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Wednesday 31 October 2012

Out of Sync

The New York based markets are reopening today though a lot of the workers there might be struggling to get to work. Nonetheless the view that they will reopen today seems to be firm so this should be the first full trading day this week.

While the main markets have been down the futures and equity markets have been getting out of sync, and in particular the declining channels on NDX and NQ are now very out of sync, which is going to make it harder to judge whether the current retracement has ended. I was saying last week that the channel resistance trendline on NDX would intersect the broken support trendline from the June low at the end of Wednesday this week at 2705-10, and that will no longer be the case I think. I'll review this chart after the open to see how that looks:
On NQ this declining channel has been disrupted less, and channel resistance is now in the 2706 area. The W bottom target (ignoring the AAPL spike down) is slightly higher in the 2715 area. Given the disruption to equity markets from Hurricane Sandy, this channel is now most likely the one to watch rather than the NDX equivalent. There is a distinct possibility that an IHS is forming on NQ and the target for the right shoulder low would be in the 2645-55 range:
For what it's worth there is still a double-bottom target on SPX in the 1437 area on a break over 1422:
Given the disruption however I would again be more inclined to look at ES directly, and there a double-bottom target at 1432 has been triggered by the break over 1413. As with NQ there is a possible IHS forming, marked on the chart, and the ideal right shoulder low in this case would be in the 1402-5 area:
I was talking yesterday about the double-bottom setup on EURUSD with a target in the 1.305 area, and that  EURUSD might reverse short of that target in the 1.302 area to form the right shoulder on a possible IHS forming there. The current overnight high is 1.30201 and if that resistance area holds then we might well see that right shoulder form now. The ideal right shoulder low would be in the 1.292 area there but we might well only see a retrace to the 1.296-7 area as there is decent support there:
The action on CL increasingly looks like (short term) bottoming action and the first target is strong resistance in the 88 area. If that can be cleared then declining resistance is at 91:
One problem with lows that take several days to make is that very soon after a break upwards the 60min RSI is deep into overbought territory. One way to resolve this is to retrace to form a right shoulder on an IHS before resuming the uptrend and we might well see that on ES, NQ and EURUSD here. I have short term rising support on ES at 1412.25 and on a break below that I'll be looking for that right shoulder to form. If so this will most likely be a sideways to down day with more upside coming tomorrow or Thursday.

Have we made a significant swing low? That's harder to say. If IHSes do form and break up on ES and NQ here that will be more likely, as making the IHS targets should break the channel resistance trendlines on NQ and NDX. There is still a strong argument for seeing a test of the 200 DMA on SPX however, and we may well see that happen. The setup there is on my SPX chart from Monday which you can see here. For anyone who has taken the last two days off my posts from Monday and Tuesday are here and here, and my weekend post at MarketShadows is here.

Tuesday 30 October 2012

Sandy Day 2

Well the US markets are closed for a second day today but the futures markets are still open in Globex hours. I wasn't certain that it would be worth doing a post today but blog traffic was only down about 25% yesterday so the majority of my readers are still trading or at least keeping an eye on the markets.

ES made an overnight low at 1393 at the support trendline I posted yesterday morning. There is now another potential double-bottom setup on ES with a target at 1432 resistance on a break over 1413. If there is no break up, then support is at the same trendline which should intersect strong support at 1388 ES in the next day or so. That's been happening more slowly than I expected yesterday as I hadn't taken into account that ES trading would be down as well during trading hours:
I'm treating NQ / NDX as the lead market for the current decline as it has the best pattern setup and because the decline has been tech led. If we see a bounce, and it's worth noting here that the current low on NQ was at the AAPL earnings announcement last week, then channel resistance is in the 2710 area. I will be treating the current move down as ending or already over on a break above this declining channel;
There's really not a lot else to say today, but there was a failed break downwards on positive RSI divergence on CL overnight. I have a possible rough falling wedge on CL and if we see a bounce into declining resistance that is currently in the 91.3 area:
There is another possible double-bottom on the EURUSD chart, though I'm doubtful about seeing a low here. Nonetheless the target is the 1.305 area on a break over 1.297, and EURUSD is testing declining resistance at the moment. If that breaks up there are good odds of a test of the possible IHS neckline in the 1.302 area at least:
I'm a bit doubtful about seeing the bounce I've been expecting while the US markets are closed but the European markets are looking stronger today and the recent ES action looks very much like a bull flag. Short term resistance is in the 1410 area and on an hourly close above that this current double-bottom setup on ES will look promising. US equity markets are expected to be open again tomorrow.

Monday 29 October 2012

Hurricane Sandy

A very unusual day today as Hurricane Sandy is closing all New York markets for the day, including futures outside Globex hours. Today is effectively therefore a forced market holiday, so I'll just do a quick post for the futures traders and as an advance on tomorrow, though markets may well be closed for the same reason tomorrow of course.

ES is trickling down a support trendline on the 60min. Support there is at 1393.25 this morning and if it continues to trickle down it can reach strong support at 1388 on this trendline tomorrow:
The defining setup for this equities decline so far has been the strong declining channel on NQ and NDX. Channel support on NQ is at 2617 now, and as long as this channel holds I'll be expecting a bounce soon. Declining channel resistance is now in the 720 area:
The decline on oil has stalled at 85, and a small descending triangle has been forming there. These break down 64% of the time:
With the usual caveat that I don't rate these signals that highly, a Vix Buy (equities) Signal confirmed on Friday with a lower close on Vix. The last two of these both marked important lows. While I don't rate these signals highly they are of course a signal that equities are very oversold, and that volatility is reversing, so this area is naturally a better long than a short entry statistically:
The last chart for today is the possible rising wedge that has been forming from the October 2011 low. I posted this on my weekend post at MarketShadows which you can see here. If this is a rising wedge then it really needs a bounce at wedge support to confirm that, and wedge support is just above 1380, with the 2300 DMA slightly below. This is key uptrend support here and a break below would look very bearish:
My understanding is that equity markets in the US will be closed today and most likely tomorrow, and that equity futures will trade only Globex hours today, so will close at 9.15 this morning. I'll probably do a post tomorrow even if the same restrictions apply.

Friday 26 October 2012

W Bottoms Day 2

Obviously there was no bounce of substance yesterday despite the very promising setup in the morning. SPX closed up on the day however just above the lower bollinger band. If that continues today into a strong bounce then the obvious targets are the 50 DMA at 1435 and the middle bollinger band slightly higher:
SPX now has a very promising looking W bottom setup that targets 1437 on a break over 1422 and that fits with the 50 DMA target on the daily chart:
The W bottom on ES has deteriorated in quality over the last day but the declining support trendline is holding well and this still looks like bottoming action as long as that holds:
NDX has broken below 2660 support but has been crawling down the lower trendline of the declining channel there on positive RSI divergence. Unless that breaks this will continue to be a setup for a bounce into declining channel resistance, now in the 2730 area:
The strongly bearish setup on TRAN that I was looking at yesterday morning is reversing back up and there is a nicely formed short term W bottom there targeting the 5085 area on a break over 5040:
I'm not a big fan of Vix Buy (equities) Signals but I have to say that the last two confirmed signals both marked significant lows. For what that's worth Vix closed back inside the daily bollinger bands yesterday and a lower close today will deliver a confirmed Vix Buy Signal. If that is the case I would expect a move to at least 1430 based on other factors in any case:
As with yesterday the last chart for today is DX. I was saying yesterday that a conviction break over 80.35 would deliver a W bottom target at 82.1 and DX is testing that level now. This setup looks all the more promising because EURUSD broke below rising support from the 2012 low overnight. I think this might well play out:
From a technical perspective I'm looking for a bounce here. I'm thinking there may well be more downside afterwards but a bounce is overdue, and the GDP figure exceeding expectations at 2% this morning may well deliver it. Over a break over 1417 ES I'll be looking for a test of the resistance level in the 1430-2 area.

Thursday 25 October 2012

W Bottoms

SPX rode the daily lower bollinger band down for a second day yesterday. This can last a while but while it does moves downwards are likely to be incremental rather than strong pushes down. The obvious next target in the 1397 SPX area has not yet been reached:
You can see that target more clearly on the SPX 60min chart and how the 1397 SPX level is very much a possible H&S neckline:
Today however I'm going to talk mainly about bullish reversal setups, as there are decent ones on both ES and NQ. I'll do ES first as it follows on from the SPX charts and there declining channel resistance broke overnight and a very nice W bottom has formed. The W bottom target is in the 1428 area on a conviction break over 1415. I have added a currently wildly speculative possible upper channel trendline as there is a clear defined support trendline. If ES is forming a wedge however that trendline target could be anywhere below that possible channel target:
On NQ I posted a strong W bottom setup yesterday morning, but I don't think I'd call this a W bottom setup today. What there is however is a declining channel, with the current lows testing the serious support I mentioned on Tuesday and Wednesday, and a channel resistance trendline target in the 2730 area (and declining). There is strong positive RSI divergence and the odds of a bounce here are good:
I'm expecting more downside on CL but short term there is a possible W bottom on positive 60min RSI divergence there as well. The target would be the 90 area on a conviction break over the 87.5 area:
As I mentioned yesterday, reversal setups often get steamrollered in strong trends and while the odds of a decent bounce here look good, there is some reason for caution. My friend @chewtonic mentioned an H&S on TRAN to me last night and there is one there that has formed and broken down. it's not an ideal pattern for symmetry, and I prefer patterns where the neckline is over halfway from the previous low to the high, but it's well worth noting, and would start to look serious if TRAN breaks below support just over 5000:
The last chart today is a longer term look at DX (USD futures). I'm showing the main trends over the last few years on this chart and it's obviously clear that the trend up from 2011 has ended. Furthermore an H&S is forming at the 78.6 neckline that would have a target slightly above the 2011 lows on a break downwards. However the current decline trendline was too steep and has broken up, and I think we may well see a strong bounce to establish the main decline trendline for the current move. If so then there is a possible W bottom targeting 82.1 on a break over 80.35. Worth bearing in mind:
There are very nice bounce setups on ES and NQ particularly and I'm leaning towards seeing those play out. If we see that break over 1415 the W bottom target on ES is 1428, and there is strong resistance not far above there at 1432 that is also a possible IHS neckline. If 1415 holds then the next downside target on ES is 1388-93, based on strong support on ES, the SPX 50 DMA, and the strong support level on SPX at 1397.

Wednesday 24 October 2012

Positive Divergences

There's quite a bit of positive divergence this morning and on NDX / NQ, this is a very significant level with a strong reversal setup. I posted the chart below on twitter last night showing NQ having made the H&S target yesterday, stalled there at strong support, and the W bottom setup if NQ can manage to get back over 2695. This really is a strong reversal setup and it's worth watching carefully to see what happens here:
On SPX there was a close well below the lower bollinger band yesterday and this is often seen at or near a significant low. If we see a strong reversal today (closing basis) I'd expect to see a run back up to the middle bollinger band at least in the 1440 area. You can see looking at last November though that SPX sometimes runs further down riding the lower bollinger band so we would need to see a close significantly above to confirm any reversal.

Meanwhile this strong downtrend needs to be respected and it's also worth noting from the chart that RSI has dropped below the 45-55 band that is generally support for retracements during uptrends, and that the obvious targets below are at the 1397 SPX possible neckline I've been mentioning, close to the 100 DMA at 1393, and at rising support from the October low, close to the 200 DMA in the 1375 area:
On the SPX 60min chart support in the 1425 area has now been decisively lost and the next strong support level is in the 1397 area:
The ES 60min, like NQ, is showing strong positive divergence and I have a possible falling wedge there. Wedge resistance is currently in the 1415 area and the overnight action looks like a bear flag. There is some support at 1400 but the next big support level (and possible H&S neckline) is in the 1388 area:
On EURUSD the 1.30 level was lost and retested yesterday and the obvious target is rising support from the June low in the 1.289 area. There is strong positive divergence at the last low and we might see another test of 1.30 on the strength of it. On the bigger picture there is obviously a possible double-top in place that would trigger a target near strong 1.244 area support on a break below 1.28:
CL lost the important 88 level yesterday and there's now not much support below before a test of very strong support around 79. You may be wondering why I have not been mentioning the large H&S pattern with the neckline at 88, and that's because the rise into it is too short to make a viable pattern in my view. Nonetheless the break below 88 looks very bearish:
I'll be watching NQ closely here for direction. I think AAPL has further downside ahead and if so then strong 2650 area support may well break, but until it does that is a strongly bullish setup on NQ. In a strong trend however, reversal setups tend to get bulldozed, and this is now looking increasingly like a strong trend. The obvious targets on ES, SPX, EURUSD and oil are still some way below.

Tuesday 23 October 2012

Testing Significant Support

ES made a very nice technical low on the 60min yesterday, with a potential W bottom that broke up slightly, but it all fell apart overnight. That looks very weak and ES is now testing the significant support level at 1410. If that breaks the next big support level is at 1388 ES. There is still some positive RSI divergence, but it's wilting, and will be effectively lost on a break below 1410.
That isn't the only significant support level here however. SPX tested the lower bollinger band yesterday before closing again at the 50 DMA, and lower bollinger band support is at 1424 today:
Level support on SPX at 1426 is already being tested hard and if we open weak we will have a conviction break below it. The next big support level there is at 1396:
Another big support level to consider today is 2660 on NDX. This is significant and may well hold. There is some positive divergence on the 60min RSI to suggest that it might:
On Dow the low yesterday was a test of the support trendline on the broadening formation that I've posted before. The failure to reach the upper pattern trendline on the last swing up gives a 54% chance of a breakdown here however:
Last and least is the 1.30 level on EURUSD. This is a significant level but it has already broken since I capped this chart. Expect more downside:
There is a very good case for a breakdown into the next levels of support here, but at the current levels just above support, ES 1410 area, NDX 2660 area and Dow 13235 area there is a real possibility of a strong bounce. On clear breaks of these levels, and we may see those at the open, I'll be looking for a test of 1396 SPX soon.

If we get to 1396 SPX it's well worth noting that is a possible H&S neckline. If we aren't going to see a QEX rally then we might well see a right shoulder form there. Either way 1396 SPX would be a very good area to look for a bounce, with decent support levels below in the 1375, 1380 and 1390 areas.

Monday 22 October 2012


Equities broke support into a very sharp decline on Friday. Overnight there has been a limited bounce into 1430, but the overall look is of a bear flag. There is an important support / resistance level at 1432 and a bounce over that would start to look more impressive. It's worth noting here that ES has been making lower highs and lows since the early September high, and if that is to continue here then the move should finish below the last low at 1416.5 ES:
On the SPX 60min the move on Friday took SPX to the bottom of the current six week range rectangle. On a break below there the obvious target would be the strong support area around 1397:
On the SPX daily chart the day closed at the 50 DMA. Lower bollinger band support is in the 1425 area, just under the current October low, and middle bollinger band resistance is at 1446:
Looking around various indices XLF caught my eye this morning. There is a possible double-top there that would trigger a target at 14.51 on a break below 15.45. 65% of these never make it back to the trigger level but the negative RSI divergence is significant. XLF has been leading lately so this is something to watch:
The last chart today is of AAPL, which I also posted yesterday on my weekend post at MarketShadows, which you can see here. AAPL broke down through the 100 DMA on Friday and, as I said on Friday morning, the obvious target is now the 200 DMA in the 580 area. To the extent that AAPL is a major market mover, that is arguing for at least some more downside on SPX and NDX:
I'm leaning short here, unless we see ES break with any confidence over 1432. We may not go much lower though, as the bounce overnight has set up a possible lower low on positive RSI divergence. I'll be watching for that. There are no usable short term trendlines on ES today so it's hard to give any downside targets. There are significant support levels below in the 1418 ES and 1410 ES areas, and the next big support level is 1388 ES. That may well be tested in the next couple of weeks. Screencast is having problems this morning so I'm having to fall back on the blog images. I'll update those once screencast is working properly again.

Friday 19 October 2012

Dividing Lines

The retracement that I was talking about yesterday has been happening, but not quite as I expected, and while I'm still leaning bullish here, that might change today. On ES a little H&S has formed from the high and that has already broken down with a target at 1435. I said yesterday morning that my bull/bear line was support at 1444.5 and that's still true, but the likelihood that will be broken has increased considerably since then:
On the SPX 60min you can see the negative RSI (14) divergence that I was talking about yesterday morning, and you can see that another little H&S has formed there as well since then. It's worth noting too that the W bottom target was at 1462 and that has of course been reached. I'm seeing key support in the 1450 SPX area here, which fits with support on ES at 1444.50.
Once again the Dow 60min chart expresses the current position well. The obvious target is a retest of the highs, and the action over the last day looks like a bull flag to get us to that test. The negative RSI divergence is a concern however and we could break downwards here. 60min RSI divergence this definite tends to be seen at short term swing highs and lows of course:
The little H&S I was looking at on EURUSD yesterday morning broke down and has made it most of the way towards target. I have trendline support in the 1.302 area and level support in the 1.30 area. A break below 1.30 with any confidence would look very bearish and would most likely drag equities down with it:
I haven't posted the CL chart for a few days as it's essentially been dead in the water. That hasn't changed yet, but during this period a decent short term rising support trendline has been established, and a break below that would look significant. Until we see that happen the IHS forming on CL has me leaning bullish and if we live long enough to see CL break over 93.7 with any confidence the target would be in the 100 area:
I've been considering the AAPL chart on various timescales. The little double-bottom that broke up the other day failed badly shortly afterwards,and the setup on the daily chart looks very bearish still. The still unresolved H&S is targeting the 590-600 area, and the rally held the broken neckline on a daily closing basis while forming a bear flag. Support was found at the 100 DMA but the obvious target in this context is the 200 DMA in the 580 area. AAPL might well be a buy there, but it's still a sell here:
I've also been looking at the bigger picture TLT chart, as the double-top setup I have been watching has now definitely broken down. You can see that TLT has been struggling to get below a combination of the strong support level at 121.50 and the 200 DMA in the 120 area. It's worth noting here that this looks like a major bull/bear dividing line. If TLT breaks support with any confidence it will be in a bigger picture bear move with an obvious target to my eye at strong support in the 108 area. That would have big implications and I'll be watching TLT carefully:
The obvious upside target for the move this week has not yet been reached, but the bear side is looking more compelling. I would normally count a move on SPX to within 5 points of the daily upper bollinger band as a hit, and we saw that. The sort of negative RSI divergence here is normally seen at short term swing highs or lows. H&S patterns have formed on ES and SPX. If we see breaks below 1444.50 ES and 1450 SPX then the bear view that we are back in a short term downtrend of unknown duration will look very compelling, so I'll be watching those levels. A breakdown on EURUSD would also not help the bulls and I'll be watching the support levels at 1.302 and 1.30. until then I'm still favoring another move up into range resistance on ES, SPX and Dow, but with much less confidence than I was on Wednesday or Thursday morning.