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Monday, 10 September 2012

SPX at Key Resistance Test

Obviously I've been talking about this likely SPX test of pivot resistance in the 1440 area for a while now, and with the SPX close on Friday at 1437.92, that test is obviously upon us. There is very strong resistance in the 1440 - 1450 area, and it is made up first of that pivot level resistance, and second at double trendline resistance just under 1450.

The first of those resistance trendlines you can see on the 60min chart, and it is the resistance trendline for a rising wedge that may be forming from the June low. Only two touches of the upper trendline so far so the trendline is not confirmed:
The second of those resistance trendlines, at effectively the same level, is the resistance trendline for a rising wedge that may be forming from the October 2011 low. Only two touches of the trendline so far so the trendline is not confirmed:
Altogether this is very strong resistance in the 1440-50 area, and we may well see a reversal. SPX is also trading above the daily bollinger bands, opening and closing above the upper bollinger band on Friday. This is rare and doesn't last long generally, though as the upper bollinger band is rising sharply, a move back within the bollinger bands does not require any retracement. Nonetheless, as I explained the other day, the current setup of a bollinger band pinch followed by a close outside the bollinger band usually means that at least a short term swing high is close:
Obviously I've been considering the possibility that we may see a major swing high and (with the April high) a large double top in this area. That scenario received two serious body blows on Friday when EURUSD and copper both broke major resistance trendlines. The break up on copper was less serious than the break up on EURUSD, but nonetheless significant. I have a W bottom target for copper in the 385 area:
The break up on EURUSD was a very serious break of the year old declining channel, made with a lot of confidence. I'm expecting more upside. Short term EURUSD looks overbought, and I have the next major resistance level at 1.30. I'm expecting that to be tested:
The significance of this break can be seen on the 5yr DX chart, where you can see that the main rising support trendline for the uptrend has been broken with a lot of confidence. You can see on this 5yr chart that each break of the major support or resistance trendline for the last four trend moves confirmed a trend reversal that lasted for at least several months afterwards. I have a double-top target in the 78.3 area and a potential H&S neckline in the 78.1 area:
On the bigger picture these breaks on DX/EURUSD and copper mean that the likelihood of a major top in this area are now much smaller, and the chances of a break above 1440/50 resistance in the next few weeks are now much higher. I was writing about this in my weekend post which you can see here. Short term though there's still a very strong chance that we see the next short term swing high in the 1440-50 area, and I'll be watching for that. Ideally we would see some retracement today to see up negative RSI divergence on the 60min chart at that level. If we do then I would see the 1420-5 area as likely support for that retracement.

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