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Wednesday 15 August 2012

TLT Retests Major Support

I'm leaning bearish for the rest of the year, though very much with an open mind that it could go the other way. One thing I've been watching and writing about as very important for the bear case for the remainder of 2012 is what's happening on TLT. Major support is at 123.5 to 124, and that was tested last Thursday. TLT bounced there, formed an IHS that never broke up, and then retested the lows yesterday. If we are to see a resumption of the uptrend on bonds, this is the likely place to see that happen. If support fails however then TLT will most likely fall considerably further (targets on the chart below), and that will give a considerable following wind to equity bulls. The strength of this support level is best seen on the 60min chart:
If support holds, then we have a possible W or double-bottom on positive RSI divergence and with a target in the 129 area.The risk/reward for a TLT long here looks attractive:
On SPX we saw a marginal new high on strongly negative RSI divergence yesterday. Unless yesterday's highs are broken with confidence shortly, this is a distinctly bearish looking setup, very similar to the one I pointed out on EURUSD yesterday morning which has since broken down. This is looking increasingly like at least a short term swing high on SPX:
EURUSD has reversed back down yesterday with confidence and the obvious target is rising wedge support in the 1.225 area. This is a decent quality pattern and I'd expect to see a retest of the current 2012 low in the 1.204 area in the event that 1.225 support doesn't hold:
Last chart for today is CL, where a decent symmetrical triangle has formed. These are marginally (54%) bullish patterns with a nasty habit of breaking one way before playing out in the other direction. The range is tight and narrowing fast, so one way or the other we should see a break soon, most likely today or tomorrow:
I told my brother in June that I'd call him when I thought the rally from the June low was topping out. We haven't spoken since, but I texted him yesterday to say that IF this is a rally, and I think on balance that is likely, then the likely high would be yesterday or today. That judgement is mainly derived from TLT on the technical side, and the reality that the countdown has started for the likely Spanish request for a bailout in late August or early September on the fundamental side. There is still upside technical room on SPX for a retest of the April highs or the 1440 area pivot, but there is no more downside technical room for TLT to fall without most likely triggering a fall substantially further. We may well see both SPX and TLT reverse here and the SPX chart now looks as though it is rolling over short term.

Trendline support from the late July low is in the 1387 area. A break below 1395.62 SPX would trigger a short term double-top target in the 1381 area, with the middle daily bollinger band in the 1380 area. A break below 1380 opens up a test of SPX rising channel support and the 100 DMA in the 1360 area. A break below those would greatly strengthen the case for a test of the June lows.

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