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Tuesday, 11 December 2012

Chop Chop

A choppy day yesterday with SPX closing up less than a point. On the daily chart SPX is still struggling at the 50 DMA at 1417. If it can break above (daily close basis) then the next target will be the upper bollinger band in the 1438 area:
It's still worth noting from the SPX 60min chart that there are outstanding upside targets for a falling wedge and IHS in the 1433/4 area. I marked up the strong resistance zone 1420-30 on this chart a couple of weeks ago and as you can see, SPX is still testing the underside:
On NDX the high yesterday was another fail in the 2660 area. This is key short term resistance and if NDX can break above that opens up a run to 2700. Right here the bearish possible H&S is still very much in play however:
On the NQ 60min I have sketched in what I see as the three highest probability paths here. The first is a big reversal here to play out the bearish H&S. The second is a break up here to the 2700 area to test serious resistance in that area and fail there. Both of these scenarios have targets not far above the November lows. The third is the Santa Rally scenario where 2700 is broken with confidence with a target in the 2900 area.I'm somewhat doubtful about this very bullish scenario, but you can see that the symmetry between the left and right shoulders looks good so far. The thing we have to see now for that scenario is NQ break over the strong resistance levels in the 2660 and 2700 areas:
Looking at other markets, all three of EURUSD, CL and TLT are leaning bearish for equities over the next few weeks at the moment. On EURUSD the ideal right shoulder high for the possible H&S forming there is at a test of strong resistance in the 1.30 area, and the overnight high was 1.2996. This is an obvious reversal area and if this H&S completes and plays out I have the target in the 1.263 area. A conviction break over 1.30 would weaken this bearish setup considerably:
The overall setup on CL is bearish due to the overall declining channel there. Short term there was a marginal new low on some positive 60min RSI divergence overnight. If CL can break over declining resistance in the 86.10 area then we could see a decent bounce:
On TLT the tentative rising wedge I was looking at yesterday is still in play, and wedge support is in the 124.6 area today. As long as this holds the next obvious target is a strong move up into wedge resistance in the 129 area, which would look rather bearish for equities. As this is an early stage pattern a break down now would just kill off the developing pattern without giving a target:
NQ is back at 2660 as I write this and this is a key area today. If it can break back above and hold above the next obvious target is the 2700 area. If we are to see another reversal this week though, this is the first likely place to see that.

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