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Wednesday, 21 March 2012

Short Term Retracement Setup

I had mixed feelings about the action yesterday and overnight from a directional perspective. On the bull side the early low and grind up yesterday was a classic strong uptrend day and NDX recovered from the gap down to make a new high. On the bear side ES delivered a lower low, the down gap on SPX didn't fill yesterday, and we saw a perfect test of broken ES rising support overnight without a higher high there as yet. Overall I'm cautiously bearish today as long as we don't see a new high on SPX.

On ES the retest of broken rising support was almost picture perfect, rising support from yesterday's low has broken, and a nice little double-top has formed. Immediate resistance is at 1405.75 at the overnight high and the current high at 1408.25. Strong support is at 1393.5 and on any move down today I'd like to see an hourly close below that to open up targets further below:
TRAN and RUT both retraced nicely yesterday and were weak relative to SPX. I won't post the charts for those today but I will post the chart for QQQ, where the little rising wedge I posted yesterday morning broke down and retested during the day. This is a promising setup but really requires QQQ to retrace to yesterday's close by the open today. We'll see whether that happens:
In terms of intermarket relationships, both EURUSD and bonds are looking very promising to deliver short term counter-trend retracements to support what would also be in my view a short-term counter-trend retracement on equities. On ZB there is now very marked positive divergence on the 60min RSI and I'm looking for a retracement to at least the 137 area. As I have posted before the longer term setup on bonds still looks extremely bearish IMO, so I'm only looking for a bounce here:
On EURUSD my target area at 1.329 was made overnight and that was an important technical target. Why? Because it is the potential neckline on a large IHS that I have been watching to signal a move to new rally highs in EURUSD. The obvious next move would be a retracement to the 1.31 area (ideally) to make the right shoulder on that pattern before a move to the 1.355-1.36 area. I was grumbling at the recent high that it fell short of what I was expecting from my USD chart and this would therefore fit well into my bigger USD picture. Short term the retracement would look supportive of some retracement on equities. After the right shoulder low is made then that support would obviously most likely end:
I don't often chart the Dow by itself but I was looking at the chart this morning and the trendline setup there is one of the clearest of any equity index at the moment, so I'm going to be charting this more often for a while. You can see from the chart that there is a strong support trendline from the October low, and that it also has some decent resistance trendlines. Support from the October low is currently slightly under 13000 and that is both the likely target and very strong support on any retracement here. If it breaks then the bears will have something to get excited about, but until it does that trendline is very strong support and the uptrend  is ongoing:
I've stated regularly that I am a long term precious metals bull, but any uptrend has pullbacks and some of those pullbacks can be deep. I post the chart for GDX every so often and some of you will recall the strong support trendline there that I have highlighted before. That trendline was hit again yesterday and has completed a very bearish looking H&S indicating to the 31-32 area. This may be a very important signal for precious metals direction over the next few months, and any break below this perfect declining support H&S neckline should be respected in my view as a strong short term bear signal both for GDX and PMs generally:
Overall on equities and EURUSD today I am leaning short, and on bonds I am leaning long. As I mentioned however these all look like short term counter-trend retracements to me over a likely timescale of a few days at most. If we start to see major trendlines break on equities, or a lower low on EURUSD, I might need to change that view but until then the overall trend is intact.

I've been trying and mostly failing to get these posts out over an hour before the open over the last few days, and that's because the clocks changed in the US the weekend before last, and the clocks in the UK did not. The clocks change in the UK this weekend so the posts should be earlier again next week.

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