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Wednesday, 9 May 2012

On The Brink

I'm going to post a lot of very bearish looking charts today. That doesn't mean that equities are about to fall off a cliff here, but it does mean that there is a real possibility that they will. The 2012 potential topping patterns I've been posting for weeks have now all completed forming more or less, and we are at the point of decision where we either rally, or break support to go considerably lower. That point of decision for me is 1340 SPX. If 1340 breaks that opens up a lot of downside, and if it holds then new highs for 2012 are still in play before a bigger correction in the summer.

On the SPX 60min chart the sloping H&S I've been posting broke down and retested on the bounce yesterday. This is a very bearish setup unless the neckline can be recovered with confidence, and even then it looks ominous and would be reason for some caution on the long side. On a continuation down the target is in the 1290 area close to the October high at 1292.66:
A similar sloping H&S has formed on NDX. Again it broke yesterday and retested on the bounce. The H&S target would be in the 2465 area, slightly below an obvious support level at rising support from the October low:
I've slightly redrawn the neckline on the RUT H&S I've been posting as it isn't quite horizontal. It lines up perfectly sloping slightly downwards. That H&S completed forming yesterday but the neckline has not yet broken. The H&S target is in the 720 area:
On Dow there is no H&S but there is a potential double-top. On a break below 12710 the pattern target would be in the 12080 area, with some strong support in the 12260-80 area on the way there:
I've looked at a number of foreign indices this morning and Dax is breaking down from a very ugly H&S, Spain is hugging support at a level below the 2009 low, but the one I'll show today is the FTSE. There's no pattern there worth the mention, as the Feb/March double-top has almost reached target, but the main rising support trendline from the October low, tested twice in April, has broken with confidence in the last two days. This is a setup that argues for more downside, though I don't have a particular target in mind:
The H&S on EURUSD is playing out, and I like the odds of it making the pattern target in the 1.27 area. What I'll show today though is the setup on USD, where declining resistance from the January high was being tested yesterday. If we see a close above it then that will strengthen the short case on EURUSD considerably as the next obvious target on USD would be a test of those January highs at 81.78:
I'm not saying that all or indeed any of these bear patterns will play out. What I am saying is that the pattern setup here is strongly akin to the setup at the end of last July, though on a smaller scale, and that a break of support here should not be seen as an immediate buying opportunity. My line in the sand here is 1340 SPX, and a break with any confidence below that will most likely see SPX under 1300 in the near future. For today everything looks oversold,with some 60min RSI positive divergence on ES, NQ and EURUSD. We might see a bounce.

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