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Wednesday 21 November 2012

Not Staying Here Long

There was an encouraging break downwards yesterday afternoon on SPX and ES, but it didn't last, and it wasn't the right shoulder on the possible IHS forming on both charts. Will we form that right shoulder? I like the setup but the stats for today and Friday are strongly bullish, and strongly bearish for Monday. For this right shoulder to form would require almost exactly the opposite of that. We'll see. Here's the setup on ES, with negative 60min RSI divergence having reached such heroic proportions that I would no longer regard this as viable reversal signal:
As with ES, SPX is stalled at the potential IHS neckline, and as I mentioned yesterday, there is double trendline resistance in the 1405 area:
I've been looking at bollinger band stats again today, and I have thirteen decent bounces from the daily lower bollinger band since July 2011. Of those bounces, all but one hit the middle bollinger band before then moving to the upper or lower BB again, so that is very high probability. That doesn't look hard however as the lower BB closed at 1396.5 yesterday, and should be at least a couple of points lower today. I would regard a hit as being within 5 points and the high yesterday was a whisker under 1390 SPX. As long as SPX trades at resistance sometime today, and doesn't drop a long way before the close, that target should be hit today.

That is still worth noting however as SPX reversed strongly at four of those hits without closing above the middle bollinger band. On an intraday break above the middle BB today we could see a retest of broken rising wedge support in the 1400 area and that is also a serious resistance level:
On the weekly chart there have been nineteen decent bounces from the lower bollinger band in the last seven years, and of those nineteen, fourteen hit the middle bollinger band again without another hit of the lower bollinger band first, with two near misses. It's worth noting that all five misses were in bear markets with four of those in 2008. The middle bollinger band is currently at 1411 and that gives a close to 75% probability that SPX should reach at least 1406:
On other markets TLT almost reached my retracement target just above 124 yesterday. There is an obvious potential  reversal level there and the 60min RSI has reached oversold:
I've been having a very careful look at the EURUSD chart and the potential IHS there is just too ugly for me to consider seriously. What I do have is a rough bullish broadening descending wedge with wedge resistance currently at 1.2815. If we see a break over that though, I have an alternate (not rough) wedge resistance trendline at 1.284 and there might be resistance there to establish a better quality wedge trendline. On a clear break above both this would be a bullish looking setup, with a possible IHS neckline in the 1.2875 area:
CL was very interesting yesterday. I said in the morning that if the pattern there was a falling wedge, then I would expect a reversal to confirm that upper wedge trendline. That happened, but not in the way I expected as CL broke below it and confirmed it from underneath. Nonetheless this is a bullish confirmation and on a break over 90 CL has a very strong bullish setup to make it to the 94.3 resistance area. There is one caveat here though as 30% of falling wedges break downwards. Until we see that break over 90 I would bear in mind that this break up could still be a bearish overthrow, and the downside target would then be in the 60-65 area. Short term I'm bullish as long as the short term support trendline marked on the chart holds:
We're in a situation here where a weak day will look bullish,and a strong day will look bearish. There are a lot of strong resistance levels in the next 20 points up from resistance here, and there is no bull pattern currently to force SPX up over those. A break of resistance today and a move up into the 1395-1405 SPX area will have me looking for a top. On a break downwards today into the 1360s we would have a strongly bullish setup forming that could deliver a 70 point move up from there. Either way we are close to a significant inflection point, and we won't be staying near this level long. Everyone have a great Thanksgiving and I will be doing my next post on Friday morning.

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