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Monday 2 July 2012

Holiday Week

I did a weekend writeup at MarketShadows and if you want to see that it's in the weekly MarketShadows newsletter published yesterday. You can download that as a PDF here. I'm using the two charts from that post this morning but there's some additional commentary about the increased likelihood of QE in Europe that I won't be recapping this morning.

The first chart for today is the daily BBs and MAs chart on SPX, where we saw SPX close slightly over the 100 DMA and testing the current rally high and the upper daily bollinger band. Obviously there is significant resistance in this area:
Looking at the moves from the October low on a trendline basis the current move up from the low looks impressive, and now has a decent support trendline. There are three obvious options from a TA perspective here and they are:

  1. Failure here to form a double-top with a target back near the early June low. 
  2. A move to the IHS target in the 1403-5 area to peak in the 1400-45 area to form a much larger double-top with a target slightly above the October lows.
  3. A breakout over the 1441 pivot towards the 1500 level and a possible test of the 2007 highs. 

The last scenario only really makes sense if we see a major QE push in Europe, but as I was saying in my weekend post, the chances of that happening increased significantly last week at the EU summit. Failing that the second scenario is my preferred one unless we see SPX break back below 1335:
On the SPX 60min chart the move up on Friday broke declining resistance from the high, which was bullish, and the reversal IHS with the target at 1403-5 is now fully back in play. Support levels for today are a retest of broken declining resistance in the 1346 area, the 50 DMA in the 1340 area, and the IHS neckline in the 1335 area. It's hard to see the IHS as still credible on an hourly close back below 1335:
I'm mainly looking at support levels today as the setup here is suggesting retracement. On the SPX 15min chart the marginal new highs on Friday afternoon were on negative RSI divergence:
On the ES 60min chart the marginal new highs overnight were also on negative RSI divergence, and the very steep rising support trendline from Thursday's low has broken, on what is clearly a rising wedge. On a move below 1352.75 ES there is a short term double-top target at 1343.75, and the key support/resistance level on ES in recent weeks is at 1340, which fits with a retest of broken resistance in the 1346 SPX area:
EURUSD has failed to make a higher high, has broken back below 1.2625 and is retracing. My big picture EURUSD chart is below and that looks extremely bearish. I was commenting at the weekend that if there's no big QE push in Europe then the outlook for EURUSD looks bearish as sovereign debt troubles will most likely continue, and that if there is a big QE push in Europe then the outlook for EURUSD looks bearish as QE is effectively a method of devaluation. Either way more downside looks likely for the Euro. 
Markets are closed half of tomorrow and all of Wednesday. For some reason American Independence Day hasn't made it to being a national holiday in the UK, so I'll be using the opportunity to catch up on some paperwork, with most likely a shorter post than usual tomorrow morning. Retracement looks likely today and could stretch into tomorrow.

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