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Tuesday, 26 June 2012

Possible Bounce Brewing

The first thing to say today is that there is a possible bounce brewing on both ES and EURUSD, though both are still close to yesterday's lows at the moment. On EURUSD there is clear positive divergence on the 60min RSI and what looks like an attempt to establish a new rising support trendline from the lows, though that might not last long:
I'm seeing similar but weaker positive divergence on the ES 60min RSI, and another possible attempt to establish a new support trendline from the low. The extremely steep declining resistance trendline from Wednesday's high has also been broken. On the bear side the bounce from the low yesterday looks a lot like a bear flag so far:
A bounce here would fit with a declining channel on the SPX 15min chart that I posted yesterday. A strong early bounce could retest broken support at 1324/5, though that channel resistance trendline is declining rapidly and will be under 1320 SPX by the end of today. As with ES the bounce from yesterday's low looks like a bear flag however:
On the SPX 60min chart the reversal IHS with the neckline at 1335 is badly wounded and will most likely fail. I'll only write this off altogether however on a move below 1306.62, and the low yesterday stopped a couple of points short of that so this is still potentially in play. As and when this fails then there would often be a very strong reaction in the direction of the (downward) trend after the failure:
Yesterday's close was at 1313.72 SPX, more than five points below the middle bollinger band on the daily chart at 1320.31. Of the nine previous breaches of the middle bollinger band since October, not one reversed back again strongly without at least at test of the far bollinger band, or either the 100 DMA or the 200 DMA. The 200 DMA is now at 1296.25 and I would count a test as being within five points of that, so we should reach at minimum 1301ish before any significant low can be made. That's very much a minimum target however, five out of nine of those breaks made it to the far bollinger band, currently at 1276:
I've been watching for a break up on TLT to confirm a break downwards on equities and I'm still waiting. TLT is trading in a range between 124 and 127.4. As long as 124 holds the overall lean has to be bullish for TLT (and bearish for equities) but that is weakened by the break of rising support from April, so the setup could still go either way:
On USD the big IHS has retested the neckline in a bull flag retracement and is breaking back up. This chart looks unambiguously bullish and is backed up both by the rotten fundamentals on EURUSD and the Fed's current reluctance to devalue USD with more QE. The IHS target is at 90.5, and on a break above declining resistance from 1985 at 93.5, I would have a double-bottom target at 105. You can see my big picture USD post from April here:
The last chart for today is the silver chart, where the rising support trendline from 2008 was touched at the low on Friday. If we aren't going to see serious further weakness on PMs over the summer this is the highest probability reversal level and silver is bouncing strongly from that so far. If silver can break above current declining channel resistance in the 28 area there would be a real possibility that silver has just made a major low:
ES and EURUSD have been weakening as I have been writing, and EURUSD has broken below the possible new support trendline I was looking at. There is still increasing positive divergence on the 60min RSI however so a bounce is still very much on the cards. If we're going to see a bounce, today would be a likely day, as Cobra has pointed out that the last five Tuesdays have closed higher, so it has been the most bullish day of the week recently.

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