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Thursday, 8 March 2012

Business as Usual

Well we got the bounce I was looking for yesterday, but declining resistance from the high on ES was broken overnight, and that threw a small hand grenade into the short term bear case. Looking at EURUSD and NDX particularly, the overall damage to the short term bear case looks fatal, so the retracement this week has more than likely bottomed out, and it looks like we are therefore back to business/bullishness as usual. Many are switching over to the June ES contract today but I tend to wait until the volume on the June contract is higher, so I'd expect to switch tomorrow or Monday. All ES values given today are therefore still for the March contract.

As I mentioned, declining resistance broke on ES broke overnight and ES is currently stalling at 1365.75 resistance. This is a potential reversal IHS neckline and if that IHS continues to form then I'd expect an early retracement to test broken resistance in the 1357.75 area before a break up towards a target in the 1388 area. The main SPX resistance trendline will be in that area in a couple of days so if that IHS forms and breaks up I would be taking that target very seriously. If ES breaks up without forming a reversal IHS then strong resistance is in the 1377 area and that would be both a potential triple top area, and the neckline for a continuation IHS indicating to (cough) the 1416 area:
Looking at NDX there was a charmingly ambiguous setup at the close yesterday on the 15min chart. Broken support had been retested in a potential kiss goodbye retest, but a sloping IHS had also formed from the low. The overnight action suggests that NDX will gap up over both the IHS neckline and broken support, giving an IHS target in the 2660 area, which I'd expect to see made in the next few days if this overnight strength persists into the open:
Dow and TRAN both look relatively bearish still on my overall Dow vs TRAN chart, but it's worth noting that Dow could retest broken rising wedge support, and TRAN retest wedge resistance in the context of new highs on SPX and NDX. We'll see how that develops:
I was looking at the Wilshire 5000 index this morning and the retracement there this week hit the rising support trendline from the November low to confirm what now clearly appears to be a rising wedge from there. Worth noting on this chart is the overall channel from the October low, though as I mention on the chart, in my experience of these I wouldn't be expecting to see another hit of channel resistance there. The green background is the VTI ETF, which is the largest ETF tracking the Wilshire 5000, and has been tracking it very well:
Short term on bonds, 30yr treasury futures have broken rising support, and the short term trend is now therefore down. The obvious target is the rising support trendline slightly under 140:
Obviously I've been grumbling for the last few days that the rally high so far on EURUSD was too low to be a good fit on my USD rising channel, and I've been watching EURUSD carefully for signs of a low. As we have an established resistance trendline, I was watching for a possible bounce at the corresponding, but so far theoretical, lower channel trendline and EURUSD bounced there yesterday morning. I posted the possible channel on twitter yesterday morning and here's the better version that I posted on twitter last night:
As I noted on the chart, that's a very bullish looking setup, and the strong move up on EURUSD overnight adds weight to that setup. It is a far better fit with my overall USD channel if EURUSD goes to new rally highs here, and also with the bigger picture setup on EURUSD, with declining channel resistance currently in the 1.358 area, and declining resistance from the high in the 1.392 area. I would favor the first target unless the declining channel breaks up, but would note that the higher target may well be a better fit with my USD rising channel:
The key levels today on ES (Mar) are 1358 support and the resistance levels at 1366 and 1377. My initial lean is towards seeing a retracement from 1366 to test 1358 followed by a break upwards. If we don't see a retracement from the 1366 area then I would expect a retracement from the 1377 area if we reach it today. A break with confidence below 1358 would look bearish and raise the possibility of a gap fill and possibly a lower low. The tip from the Gap Guy for today is that of the three up gaps recorded after five consecutive unfilled daily gaps, not one of them filled the gap that day.

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