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Wednesday, 23 May 2012

My Apocalypse Charts

I've posted quite a few charts in recent weeks and months that suggest that we could see a very bad 2012 indeed on equities, EEM, MSWORLD and so on, and I jokingly referred to my 'Apocalypse Charts' the other day when chatting to a trader friend. She asked me what I meant, and I replied that they were the various longer term charts suggesting that the next big move on equities might be to test the 2009 lows.

I added that I'm not necessarily expecting these to play out, but that they need to be considered as part of the technical mix here, and that if these patterns, mainly H&S patterns with some double-tops there as well, were to complete forming and then break their respective necklines, then that would be a major crash warning that could not be lightly disregarded. There are several such charts that I have posted here so far, and I'll post some more here today. It's fair to say that most major developed world stock indices are in the late stage of developing these patterns, excluding some US indices and those such as Greece, Italy, Spain, Japan etc where they are already either below or not far above those 2009 lows.

I remarked to another trader friend yesterday that the setup was encouraging for a rally higher on SPX to test the 1340 or 1357 levels, but that I'd be much happier about that if we saw a two-way trade, with moves up balanced by deep retracements so that the overall move did not look impulsive. Shortly afterwards the SPX peaked for the day and on ES we have so far seen a pullback of over 20 points since then. Support is at the lows and until those are breached (on SPX) I'm not seeing this as immediately bearish. If we do see a decent bounce the middle bollinger band on SPX is the obvious target, but that it's worth noting that this has dropped 3 points to 1359 since yesterday morning. This is a target that will decline steadily as we move towards it.
The relief rally may already have ended, but there has been an encouraging development on EURUSD that might help deliver a larger one, and that is that EURUSD tested the January low overnight and slightly undercut it, and is rallying from there so far on positive RSI divergence. If EURUSD can hold that low, that sets up a potential double-bottom with the target in the 1.30 to 1.304 area, approximately a 50% retracement from the rally high. We'll see how that goes:
I was talking about a possible falling wedge on AAPL yesterday morning. That is now a confirmed falling wedge after the reversal at declining resistance yesterday. This is a 69% bullish pattern, though until it breaks up the next obvious target is at wedge support in the 515 area, so that is currently pointing down. As and when it breaks up though (or 31% chance downward break of course) it should be a decent signal for overall market direction:
I've done three new charts to add to my apocalypse chart collection today and the first is on EWC, the Canada iShares ETF. There you can see a very nice H&S that has mostly formed and indicates to the 2009 low area:
There's another on EWA, the Australia iShares ETF, this time an upsloping neckline H&S. Worth noting on this chart is that there is also a rising channel in play from the 2009 low, and that this would make reaching the neckline look rather more bearish. The target would be in the 11.5 area, some 25% above the 2008/9 double bottom:
There's another horizontal neckline H&S forming on the FTSE. A hit of the 2010 and 2011 lows in the 4790 area would complete the pattern and the target is again in the 2009 low area:
If this were to play out, what would happen on bonds? I posted my long term channel chart a couple of weeks ago suggesting that we might see a move on 30yr yields to the 2% area. On the TLT chart the upper trendline of a five year rising channel is being tested and on a break above we might see a very large extension. The action over the last year obviously has the look of a large bull flag:
What might we see on oil? Well I have a possible double-top in play there, with a target just below my strong 14 year support trendline in the 40 area, and that would be the obvious target there on a break below 75:
As I said, I'm not saying that these will play out but when we see charts like these, we need to look around to consider whether there is anything developing that might precipitate a major crisis and flight from risk in the near future. Hmmm .....

For today I'm cautiously bullish on SPX and EURUSD, though both are fragile and might break down. Some major indices, Dax and FTSE among them, saw retests of broken support trendlines yesterday so it's possible that this rally failed at the high yesterday. A badly timed statement about Greece might send send both SPX and EURUSD to fresh lows quickly but until then there's some scope for further sideways to upwards action in my view.

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