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Tuesday, 13 November 2012

Downside Targets

I've been giving some serious thought to downside targets on SPX this morning and, working on the assumption that we are still in a cyclical bull market unless we see a clear break of the 100 WMA, I have a target zone in the 1310-30 area. On the 60min chart there is a decent and perfectly valid sloping H&S targeting the 1325 area. The neckline has already been retested just after the break below it but I'm thinking it may be retested again as the declining channel on SPX has just about held so far and I have a nice looking target at the intersection of the broken neckline and declining channel resistance early next week in the 1404 area. That may not happen but it is an attractive scenario and might well be a good fit with a test of the rapidly declining daily middle bollinger band and the 100 DMA in the same area then:
What are the chances of a major swing low near here? Not good at all in my view. The rising wedge that has just broken down on SPX is very nicely formed, and it would be a rare event for a pattern like this not to follow through to the downside. That said a strong bounce after the break wouldn't be rare, as the break is sometimes the signal for a topping pattern to form, like the double-top that formed after the break of the rising wedge on CL (2nd to last chart below). That is less likely here however because we have a clear topping pattern already in the SPX H&S on the 60min, and that has established decent neckline resistance on SPX just over 1400. Here's the rising wedge on the SPX daily chart, and while rising wedges are bad at making the full technical target (the October 2011 low in this case), they are good at delivering a significant downside move after the break downwards:
On the weekly chart I mentioned last week the setup on the weekly bollinger bands that targets the weekly lower bollinger band on the clear break below the weekly middle BB that we saw last Friday. That target is now at 1344.24, and there would be no need to reverse there. Also marked on the weekly chart is the 100 WMA which is key support if we are still in a cyclical bull market. That's now at 1317.58 (and rising gently), which is a good fit with the H&S target on the SPX 60min chart:
Looking at other markets EURUSD has been sliding down my support trendline the last few days. Since I capped this chart it has had a boost as the EU is reportedly throwing another 44bn Euros onto the greek debt bonfire. That may deliver a decent bounce with the obvious target at strong resistance in the 1.279-1.28 area:
I'm not looking for a major reversal on EURUSD here though. The pattern setup there is pointing to support in the 1.244 area and DX too is looking higher. I've been treating this move up on DX as a counter-trend move and you can see why on the 5 year DX chart below as there has been a clear break of the uptrend from the 2011 low. There is also a large H&S that may be forming here on DX, and the ideal right shoulder high would be in the 82 area, slightly above the W bottom target in the 81.8 area. If we see big reversals on DX and EURUSD anytime soon, that is the most likely area to see that:
On CL a strong support shelf has been established at 84.3 7 and this is still a good place from which to look for a test of declining resistance. That will intersect the big resistance level at 88 in a few days and that would be an attractive target. I was asked about the nice looking H&S on the CL chart yesterday and I have mentioned that a couple of times previously. That's in the mix here but I'm not treating it as a high probability pattern because the neckline at 88 was only 41% or so into the previous uptrend, and the track record for similar H&S patterns that I've seen in the past isn't impressive:
The last chart for today is GDX, where I have a double-top target in the 46.55 area. A declining channel has formed that looks like a bull flag in the context of the previous uptrend so I'm doubtful about this making the double-top target unless we see an hourly close significantly below declining channel support:
The immediate support level on ES is at the overnight low last Thursday at 1363.5. Main resistance is in the 1387/8 area, with intermediate resistance on the way there at 1381.75. As I said yesterday I'm leaning bearish unless we see a break above 1387/8 resistance, but I have a very short term double-bottom target on the ES 15min chart in the 1376/7 area. Even on a break over 1388 on ES I would be doubtful about seeing a move much over 1400 in the context of the bigger picture on SPX.

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