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Tuesday 27 November 2012

Mixed Signals

Yesterday was weak on SPX as expected, but the seasonality today doesn't give a clear direction and the signals are mixed. On the daily chart SPX held above the daily middle bollinger band and broken trendline resistance, but the daily candlestick was a hammer, which after an uptrend often signals retracement or consolidation. I've marked some examples on the chart below:
On the 15min chart SPX has not yet established an identifiable support trendline, which suggests that we may  see a retracement to establish one. I've marked in a possible rising channel support trendline that would fit with a test of 1390 area support on a retracement today:
The upside and downside scenarios today are best seen on the ES 60min chart, where on the bear side we have a possible double-top established on negative RSI divergence. The target would be in the 1383 area on a clear break below yesterday's low. On the bull side there is a clear ascending triangle that has formed over the same timeframe, and has an upside target at 1428.5 on a clear break over 1408. These patterns break up 70% of the time and on an upward breakout they make target 75% of the time. .

Resistance is clear on ES and a break over 1408 would look bullish. Triangle support is currently at 1401 and the 50 hour moving average is just below. On a break below 1400 I would therefore be leaning bearish and looking for the retest of broken resistance at 1387/8 that we didn't see yesterday:
EURUSD is leaning bearish here, as there was a marginal new high last night on negative RSI divergence. On an hourly close below 1.294 the double or M top target would be 1.288, just above the strong support level in the 1.2875 area that I mentioned yesterday morning:
Regardless of what happens short term I'm definitely favoring the bull scenario for the next few weeks as long as ES holds over the key 1387/8 support level, and the last two charts are oil and copper, both of which look supportive of that scenario. On CL we have a falling wedge that has broken up, and a nice looking double bottom formed that will target the 94.3 resistance area on a break over 90. Short term the decent support trendline from the last 85 area low is worth noting, and if we see a break below that we could see another test of the 85 support area:
On copper there is a nice looking symmetrical triangle that has been forming for almost 15 months now. I looked at this as a long trade setup in my weekend post a couple of weeks ago and it has been performing well. The next upside target within the triangle is in the 380 area of course and, to the extent that 'Dr Copper' is a lead indicator here, it is clearly pointing upwards:
Overall I'm leaning towards seeing some more retracement today, but I will be taking my lead from the ES 60min chart where a decent break over 1408 will look bullish and a decent break below triangle support and the 50 HMA in the 1401 area will look bearish. A word of caution on 1408 however, as false breaks are often seen on triangles and I have a strong resistance level on ES in the 1410.5 area. Until we see an hourly close over 1411 I'll be cautious about the triangle making the upside target.

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