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Tuesday, 18 December 2012

Turning Up

Yesterday was a very nice day on the long side. I led with the nice bull setup on ES with a target in the 1427 area in the morning and that target was made by the close. I went long shortly before I capped that chart and closed out after the close so I had a very good day.

What now? Well short term the odds favor gap fill and some retracement today and the short term rising support trendline on ES from yesterday's lows broke a couple of hours ago, so ES may well be topping out short term before that likely retracement closer to the open. Looking around longer term I'm seeing mainly bull setups here, and I'll run through some of those.

On the daily chart SPX is approaching resistance in at the upper bollinger band in the 1435 area. In the event that we are starting a trending move however, and yesterday's move did look impulsive, that just means that SPX would start to push the upper bollinger band upwards. Strong support is in the 1411-16 area at the middle bollinger band, and the 50 and 100 DMAs, and I'll be leaning bullish overall as long as that area holds:
My main upside target here is on the SPX weekly chart. I've shown this seven year chart before showing 14 hits of the middle bollinger band from the lower bollinger band over that period, of which 11 broke up, and 9 of those made it to the weekly upper bollinger band. That upper bollinger band is my primary target here, currently at 1471, and obviously that would be a potential double-top area for SPX:
On NDX the IHS is weakened badly but isn't altogether out of the game. However Bulkowski warns that an extended right shoulder weakens these patterns and I agree. On a clear break over 2700 the 2900 area target can no longer be relied upon. However there is a nicely formed rectangle now, these being a classic pattern developing from a potential double-top that doesn't deliver, and the target there would be in the 2770 area on a break over 2700. I've found these to be solid performers in the past:
It is the AAPL chart that is looking particularly interesting on the bull side this morning however, and while sentiment is now very against AAPL, just as it was very in favor of AAPL when I started looking at the topping setup there in September, there really is a nice potential bottom setup here. I've outlined the parts of this bull setup on the chart below but in summary we have this:

A broadening descending wedge formed from the high and then broke up last month. These wedges are bullish but I've observed before, as with rising and falling wedges, that the first break often just signals the start of the reversal process,and there is a very good example of exactly that on this chart with the rising wedge that formed from the November low. Since that reversal from the 200 DMA we have seen a possible falling wedge form, but with a very nice resistance trendline now in the 522 area. The marginal lower low yesterday was on significant positive divergence on both the 60min and daily charts.

As long as AAPL can hold the area for yesterday's lows, this setup looks bullish medium term, with a very nice possible double-bottom setup with a target at 687 on a conviction break over 595. Long term this may just be setting up a double-top on AAPL, but for now this setup looks bullish. Short term a break over 522 should signal that the short term downtrend is over or at least ending, and targets the last high at 594.59 with significant resistance on the way in the 555 area. I'll be watching for that break over 522:
On other markets CL is approaching a test of the declining channel there and that is at 88.8 this morning. A clear break above would look bullish and I'd then be looking at the resistance levels in the 90.2 and 94.8 areas. A reversal at or before declining channel resistance would leave the overall bearish setup intact:
EURUSD is now within striking distance of main rising channel resistance in the 1.3225 area, and I'll be looking for signs of reversal there. Shorter term rising channel support is in the 1.316 area:
I've noticed quite a few people looking for long entries on Yen after the strong recent decline. I posted the JPYUSD chart a few weeks ago showing the broken rising wedge and possible sloping H&S forming there. That H&S has now completed forming and broken down. The target is in the 105 area and any bounces should be sold in my view. Rarely have a technical setup and disastrous fundamentals been so in sync as they are with this bearish setup on the Yen
For this morning I think ES is most likely topping out before we see a gap fill and retrace. There is decent support in the 1430 area now however and that will obviously have to break for that retrace to happen. Unless we see the strong support area 1411-16 SPX broken I'll be treating any shorts as counter-trend and looking for a buyable dip to form on this retrace.

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