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Monday, 24 September 2012

QE Rhymes

I've been mentioning the comparison with the start of QE2 almost every day since QE3 was announced. QE2 was also trailed in advance, with a steep rise into the announcement, a break up on the announcement over the daily bollinger bands on SPX, and then a short term high there that was followed by a retracement. Obviously SPX in the wake of the QE3 announcement has been following the same script so far, and that may well continue, as the stats for Mondays recently, and also for this week historically, are both flat to down. Here's the chart of the QE2 period showing the post QE2 announcement retracement on SPX:
Now this analog may not continue to hold of course, but the odds favor at least some more downside this week, and it is well worth noting that after the QE2 announcement SPX retraced all the way to test the lower daily bollinger band. That's currently at 1385, which looks ambitious from here given the number of strong support levels between here and there, but that lower bollinger band is now rising of course, and may well reach the 1400-10 area by the end of the week. Here's the SPX daily chart showing the middle bollinger band currently at 1432 and rising channel support in the 1408 area:
On the SPX 60min chart the high on Friday was a retest of broken short term rising channel support and there are strong support levels at 1450 and 1440:
On both SPX and ES there are decent double or M tops in play here. On ES the target on a break below 1444 is in the 1426 area and I have strong support levels below in the 1432, 1410 and 1388 areas:
The two principal correlated markets for QE3 here in my view are EURUSD and gold, and EURUSD is in retracement mode making lower highs and lows. I have broken wedge resistance and the 200 DMA in the 1.282 to 1.283 area, and that should be decent support:
On gold futures (GC) I have a marginal higher high on negative RSI divergence after a break of short term rising support. I'm expecting more retracement and the M top target on a break below 1753 is in the 1716-25 range, with the next rising support trendline currently in the 1714 area
The odds favor the bears this week. The stats are bearish, the QE2 analog is bearish, and the short term setups on SPX/ES, EURUSD and gold all look bearish. We'll see what the bears can do with that. I think it's unlikely that a major high on equities has been made, though valuations are high, the economy is weak and any further upside on equities will be about the Fed support of equities rather than any fundamental reasons. Nonetheless I am viewing any retracement this week as being a buying opportunity on equities and gold at the least, and very possibly on EURUSD as well depending on what happens there with Greece and Spain, both of which are looking distinctly shaky at the moment.

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