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Tuesday, 10 April 2012

Waiting for a Break

There was a bounce yesterday, but it lacked conviction, and looking across the indices there are quite a number of double-tops in play that have broken down and not yet reached target. For today on ES strong support is still at 1371.50, and first overhead resistance is at yesterday's high at 1382.75, where there is also some trendline resistance, and at the valley low between the double-tops in the 1387 area. A break over 1387 opens up a strong bounce, and a conviction break below 1371.50 opens up further downside, with the double-top target in the 1353 area of course:
SPX reached the lower bollinger band yesterday and historically there are three options there generally. The first is that it may act as strong support, with a bounce back into the upper bollinger band to resume the uptrend. The second is that we may see a bounce into the middle bollinger band (1401 SPX area) before resuming the downtrend, and the third is that SPX would crawl down the lower bollinger band in a further series of three to five weak closes before bottoming out. Looking at the serious trendline damage over the last few days the third option definitely needs to be considered here.

There is something to add in that case. If this is a wave 4 retracement before a major interim top is made, and I think that's very possible, then it's worth noting here that the equivalent retracements before the 2010 and 2011 interim tops were both over 100 points, and that the target might therefore be the 1300-1320 area rather than the 1340 area, though there is certainly strong support in the 1340 area:
Looking across other markets the large H&S on EURUSD is still in play, and might add considerable support to a downswing in equities here. However until EURUSD gets under 1.30 it isn't strongly bearish:
ZB has rallied very strongly since mid-March, but short term is looking increasingly bearish, with negative RSI divergence as it crawled up the resistance trendline yesterday, and a small H&S that has formed at the current highs. If that breaks down today then that would support a bounce on equities short term:
Copper's also at an interesting support level here. Dr Copper has lost its market-leading PhD in recent months as it has strongly underperformed the move up on equities from the October low, and at 373 has currently retraced less than half of the fall last year. It is testing strong support in the 370 area and a break below with any conviction would look very bearish. If we see that then that should still be a decent indicator of further weakness in equities:
I think we could see very considerable further weakness on equities over the next few days, and if so, a break below strong ES support at 1371.50 should open up at least a run to the double-top target in the 1353 area. No strong resistance trendlines have developed yet, but a move over yesterday's high in the 1383 area would look modestly bullish, and a move over the double-top valley low at 1387 with any confidence would throw further downside into some doubt. If we do see a bounce today I'll be posting the intraday bounce support trendlines on twitter and those would be worth watching.

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