance on SPX is in the 1395-1400 area.

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