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Thursday, 15 March 2012

The Ides of March

I posted a chart last night on twitter that I'll start with today. It's a look at the very rare candlestick setup we've seen on SPX in the last two days, with the strong punch through the upper bollinger band on Tuesday, and then SPX opening and closing above the upper bollinger band yesterday. I have four instances of this happening since the 2009 low. Two marked a short term high and two were just a short way below. This is a respectably bearish setup and I've put the stats for what happened afterwards on the chart:
Cobra has posted a longer term view of these going back to 1990 and looking at that, particularly in the 1990s, this setup did regularly appear without triggering a top, so this setup is not unambiguously bearish. Here's Cobra's chart below. Nice work mate:
In the context of the current setup there are other indications however that at least a short term swing high may be close. SPX hit my four month resistance trendline at the high yesterday and reversed there. The setup since November is not a technically ideal rising wedge, but it is a rising wedge, and the next obvious move within the wedge is a test of rising wedge support in the 1360 area. That said, the EWavers all seem to prefer a target slightly over 1400, and we might see that. In the context of this rising wedge that would be an overthrow and imply a break below wedge support on the next swing down. Topping on SPX can take a while so if we chopped around for another week or so then we could hit a target in the 1405-10 area under my resistance trendline:
On the ES 60min chart ES broke back below broken rising channel resistance yesterday, and didn't break back up through it overnight. Immediate resistance is at yesterday's high at 1394.25, and the shorter term support trendline from 1360 is showing signs of weakness. I have rising support from last week's low in the 1380 area this morning and we may see that tested today in the 1380-2 area. A break below would look bearish:
Vix recovered strongly yesterday and closed back within the daily bollinger bands, triggering a Vix Sell (equities) Signal. A higher close on Vix today is needed to confirm this signal. Historically the performance of these Vix Signals has been spotty at best, but it's worth noting too that the Vix candle on Tuesday that opened and closed below the daily bollinger bands was a rare event, with the only instance in 2011 marking the low on Vix for the year. My first upside target on Vix is the middle bollinger band in the 17.5 area, and my second is the upper bollinger band in the 21 area. There are four unfilled opening gaps above, and these tend to get filled within a few days on Vix, so we may well see a move on Vix to the 21 target in the near future:
I posted the USD chart yesterday with the comment that the double-bottom neckline there had not yet broken up with conviction. It did that yesterday and the setup there looks very bullish, though short term I'm concerned by the slowing downside momentum on EURUSD which is suggesting that it may rally shortly. Here's my USD chart showing the strong short and medium term bull setups there:
Obviously my TLT chart posted two days ago talking about the pattern setup for a strong breakdown on bonds was well timed. Since then we have seen a strong move down that is now halfway to my target at 108.4. As I mentioned then, that level is the valley low for a possible double-top, and if that breaks it would indicate to 93.4, close to rising channel support from 2007. We may therefore just be seeing the start of an extended breakdown in bonds. That would obviously look bullish for equities while that was ongoing:
I generally try to keep the number of charts I post in my morning writeups to seven on interesting days, and five on boring ones. After some brutal pruning this morning I was down to nine, so I've stripped out the charts for gold and silver, and will do a dedicated post on those later on. If you want to see those charts before that you can go to my screencast folder here. I generally have those uploaded to screencast an hour before I post every morning so, if you want to see my daily charts before I post, that's worth bookmarking. I've noticed that a few people are already doing that every morning.

Today is Thursday, and that has been the most bullish day of the week since the October low, so the initial bias has to be bullish today. Against that ES/SPX is just under strong resistance at yesterday's highs, and that resistance may well hold. Overall the trendline and candlestick setup here is suggesting that we could see a higher high today but I'd be surprised to see that get past 1410 SPX, which would look like a very nice swing short entry.

One last thing to mention is that rising wedges sometimes turn into rising channels and that occasionally they break up to do that. I'm not expecting to see that here but it is worth bearing in mind. A break over wedge resistance that was not reversed within a day or two would have a potential upside target in the 1440-50 area. I'd be really very surprised to see that here, but the strength of this melt up since December has already surprised most analysts more than once, and there's no such thing as a (risk) free lunch in this market.


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