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Friday, 2 March 2012

Relatively Bearish Friday

I was saying yesterday morning that the statistical odds were stacked against the bear side yesterday, and that the stats suggested that Wednesday's bearish engulfing candlestick on SPY was unlikely to confirm, which of course it didn't, in a day where most of the previous day's losses were regained. While Thursday has been the most bullish day of the week since the October low however, Friday has been the most bearish with, within a strong 300pt+ uptrend of course, 11 up closes and 9 down closes. I would note however that 5 of those up closes were in the 19-24 range, with a net 84 points made on all Fridays during this period, so overall gains on Fridays have been above the 60 point average for weekdays over this period.

Nonetheless, if bears are going to impress anyone this week, this is the most likely day, and there is a promising  double-top setup on ES that I'll be watching if there is any significant move to the downside:
On SPX we're still crawling up the resistance trendline of course, and I have resistance in the 1380/1 area today. That's a very strong resistance trendline, and when I've seen trendlines like this in the past they have tended to hold until the end of the uptrend:
I was looking at the RUT this morning and was interested to see that it has broken the support trendline from November. Against that the current consolidation zone has the look of a bull flag, and while RUT has been making lower highs, there have not been any significant lower lows yet:
On other markets EURUSD has now made the small double-top target at 1.3245 and I'm looking for a hit of the rising support trendline from the October low in the 1.3135 area. The positive divergence on the 60min RSI is something I've been watching for the last 100 pips of decline and is a possible signal that EURUSD may reverse back up without hitting my main target:
A bear flag is forming on gold and I'm optimistic about seeing gold hit my main target in the 1600 area. That would be a solid looking long entry into a bull market with great fundamentals as central banks round the world continue to work printing presses overtime. If gold breaks below 1600 that would suggest a move to new lows, and while that wouldn't change the fundamental case for gold at all, it would be strongly suggesting further weakness in the short term:
I was saying yesterday morning that that Wednesday's retrace on oil hadn't done any technical damage to the uptrend and we saw a wild spike up in the afternoon to a marginal new short term high. That has set up a potential double top and I'm watching short term rising support in the 105.85 area. A break of that would do significant technical damage to the current uptrend, and might trigger a retracement to rising support from October in the 100 area:
The last two charts today are bigger picture charts. The first is my Dow Theory divergence Dow vs TRAN chart, which is at an interesting stage as we have been seeing some convergence between the two in recent days. Short term the Dow is testing support on a five week rising wedge (bearish), and TRAN is testing resistance on a five week broadening descending wedge (bullish). I'll be watching for breakouts here but I need hardly say that a break up on TRAN or a break down on Dow here would be a strong signal for direction over the next few days:
The last chart is a superb chart from my twitter friend Gann360, who used to blog under the name Joe8888. The chart looks at the impulse waves up since 2009 and how long each one lasted without having at least a 3% correction. There have been four such big moves since the first spike from the July 2009 low and they lasted between 50 and 56 days without that correction. Joe did this chart yesterday and as of yesterday the current uptrend on SPX had gone 51 days without a 3% correction. If you use twitter and like interesting charts I'd strongly recommend following Gann360, and in fact I initially joined twitter to follow him.
I'm leaning short today, as EURUSD is still trending down hard and the immediate setup on ES looks weak. I'm doubtful about seeing that persist into next week as EURUSD is now not that far away from my target trendline, and if we see EURUSD bounce strongly there then any downtrend on SPX would be fighting against an uptrend on EURUSD. Looking at my longer term EURUSD and USD charts I'm doubtful about seeing a serious break down on EURUSD as yet.

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