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Monday 11 June 2012

Rising Channels

That was a nice looking IHS scenario on various indices on Friday morning, but realistically it's not going to happen. Technically it still could, as ES isn't currently much above Friday's highs, but the problem with it now is that SPX moved clearly up from support at the middle bollinger band on the daily chart on Friday, and we most likely won't now see a retracement below there (1315 area today) before SPX hits either the upper bollinger band (1352) or the triple resistance area at 1357-8, which has the April low at 1357-38, the 50 DMA at 1356.92 and the 100 DMA at 1358.02. I'm treating the 1357-8 area as the most likely upside target if this is just a rally:
My personal view is that this is most likely just a rally. The IHS scenario that I've been following on USD all year makes most sense in the context of further weakness on equities, and on USD I think we are currently seeing a retracement to retest the IHS neckline in the 81.4 area. The fundamental picture on EURUSD still looks dire and I can't see much reason to think that we won't see further weakness there over the summer:
On EURUSD there is a decent rising channel from the low, with the overall look of a bear flag. I was considering the possibility of an IHS there as well on Friday morning but it looks a bit too messy. Resistance at 1.2625 was broken briefly overnight. If the uptrend continues I'll be watching the next decent resistance level at 1.282:
On ES there is another decent rising channel. Rising / channel support is in the 1312-15 area this morning. There is arguably an IHS on ES but I'm not treating this as one, as the symmetry between the shoulders is too poor. The resistance level in the 1326 area is still perfectly valid however and ES broke over that overnight:
The setup on NQ is similar to ES. A decent rising channel, a poor quality (though better than ES) IHS, and resistance at 5665 broken overnight. I have channel support in the 2536-9 area this morning:
I posted the Vix chart showing the IHS neckline retest on Friday. That held on Friday's close but I'm thinking this will most likely break downwards:
I posted the strong support trendline on ZB on Friday and that broke at the globex open last night. This is a very significant sign of weakness and I'm expecting more downside unless ZB can recover and hold above the broken support trendline:
I was saying last week that if we saw IHSes form on equities, then that would suggest that this rally would last longer and go higher than the rallies in 2010 and 2011 from the SPX 200 DMA. They haven't formed and don't seem likely to so that leaves me still expecting a rally of about 100 points lasting 4-9 days from trough to peak. The obvious target in my view is the 1357-8 area and today will be the fifth full trading day from the recent low. The trend is currently up so look for early weakness followed by strength for most of the rest of the day. A move below the middle bollinger band on SPX in the 1315 area today would look bearish and might signal that the rally has already topped out.

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