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Monday, 30 April 2012

April Ends

Today is the last day of April and with it ends the annual 6 month sweet spot for equities. That doesn't mean an imminent interim top is in the offing, but it's worth noting that late April and May are periods where such interim tops are often seen. As to the strength of this 6 months up and 6 months sideways to down pattern, it's impressively strong. I posted some stats a few weeks ago showing that $10,000 invested in the Dow since 1950 November through April only would be worth some $800,000 now, and that further $10,000 invested in the Dow since 1950 May through October only would be worth some $9,500 now. That is a very strong pattern. This is an election year though and that would moderate the effect somewhat I think.

Overnight futures are weak and I'm wondering about that retest of broken resistance on ES and NQ. NQ looks particularly interesting as it's possible that there is an IHS forming there, and NQ could retest broken resistance in the 2700 area forming a right shoulder to the pattern. I've had a few comments that we may see a bigger reversal here, and that's possible, but the bigger picture for me is the broken-up double-bottoms on various indices, and the broadening descending wedge that has broken up on NQ. These are high probability patterns and unless we see real signs of weakness here my presumption is that we will see a retest of the highs at least on SPX and NDX:
On SPX the double-bottom neckline is at 1392.76 and a break much below that would weaken this pattern. I have rising support from last week's low at 1386 SPX now and I'm regarding that as the level that should not be breached. If it is breached then it's worth noting that we have a possible broadening formation forming on SPX that I've marked on the chart, and the next in-pattern target would be a retest of last week's lows around 1358:
On the SPX daily chart I have the upper bollinger band at 1420 as resistance, and the middle bollinger band is at 1386.96, which reinforces my rising support trendline just below, and underlines how important it is that this area holds for the bull side today:
Vix dropped well below middle bollinger band support at 17.75 area last week and I'm looking for a test of the lower bollinger band in the 14.75 area soon. I've mentioned before that gaps on the daily Vix don't tend to stay open long, and last week's Vix decline has not closed the remaining open gap just over 15.50. I'm expecting that to fill this week:
Last chart for today is USD, where the support trendline since March that I was looking at late last week has broken. That clears a path for USD to test rising channel support just over 78, and that is where I am expecting this retracement period since January to end. The retracement has been painfully slow, but that's good, as that looks corrective and backs up my bigger picture USD bull scenario:
We may see a significant drop today with the rising support break on NQ and a possible retest of last week's bull pattern breaks on SPX and NQ. First support on ES is 1388-90 and if that breaks then 1386-7 SPX needs to hold. The retest target and support on NQ are in the 2700 area.

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