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Tuesday, 6 March 2012

Teddy Bears Picnic

Just a short post today as I have to go out for some of the morning. Now I'm not feeling at all smug about my calls in recent weeks. This topping process has taken an age, and while SPX didn't actually get an awful lot higher after I started to think a top was close in the 1354 SPX area almost three weeks ago, the slow dribble upwards persisted quite a bit longer than I expected. Nonetheless I'm particularly pleased with this chart I posted on twitter before I went to bed last night showing the broadening descending wedge on the ES 15min and calling for a move to the lower wedge trendline if the short term rising support trendline broke:
That lower trendline has now been hit, though after I capped the chart below. We now have a lower low as well as a lower high on ES, and the move down last night was starting to look impulsive. The double top neckline/base was broken on the overnight move down and the target is in the 1336 area. Unless we see a break of declining resistance from the last high I'd expect to see that target made, or thereabouts. That declining resistance is now in the 1363.25 area, so a gap fill today would be a warning signal. I have drawn in a bounce to wedge resistance on the chart below but we may not see that as these wedges break down 45% of the time. If we see that then the wedge target would be in the 1325 ES area, though it is a lower probability target than the double-top target:
Obviously I use trendlines a lot in my analysis, and clearly that's because I find them very useful, though many other analysts rely more on other tools in the analyst toolbox. Each to their own. There was a good illustration of the power of trendlines yesterday on the ZB chart. Rising support had broken and I rightly predicted some downside after that. ZB had fallen short however of the declining resistance trendline that was the obvious upside target, and you can see from the chart below that ZB reversed after the trendline break to touch declining resistance before falling further. Since then ZB has tested that declining resistance again, and now broken it, so the bias on bonds is up at the moment, which fits with more downside on equities:
EURUSD hit my rising support trendline yesterday but I was lukewarm on it as I've been considering whether the rally on EURUSD has topped. It bounced a little yesterday but has broken support with conviction this morning. I'm now leaning short on EURUSD and think this might well be the start of an extended move down well below the 2010 low at 1.19. The failure here fits with the news that the ridiculous 'voluntary' debt deal with private bondholders is breaking down and you can see an article on that here:
Pretty much everything is pointing down on equities as I write this, though we may well see a bounce to test ES wedge resistance before the next big move down begins. If we see a break up through that resistance that would be a signal to be cautious on the short side. I'm not expecting the gap to fill today. 

As I said, I'm not feeling smug here, but I do have a funny smug video to show so here it is below. The clip is taken from the 1990s UK space comedy Red Dwarf, and is a favorite of mine. Enjoy :-)

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