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Thursday, 19 April 2012

Retracement Flags

I have slightly mixed feelings this morning, there is definitely a path for equities to move upwards today and ES particularly has very well defined support in the 1377.5 - 1379 area. If that holds today then we may see a push higher that I would be expecting to find resistance in the 1398-1400 SPX area, at the channel resistance on my SPX 15min chart that I posted yesterday morning. That said there is a very bearish look to the overnight action and I'll mainly be looking at that initially. ES will need to break below 1377.50 to trigger that bearish scenario.

On ES there was a marginally higher high overnight on strongly negative 60min RSI divergence. This is a bear setup and there is a possible double-top in play if ES can break below the valley low at 1377.50 with a target at 1364.75. I will mention again that double-tops, like H&S patterns, only become higher probability setups on a break below the neckline or valley low. Until then both patterns are just promising looking lines on a chart:
There is a possible double-top in play on NQ as well today, though it's messier. NQ has closed an hour above declining channel resistance three times in the last day and each time the break has lasted less than two hours. If NQ can close above the trendline and hold it that would look bullish, but repeated failures are looking increasingly bearish until that happens. If NQ can close an hour under 2702, the double-top target is 2676:
There is a third possible double-top in play today, and that is on EURUSD. EURUSD has been testing the falling wedge trendline hard the last couple of days overnight and broke above overnight. Again that break has failed to hold and on a break below 1.3055 I have a double-top target in the 1.294 area, with wedge support currently in the 1.2975 area:
I've been looking at the bigger picture charts this morning, and all three of SPX, Dow & RUT appear to be forming bear flags. On the SPY (SPX) chart the flag is clear and there is a potential sloping H&S forming as well:
On DIA (Dow) there is a potential H&S in play as well, though it would need to reverse here really to avoid weakening both the possible H&S and the bear flag. One reason for showing the DIA chart today is to show the bigger picture rising wedge that formed and has broken down. That suggests a larger retracement than the one we have seen so far to me:
On IWM (RUT) there is a similar overall rising wedge setup,and also arguably an H&S forming there as well, though on a reversal here it would look too unbalanced for me to consider it seriously. Again a nice looking bear flag:
I'll close with my SPX 15min chart today. The 15min RSI is still on a sell signal from Tuesday, but a possible rising channel was established at the close yesterday, and until that breaks that opens up a possible test of overall rising channel resistance in the 1398-1400 area. Worth noting that there is an overhead gap to be filled there:
Overall I'm leaning bearish for today at the moment, but we'll need to see the support breaks I'm looking for on ES and SPX early I think. In terms of the stats for today the last Thursday was a trend day up, but the previous four Thursdays all closed down. In terms of the very bullish stats for this week that I posted on Tuesday, Thursday is the most bearish day of this week, down 12 times of the last 23, so if the bears are going to get a break this week, today is the most likely day to see that.

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