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Wednesday, 4 April 2012

Liquidity Junkie

What a liquidity junkie this market is. The Fed announced essentially no change yesterday and markets tanked across the board, equities, bonds, commodities, EURUSD etc, precious metals. Absurd. Equities have been rising ever higher on the expectation of a QE3 that has become ever less likely as it has risen, as the purpose of QE3 would be above all to boost asset prices, and if they are already high then why would the Fed do it?

Be that as it may we are at a major inflection point today now and it could very much go either way. My favored scenario is still that we see a bounce on SPX at rising support from October in the 1397 SPX area before a move up to test the 1442 SPX pivot, with a very possible interim top there before the usual summer weakness. That would be the best technical scenario but that doesn't mean it's going to happen of course. Here's the updated SPX chart from yesterday:
The setup on ES is a good fit with that, with the caveat that the potential bear scenario is far clearer there. Trendline support is in the 1392.5 area there which fits exactly with the SPX rising support I'm watching. However you can also see a small H&S playing out with a target in the 1380 area, and the potential double-top targeting the 1353 area. If ES & SPX break below support today there is a very good argument that we will see a drop to test 1340 SPX and the potential H&S neckline there, and if we see that then a major interim top may have already been made:
There is also a potential double-top on the NDX chart, and it's worth noting that resistance in the 2800 area is at a 400 multiple, which is a level where NDX often finds strong resistance. The 2000-50 and 2400 areas were big levels on NDX over the last few years. Serious support on NDX is in the 2740 area and a break below would look very ominous:
I was voicing some concerns about my EURUSD IHS scenario yesterday, and that scenario was then completely smoked after the Fed announcement. What we are left with is a bearish H&S that is still very much in play. If EURUSD makes a lower low below 1.30 then the downtrend is confirmed and at least a test of the January lows would look likely. It's worth noting at that point that my bigger picture USD charts suggest that we might well see EURUSD make a try for parity with USD over the next year or so:
Bonds broke down hard with everything else yesterday and I'm leaning towards resumption of the downtrend there with a big caveat. That caveat is that if equities break down hard here, then regardless of the technical picture, bonds will most likely go up. Short term I'm seeing a sloping H&S with the neckline being retested at the moment, and either a declining channel or broadening descending wedge forming if ZB gets back over that H&S neckline:
Just a short post today as I'm partially in holiday mode with the children out of school. Other charts I haven't posted today are the very weak PM charts, with gold and silver approaching key support levels, the rising wedge breakdown in GBPUSD, and the major support break on AUDUSD overnight that suggests that USD parity there may be tested next.

I'm still leaning bullish until we see support breaks on equities, but we may see those breaks today, and if we do then the immediate outlook changes to very bearish. 1392.5 ES and 1397 SPX are the areas to watch IMO and conviction breaks below will be a major warning signal that the trend may have changed earlier than I expected.

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