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Wednesday, 11 April 2012

Oversold Bounce

The ES double-top target at 1353 was reached at the low yesterday, and ES has been bouncing overnight. I have declining (possibly channel) resistance in the 1376 area and a break over that would suggest that we may have seen a swing low yesterday:
In the short term the SPX 15min RSI was showing positive divergence at the low yesterday, and I have declining resistance trendlines in the 1370-3 and 1380-3 areas. The higher trendline is the main trendline and fits with declining resistance on ES:
On the SPX 60min chart there was no positive RSI divergence at the low yesterday. We don't always see that, but we get it more often than not at a significant low, and I'm treating the retracement as ongoing until we either see that, or break over declining resistance on SPX and ES:
On NDX there was a sharp drop yesterday, oddly while AAPL made a new intraday high, and the double-top there made target as well. The obvious support there is at 2650, and that has not yet been reached:
On IWM the obvious first support level just over 78 has been reached, and that is an argument for a swing low having been made. The next support level down, if IWM drops further, is the October high at 76.36:
NYMO closed at under -100 yesterday, and that is a strong signal that a significant low is either close, or was made yesterday. I've had a look at NYMO readings over the last six years and have marked 19 readings in the oversold zone during that time. On 8 of those SPX went on to make a lower low on positive divergence, so that gives 42% odds of that happening this time:
On other markets copper broke below the key support I showed yesterday, and that definitely looks bearish. EURUSD has been rallying weakly, but rather than show the EURUSD chart, I'll show the USD chart today to illustrate why I'm still somewhat doubtful about EURUSD breaking down from this H&S. On the USD chart you can see that the obvious retracement target trendline has not yet been hit. That won't necessarily be hit of course and shorter term a declining channel has formed from the January high. A break above that trendline would look bullish but until that happens there is a very real possibility that USD will reverse to hit that trendline slightly over 78. That might well fit with a last wave up on SPX before the usual summer weakness of course:
On bonds there was a strong move up on ZB and TLT yesterday and the larger bear scenario I was looking at there looks trashed. ZB was showing negative 60min RSI divergence yesterday and I'm looking for a retracement into rising channel support in the 139'08 to 139'15 area:
So where does that leave equities overall here? Well NYMO is suggesting strongly that a significant low has either been made (58% odds) or will be made shortly (42% odds). I'll be watching declining resistance on SPX and ES to see whether they hold today, and if we see a break up through those, then the chances are that the low was made yesterday. Until that happens however, the downtrend is intact, with no positive divergence on the 60min charts for SPX, NDX or RUT/IWM. I haven't calculated the odds on seeing that positive divergence at a low, but generally speaking I'd expect to see some at least two thirds of the time, so with the NYMO odds I'd put the overall chances of a lower low at over 50%. The obvious targets on SPX and NDX are lower so if declining resistance on SPX/ES holds, then I'll be looking for a move down to those targets after this bounce. My babysitter is ill today so I'll be out for the first half of the trading day.

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