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Monday, 17 September 2012

Cargo Cult Economics

There's actually not a huge amount that's interesting on the charts for today, and I'm in a slightly whimsical mood, so I'll show the equities and TLT charts for today and move on to some more interesting charts that I think are worth a look. On the SPX daily chart SPX opened and closed above the upper bollinger band on Friday and hit the probable rising channel resistance that I was looking at as resistance on Friday morning. So far we are seeing reversal there, and as long as that holds, we may well now see a significant retracement that would target channel support, currently at 1400 and rising. There are obvious support levels at 1440 and 1420 (descending triangle top) and I would expect one or the other to be close to such a retracement low:
On ES the upper trendline of the shorter term rising channel there was tested hard on Friday but held on an hourly closing basis. Channel support is currently in the 1442 area and there is a rather raggedy H&S forming with a target in the 1440 area on a break below 1453. I have switched over to the December contract on ES this week:
On TLT there was a break down through rising support and strong 120 area support on Friday. The obvious target is now the next support level and possible rising channel support in the 114 area. We might see a bounce first though as there is clear positive divergence on the 60min RSI. Ideally that would go a bit lower and then retest broken support in the 120 area:
Looking at the remainder of the huge bear patterns that hadn't already broken up before the QE3 announcement last week, EEM has now broken up through declining resistance from the 2011 high and it's time to write off the huge H&S that I've been keeping an eye on there since last October:
If ever there was a currency that should be under serious attack it is the Japanese Yen. Estimates vary of the indebtedness of Japan from 220% of GDP to 240% of GDP but either way that's a huge chunk more than the next most indebted government in the western world, which is Greece at about 160% of GDP. A bearish rising wedge has formed on XJY over the last ten years, the wedge support trendline was being pinocchioed earlier this year and a very promising looking sloping H&S pattern has been forming at the current highs. That may well fail now as well, but at some stage this Yen short will be buying yachts for Yen short sellers. I'll be keeping an eye on this one:
I've updated my chart of bull moves from the 2009 low to eliminate the possibility of a double-top at the 1440 pivot and that looks interesting. If the current wave up from the June low falls within the range of the last four moves then that would give a target for the current move in the 1556 (290 point move) and 1626 (360 point move) range. There are obvious resistance levels at 1553 (2000 and July 2007 highs) and 1576 (2007 high). Two things that are worth noting from this chart are that the current wave up is very narrow by the standards of the last three and, though this is not an Elliott Wave analysis, that  the current wave up is the second of what would normally be a three wave sequence:
Some of you may recall that I posted a chart two years ago of the SPX in real terms (div by CPI) since 1955, showing the perfect declining channel there from the 2000 high, and suggesting that SPX might reverse again at channel resistance there on the move up since the 2009 low. We're getting close to that now and I calculate that should be in the 1510-20 area. That will be something to watch for when we get there:
Lastly for today I created a video in late 2010 and posted it on YouTube with a half-joking explanation of Fed policies over the last few years. Worth a look again today as we move into yet another period of open Fed support of an equities market in which fundamentals are becoming meaningless in anything but comparative terms:

I wrote a weekend post at MarketShadows that you can see here. Some interesting charts there of SPX, Nikkei and Gold, but the message was that new highs for SPX and gold look very likely from here now, that dips should be bought, and that a dip worth buying may well be starting now. If that plays out as I'm expecting, then we will most likely see that bottom out on SPX either at a retest of the 1440 area pivot, or at the top of the descending triangle in the 1420 area, as Bulkowski notes that these tend to turn into strong support levels. I think that retracement has started from the highs on Friday, though I wouldn't rule out a test of those highs to make a short term double-top.

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