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Wednesday, 25 July 2012

Bullish Options

Well we got the test of the last SPX low that I've been looking for, but we haven't seen that low broken yet, and the RSI setup on the 15min and 60min charts looks promising for a bounce so we'll see. On the daily chart SPX found some support at the 50DMA and closed above the 1335 IHS neckline again. That neckline has now been tested so many times that I'm inclined to write the IHS off altogether, but at the least it is obviously a very strong support level. If we see more downside the lower bollinger band and the 200DMA are at 1320 and 1315 respectively:
On the SPX 15min chart there is very marked positive divergence at yesterday's low and an interesting looking triangle has formed, though as patterns require crosses between the trendlines as they form, it doesn't really make it as a pattern. The 15min chart looks bullish here on a break over declining resistance in the 1340 area and I'm watching a possible IHS neckline in the 1353 area:
On the ES and SPX 60min charts I've been talking about the possible double-top since last week. There is another possibility worth mentioning though that requires a clear range to form, and that is a bullish rectangle. If a rectangle is forming the next move would obviously be a return to last week's highs, and I'll be wondering seriously about that on a break over declining resistance in the 1336 area. Again, very clear positive divergence on RSI at yesterday's lows:
I've been looking carefully at the CL chart this morning, and at first glance the action since the rising wedge broke looks like a bear flag. On closer inspection however there is a clear IHS with a target in the 90.5 area on a break over the 89 area. That would deliver another test of the broken wedge support trendline and that is very much in play here. Longer term this chart still looks bearish:
One of the oddities about this rally since the early June low has been the way that bonds have diverged from equities. The consolidation on TLT that I was watching through June broke up, the possible double-top that I thought would most likely fail seems to have done so, and TLT is in a healthy looking uptrend since early April. I have short term rising support in the 129.2 area, and main rising support from early April in the 128 area. As long as this TLT uptrend looks healthy any prospect of a major upward breakout on equities seems doubtful:
The technical setup for a reversal back up here looks good, and if we see declining resistance break on ES and SPX I'll be leaning bullish for the moment. On the upside I'll then be watching the 1353 SPX area to see if the right shoulder of an IHS forms there. If we see more downside short term then a move below the last low at 1325.41 looks distinctly bearish and triggers that possible double-top. The lower bollinger band at 1320 and the 200 DMA at 1315 would be decent support though, and we might well see a strong bounce from that area before seeing more downside.

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