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Monday, 4 June 2012

Testing the 200 DMA

SPX closed below the daily 200 SMA (200 DMA) on Friday, though not yet with a conviction break. If we see more downside today then I have two main support levels below before we see a test of channel support from the 2009 low in the 1180 area. The first is in the 1250-60 area, which was support for the 2011 H&S, and the next is in the 1210-20 area, with the 2010 high at 1219.80, key resistance last summer before the October low, and the technical target for the bear flag on SPX that broke down last week. I've marked these on an updated version of the weekly chart that I posted on Friday morning:
On the SPX 60min chart I don't yet have a decent declining resistance trendline, and I'm reminded of the comment I made last time SPX was in this area in December that this is often a sign that the trend is still in too early a stage to have developed a decent support or resistance trendline, but I do have a decent quality support trendline in the 1270 area today. If we reach it and bounce there I would be looking for a test of declining resistance in the 1300-10 area, with possible resistance on the way at 1292 broken support:
We have reached an area where I'm looking for signs of a swing low, but there is of course quite a bit of reason to think that we will go lower first. The H&S on RUT has not yet reached target at 720, and there is also a double-top on TRAN that would suggest more downside as well. Here's the updated H&S on the RUT 60min:
On the Vix the first of the two overhead unfilled gaps was filled on Friday, and the IHS target is in the 30 area, where there is some decent resistance. Vix isn't a traded instrument of course, but this IHS has been a good performer so far with a nice retest of the neckline which then held as support while the bear flag formed. It may well reach the target before we see the next swing low:
I posted the USD IHS chart on Thursday morning with the observation that if we are to see a reversal there to retest the IHS neckline, then the most likely place to see that reversal would be at decent resistance in the 83.5 to 84 area. That was tested on Friday and I'm watching for possible short term failure there:
I posted the 5 year TLT chart on the same day showing the test of 5 year rising channel resistance there. That broke with great conviction over Thursday and Friday and is no longer resistance. I have next possible trendline resistance in the 133 area:
Now that has broken, it's time to have a look at the very big picture on bonds, which is the 26 year (seriously) declining channel on 30yr treasury yields since 1985/6. I posted this three weeks ago with the observation that there was a triangle target at 20 (2% yield), and that channel support was somewhat lower in the 17-18 area (1.7% to 1.8% yield). Those targets looked wildly ambitious then, but obviously much less so now. We are seeing a test of the 2008/9 lows at the moment and if that breaks I am obviously still looking for a lot more downside. We might not see those targets hit of course but the pattern setup is solid and I wouldn't be betting much that we don't:
Obviously I've been giving ambitious upside targets on USD and downside targets on bond yields, and reaching those targets would make most sense in the context of a large and general equities decline, which would be supported by the many huge topping patterns that I have been posting on world indices. Here is another that I haven't posted since January, with a huge H&S mostly formed on copper. The neckline is a very decent support trendline so a break below it would look doubly significant if we see that. The H&S target is somewhat below the 2008 low:
In summary bears are in control and the trend is down. SPX is however testing support around the 200 DMA, and that hasn't yet been broken with conviction. Until this is broken with conviction and SPX spends several days below it to consolidate the break and turn the 200 DMA into resistance, this is a high probability area to see a short term low. at or above the 1250-60 support level. If that level is lost then I'd expect a move to the 1210-20 area.

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