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Monday, 23 July 2012

Possible Double-Tops

Equities and EURUSD have both been crumbling overnight. The potential double-top on ZB and TLT is also looking a good deal less impressive on ZB this morning. I've been mentioning regularly that the overall setup on bonds is still bullish, and if TLT clears the potential double-top area that will be even more the case.

On ES I mentioned the possibility of a double-top forming on Friday morning and that's starting to look pretty good. ES is extremely oversold on the 60min chart, and we may well get a decent bounce soon, but there are two key support levels to watch if we do get much more downside. The first is rising support from the June low in the 1335 area, which is also a potential H&S neckline. The second and far more important support level is at 1320. Anything below there delivers a lower low and triggers a double-top target in the 1265 area, effectively for a test of the June lows:
The small rising wedge I posted on the RUT chart on Friday morning broke down and it seems likely that the decent rising support trendline from the June low will break at the open. The next key level of support is at 778.54, and anything lower delivers a lower low there:
I've been wheeling out some very bearish bigger picture charts this weekend and you can see my weekend post at MarketShadows here. In that post, which might have been better titled 'The Four Horsemen' I was talking about the very bearish-looking (for equities) setups on copper, USD/EURUSD, bonds and EEM. I'll post the EURUSD chart again this morning as the monster H&S I've been posting on EURUSD has now almost completed forming overnight, and is about the test the neckline in the 1.205 area. As the pattern target is at (cough) 0.77, this is an important level to watch:
What I wasn't talking about at the weekend was oil, though I know a lot of people watch that as an important indicator as well. Oil has a huge bearish setup as well of course on the weekly chart, though we've seen a very strong bounce from the double-top neckline / valley low so far:
Zooming in on that strong bounce however, and it's not looking bullish so far. I posted the beautiful bearish rising wedge there on twitter on Friday, and in the context of the weekly chart this looks a lot like a bearish pennant. There is strong resistance in the 92-3 area and I'm very much wondering about a test of the highs followed by failure on a short term double-top. If that rising wedge breaks down and then the larger double-top breaks down too, we are looking at a potential shorting opportunity from 92/3 to the huge double-top target in the 42/3 area. Would that be a reason to short equities? Possibly, but it would be a much better reason to short oil: (NOTE: ON THE CORRECT SEPTEMBER CONTRACT CHART THIS RISING WEDGE HAS BROKEN AND RETESTED OVERNIGHT)
Most of the Elliot Wavers I follow have been abandoning their bearish counts for the rest of the summer, and historically they've been right a lot. They might be wrong this time though. The fundamentals backdrop looks weak, and the technical setups here look potentially apocalyptic. We shall see. On a break below 1320 ES I would be looking for a test of the June lows and we would then see whether those will hold. If they don't hold then a lot of bearish EW counts will be back on the table. ES is really very oversold here so if we do see a test of 1320 this week, there would most likely be a decent bounce beforehand.

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