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Thursday 28 February 2013

Vix Buy Signal

SPX took the green pill yesterday, breaking over the double-bottom trigger level and making the double-bottom target and more by the end of the day. Is the retracement low then in? Not necessarily but the odds that the low is in have obviously increased considerably. On the SPX daily chart it's worth noting that both of the main highs in 2012 were followed shortly afterwards by retracements to the lower daily bollinger band and bounces back to the top. However I don't think the current high was a main high. SPX closed 5 points over the daily middle bollinger band and if we see more upside the obvious target is at the daily upper bollinger band in the 1532 area:
There wasn't any positive divergence on the SPX 60min RSI at the low this week but there was on the 15min chart, so I'll show that today. As you can see SPX fell just short of declining resistance from the high yesterday and if the setup on this chart is a broadening descending wedge then the obvious target would be there:
ES has reached the equivalent declining resistance there and is showing some negative divergence on the 60min RSI. The chances are that we see some retracement here and primary support is at the important 1510/1 level. Secondary moving average support is in the 1504 area and if we see a break below 1500 then the chances are that a new move down to at least test the current low has started:
The big news yesterday though was that a Vix Buy (equities) Signal was confirmed. These have a mixed record historically, and the only confirmed Vix Sell (equities) Signal on the chart below was a complete washout, but  it's worth noting that the last four confirmed buy signals have all delivered the goods as you can see on the chart below. Vix is still above daily middle bollinger band support at 14, but if we see a close significantly below that would also be a significant signal that another move up is in progress:
CL is still holding important 91.3 to 92 area support but has not bounced in sympathy with SPX as yet. The next move should give more clues as to direction but there's not much to see right here:
EURUSD broke over the double-bottom trigger level overnight but has found resistance at established 1.3157 area resistance so far. The pattern target is 1.323 if EURUSD can break over that:
For this morning I'm expecting some retracement of yesterday's run up on ES. If we see a conviction break below 1510 then the bears are in with a shot at more downside to a lower low. If it holds and SPX/ES break the last high, then the retracement low should already be in. The stats for the last day of the month lean somewhat bearish, and the stats for the first day of the month tomorrow lean strongly bullish.

Wednesday 27 February 2013

Either Way Day

SPX hasn't yet reached an important area for support or trendlines. While that doesn't necessarily mean that the low isn't in, I'll be assuming that it isn't unless we see a conviction break on SPX over the 1515/6 resistance area. I'm torn as to whether the current topping pattern on SPX is a very ugly H&S or a double-top, but either way the high yesterday was a retest of the broken pattern support level. This is important resistance today:
On ES we are still in bear flag territory, but after the retest of the lows yesterday a possible double-bottom has formed. I was looking for failure at the 50 hour moving average this morning and that was ambiguous. If we see a break over 1497.75 the DB target would be in the 1513 area. That would take ES into a dangerous area as there is strong resistance at 1510/1 and the 200 HMA is at 1510. I wouldn't like to see any sustained break over that level:
I'm expecting the downtrend on EURUSD to go further as well, after the break below rising support from the 2012 low, and in the context of the very bullish looking setup on DX. Short term though a double or W bottom may well be forming and the upside target would be 1.323 on a break over 1.3122:
CL is finding some support at the top of the important 91.3 to 92 support area. We could see a bounce here and I have important resistance, and a possible IHS neckline, in the 94.5 area. There is no RSI divergence here, but the marginal new low after a strong spike up is a classic bottoming sequence and I'm wondering about a strong bounce here:
TLT has made the double-bottom target at 119.65. There's no strong reason to reverse here but the pattern is no longer in play. As I mentioned yesterday, my ideal target would be in the 120.4 to 120.85 range:
AAPL is forming a possible double-bottom targeting the 530 area. Falling wedge resistance is in the 465 area and that is major resistance. As I've mentioned often there is a decent chance that AAPL has made a major low at main support on the weekly (LOG) chart, so as long as the current lows hold I'm leaning bullish. If falling wedge resistance breaks that will change to very bullish:
Gold hasn't yet hit the main support area 1523-35. As long as that holds this chart leans bullish, and on the basis of the broken descending triangle, potentially very bullish. Declining resistance from the 1798 high is primary resistance:
As long as yesterday's highs hold on ES the next obvious move is downwards toward the double-top target in the 1460 area. If we see a break above then there will most likely be a fight for control at the 1510/1 broken support level. If we see a clear and sustained break above that then the retracement low could be in. Until we see that though I'm leaning strongly towards more downside.

Tuesday 26 February 2013

Support Areas

ES made a high yesterday with some negative 60min RSI divergence and that high was within the range for a decent double-top. The double-top target is at 1460. ES is rallying at the moment but it looks like a bear flag and I'm assuming more downside soon. There is no positive divergence on the 60min RSI to warn of any low and there's no reason to think that the double-top won't play out further. First resistance in the 1495 area at the double-top valley low and on a break above the 50 HMA is at 1503.75:
The ES double-top is mirrored on the SPX chart, where the target is 1465. There is possible support at rising support from the November low in the 1470-5 area:
Looking at the SPX multi-timeframe charts there are two obvious levels with decent support, and on the SPX daily chart they are represented by the 50 DMA at 1476, fitting with rising support from November, and the 100 DMA at 1446, fitting with the weekly middle bollinger band and broken resistance from the start of 2013. The obvious downside target is one or the other. The double-top target fits with the lower support level, and the stats for the weekly bollinger band slightly favor the higher. On the daily chart below you can see that SPX closed below the daily bollinger band yesterday and that favors a more two way action decline going forward from here:
On the weekly chart the middle bollinger band is now at 1448:
On other markets the double-bottom on TLT that I've been watching broke up and almost made target yesterday. The obvious upside target here in my view is the possible H&S neckline near 120.4 or the gap fill just above that:
CL made the little IHS target yesterday before the downtrend resumed. CL is now hitting significant support at the resistance zone for the Oct to Dec 2012 bottom:
EURUSD also resumed the downtrend there but instead of the EURUSD chart I'll look at the DX chart today for the bigger picture. There we can see that DX has broken up from the double-bottom that I have shown before, and has moved above the potential failure area just above the pattern trigger level. The target is the 2012 highs and I can see no reason to think that DX won't get there. The formed and failed H&S setup gives a higher probability in my view that the retest of the 2012 high will deliver the second high of a double-top:
As I have been mentioning, this recent high is only an interim high in my view and I'm expecting new post crash highs on SPX after this retracement. Most likely one of the two big support levels in the 1475 and 1450 SPX areas will hold, and on balance I slightly favor the lower target. For today I think ES is in a counter-trend bounce and the obvious failure levels for that bounce are 1495 and just over 1500 (ES).

Monday 25 February 2013

Last Move Up

As I suspected on Friday morning, ES broke above 1510/1 resistance and is heading back for a retest of the highs. My primary scenario has the second high of a double-top forming there and as there were clear 60min RSI divergence signals at the last high and low on ES, I'll be looking for that near the retest of the highs. The ES 60min RSI is already back to overbought so a signal may well form. I have trendline support from the low in the 1511.5 area and we may well see a decent retracement before the highs are retested:
Are we necessarily going to see the deeper retracement that I am looking for after the highs are retested? No. I was expecting a retracement here that would at least retest the SPX daily lower bollinger band and this retrace came within a few points of doing that. The minimum retracement requirement has therefore just about been met. On the SPX daily chart you can see that the last time we saw a similar retracement in 2012 from negative daily RSI divergence SPX then made the main high some 45 points higher. We could see the same again here, but if we do see the current highs taken out with confidence, this is nonetheless likely to be the last wave up before the main spring high is made:
Nonetheless this would be an unusually small retracement at this stage. The larger 2012 retracement that I am comparing it to was in turn the smallest of the 2010-12 pre-main spring high retracements. The odds favor some more retracement here in my view:
 CL made a nice low with an IHS that has now played out. Main resistance back in the 95.5 area:
EURUSD made a choppier IHS but that has broken up as well with obvious resistance at declining resistance in the 1.336 area:
TLT broke the declining resistance trendline I was watching on the daily chart, and the bottoming setup there is looking good. If ES / SPX make a double-top here and then retrace more deeply I'll be expecting this to play out. Targets on the chart:
I'm in two minds about further downside here, though I'm favoring my double-top scenario unless the current high is broken with confidence. If we see that double-top then this should be an interim top and that deeper retracement should be followed by the final move up into the Spring high. That final move up may however have already started though it's worth noting that EURUSD and CL are both likely in overall downtrends and TLT seems to be bottoming out. These still favor more downside on equities.

For today I'm expecting to see some early retracement on ES, with likely support in the 1512-17 range before a run at the highs. 1510/1 should now be firm support again and if we see a break below then the next move down may already have started.

Friday 22 February 2013

Bounce Options

ES went lower after the open yesterday, but the positive divergence on the 60min RSI only increased in force and we are now seeing the bounce from that. It is possible that the retracement low is in, but I don't think so, I have two main scenarios here and both are assuming that a topping pattern is forming that would target the 1460 ES area, which is a decent fit with the main downside targets that I was giving yesterday. The first option is that an H&S is forming, in which case the ideal right shoulder high would be in the 1511 area. The second is that we have seen the first high of an interim double-top, and if we see a confident break over 1511 today this will be my main scenario. That would obviously assume a test of the current highs. Here's how that looks on the ES 60min chart:
I tend to prefer pretty H&S patterns and I have to say that this one is not pretty on either ES or SPX. That increases the chances of the double-top option in my view:
What are the chances that the retracement low is already in? I don't think it is but much depends on what happens on TLT and DX particularly over the next few days, and it's worth noting that the low on NDX yesterday hit major support in the 2700 area:
TLT has been forming a nice looking double-bottom setup that I have posted two or three times over the last few days. For this to play out the first key resistance level is at declining resistance from 125.52 and that was tested yesterday. If that breaks then the break opens up a lot of upside for a bounce but it must obviously break first for that to happen:
I've been putting the bull case on USD for the last few days, and we are now at the key moment of truth on DX. The double-bottom I've been looking at has triggered but there has been no confident break above 81.5 as yet. When double-bottoms fail this is where they fail so we need to see what happens here. Looking again at this setup I see that the conservative target is in the 84 area rather than the 83.5 area I gave yesterday, so this points directly to a test of the 2012 high:
In the short term I'm seeing some retracement on DX as likely in any case here, because EURUSD is forming a nice looking short term double-bottom at established support at 1.357 on strongly positive RSI divergence. On a break above 1.3245 the double-bottom target is in the 1.333 area and declining resistance is now at 1.338. On a break below 1.315 I have the likely target in the 1.29 area at both trendline and level support there:
On CL the double-top target is in the 92.4 area, and the low yesterday was at 92.6. That's close enough to qualify as a hit. There's no strong sign of reversal yet and a possible bear flag is forming:
I didn't post the copper chart yesterday so I'll close with it today. I have strong trendline and symmetrical triangle support on HG in the 350 area and that hasn't been hit yet. This pattern has now been forming for 18 months and it will be very interesting to see which way it will break:
So what should we see today? On my H&S scenario the bounce is almost played out, and we should see reversal at or near 1511 ES. We'll see how that goes. For my double-top scenario I'm watching a possible small IHS on ES with the neckline at 1510 and the target at 1525. If the right shoulder forms on that pattern we should see a reversal here to 1506/7 and then a break over 1510/1 resistance. The key levels to watch this morning are 1510/1 and the 50 hour moving average at 1508, so ES is currently trading above the 50 HMA. If it holds above and breaks up through 1511 that will obviously strongly favor a test of the current highs.

Thursday 21 February 2013

About Time Too

Just as I was becoming concerned that SPX would rise enough to unravel the very nice looking interim top setup on the daily RSI, we have finally seen the initial decline that should mark the start of the decline from that interim top. SPX closed on the daily middle bollinger band and it's just possible that the decline is now complete, but the odds favor more downside and I'll be talking about downside targets today, putting off my look at the resistance levels at the 2000 and 2007 SPX highs for a few days. Here is the SPX daily chart below showing the hit of the middle bollinger band with lower bollinger band support now in the 1490 area:
On the SPX 60min chart there is only one obvious target for this retracement and that is at rising support from the November low, now in the 1465-70 area. As I have shown on the chart this would also be a decent fit with a 38.2% fib retracement of the move up since the November low. There is an alternate scenario that I am considering and that would involve the formation of an H&S at the strong 1495/6 support level That would have a target slightly lower in the 1460 area and that would be an exact fit with that 38.2% fib retracement:
Short term for today however, ES is showing strong signs of reversal, with strong positive divergence on the 60min RSI. I have a couple of scenarios here. There is obviously now resistance at broken support in the 1511 area, but I also have a possible IHS neckline in the 1509/10 area. If that was to form and break up that would target the 1517-9 area, for a test of the 50 hour moving average, which is now a key resistance level. That would obviously need to hold, though a break above might well be to form a double-top with a target in the 1470-5 area, also a decent fit with the obvious SPX targets:
There is a word of caution to add here though looking at the SPX weekly chart. Where I think we are now is at the interim high before the main spring high that will precede the usual summer retracement. We have examples of similar setups in 2010, 2011 (cyclical bull market top) and 2012. Of those 2012 saw the smallest retracement at this stage, just to the daily lower bollinger band, but the 2011 interim top retracement made it to the weekly middle bollinger band (now at 1445) and the 2010 interim top retracement made it all the way back to the weekly lower bollinger band (now at 1350). I'm not expecting a move below very strong support in the 1450 area, but it's worth bearing in mind:
I'm struggling to keep the chart count down today, and will just mention that copper has broken down with triangle support at 350 and primary trendline support (poss H&S neckline) at 332. Oil reversed at 97 resistance yesterday and broke below the trigger level at 95 for a perfect double-top targeting the 92 area. I'm expecting this pattern to make target. For the chart after this one I would like to draw your attention to this topping sequence on CL, with the initial support trendline break, the H&S that formed and failed, and the second high of a double-top made after that H&S failed to break downwards:
The next chart is the DX chart, and I was talking about the possible bullish setup on this yesterday morning. Since then EURUSD has broken both short term support and rising support from the 2012 low, which is very bearish. On DX the bounce from the neckline of the completed H&S pattern has broken above the right shoulder high of this H&S and a double-bottom has triggered with a target in the 83.5 area, not far below the test of the 2012 high. I'm expecting more upside, we may well see that 2012 high tested, and that test could well be the second high of a double-top, just as we have seen on an identical sequence of events on CL in 2013. Meanwhile, despite the best efforts of the Fed to debase the currency they are charged with protecting, the outlook for DX here is looking distinctly bullish:
I posted a chart earlier this week showing the test of primary rising support from the 2008 low on silver. Silver has now broken below that and the outlook for precious metals is now looking bearish. The next target for silver is a test of the very strong support level in the 26.10 to 26.30 area and that could well hold, as gold is also likely to be testing strong support at the same time. If silver breaks below that I will be looking at the next very strong support level in the 19.5 area. I'm still bullish on gold and silver longer term and if we should see silver test the 19.5 level I'll be looking to go long there:
I was asked about CADUSD after yesterday's post as I hadn't included it in my USD analysis. I hadn't included it because it is under 10% of the USD index, albeit only just under, but I'll close with that today. The overall setup on CADUSD looks bearish, with the 2011 high still unchallenged and a rising wedge target in the 76.5 area, though I wouldn't treat that as a high probability target. I have two key support levels on CAD to watch, which are possible but currently very theoretical rising channel support in the 97 area, and trendline support in the 96 area. That trendline support in the 96 area is the neckline on a possible H&S that would indicate to the 81.5 area on a clear break below 96, though I don't much like the pattern as the right shoulder has taken twice as long as the left shoulder to form. It is still worth noting however and a break below 96 would look bearish with next important support at 93.84. I've also done a chart on AUDUSD that anyone interested can see here:
For today on ES I'm leaning towards a bounce , as I've detailed above the ES chart third from the top on this post. If we see a strong reversal at 1510/11 then the next big support level (and candidate H&S neckline) is at 1491. A bounce there would have a right shoulder high target back at 1510/11 resistance. As I mentioned earlier, a clear break above the ES 50 hour moving average, now at 1518.75, would suggest a retest of the highs before (most likely) more downside.

Wednesday 20 February 2013

Currency Wars

SPX rose to hit the daily upper bollinger band again yesterday. That is significant resistance, so the chances are that any further moves up this week will be incremental, delivering two to four points of increase in a day. The negative divergence on the daily RSI has a little more room here, but will most likely be killed off as a signal if SPX should reach the 1540 area:
On the weekly chart, as I mentioned on Monday morning, the upper bollinger band is in the 1545 area, and that is the level of potential upside into the close on Friday, with a close significantly above this band unlikely. If that level is reached then SPX will be approaching the strong resistance levels at the 2000 and 2007 highs, and I'll be talking more about those tomorrow:
CL has bounced as expected, and is testing the 97 area resistance level. That may hold, but if there is a clear break above then we should see the current highs just above 98 retested. Strong support is at 95:
I want to look at the dollar in some detail today as, though the surging equities part of the QE script is playing out, the strong USD decline that was expected to accompany that is not playing out so far, and may not. The largest component of the USD index at 57.65% is the Euro, and EURUSD has seen significant gains against USD this year. The ECB is however now making comments obviously designed to slow or reverse this rise on the Euro, and that may be successful. Short term I'd like to see EURUSD hold rising support from 1.30 at 1.334, and if that does hold there is a nice bottoming setup targeting the current rally highs:
The US dollar however is close to where it started the year, and though a perfect bearish H&S has formed indicating far lower on a break below the H&S neckline, USD has so far reversed strongly after completing the pattern. If USD should rise over the right shoulder high at 81.46 I will be inclined to disregard this pattern and will start wondering seriously about a retest of the 2012 high at 84.10:
Why is USD not falling? Well that's because apart from this oversold rally on the Euro, USD is rising strongly against the other main currencies in the USD index. The largest of those is the Yen, at 13.6% of the USD index, and I posted a chart in November when JPYUSD was at about 126 showing the extremely bearish setup there and giving a main target in the 105 area. After a wild decline since then the Yen has made it to 105.86 and I am treating that H&S target as made. The weekly RSI is very oversold and we could well see a bounce here, with the obvious target in the 114-6 range. That may be the right shoulder forming on a much larger H&S targeting the 80 area:
The next largest USD index component is the British Pound at 11.9%. That has also declined very strongly against USD this year and is testing triangle support on this trading hours chart. That has broken overnight and rising support from the 2009 low has already broken, so I'm not optimistic about GBPUSD holding this level. On a clear break below the obvious target is the major long term support zone between 1.36 and 1.42, and we might well see those tested:
Given the massive money printing at the Fed one might expect USD to devalue, but the Fed is not alone in this of course. Money printing has also been very big in both Japan and the UK, and both have expressed a desire to see weaker currencies to boost exports. To an extent one shouldn't really view any of these currencies rising in absolute terms, as it would be more accurate to see them as all falling at different speeds, with Yen and Sterling being the current leaders in the race to the bottom. If the ECB should join in to devalue the Euro then we could see a major rally on USD regardless of the Fed's attempts to devalue. We shall see.

Short term on equities I'm not seeing much reason to expect weakness on the 60min charts. I have moving average support on ES in the 1517-22 range, and if we are to continue this rise into the end of the week I would expect to see decent retracements followed by pushes up intraday. Very strong support levels have been established on ES in the 1511 and 1491 areas, and if we see either one retested now then a topping pattern should be forming. Until we see that the default assumption should be that equities will continue to push upwards.

Tuesday 19 February 2013

Looking at Europe

SPX traded sideways yesterday and is close to testing the recent highs in the pre-market. This isn't encouraging for the chances that the candidate double-top on ES and SPX will play out today, but it's worth noting that the daily upper bollinger band is now at 1528, so there is some decent resistance close above the recent highs:
On CL the short term low looks likely to be in, though I was expecting a more precise test of the 95 area support level. It may be that we will see that test after a bounce:
The bottoming setup on EURUSD is looking increasingly good. This may be a significant retracement low. On the chart I've divided the action on EURUSD over the last few weeks into two ranges, 1.33 to 1.35, and 1.35 to 1.37. The technical double bottom on EURUSD actually indicates a bit higher, but if EURUSD can break back over 1.35, I will be expecting a move back to test the current rally highs in the 1.37 area:
I'm still leaning towards SPX being in a lengthy interim topping process. Just to be clear I'm expecting more upside after that retracement however. The negative divergence on the daily RSI looks very promising and is supported by numerous other indices. After a request to look at these a few days ago, the ones I will show today are from Europe.

First the German Dax. The negative divergence on the daily RSI is even more marked on the Dax, and Dax has actually been retracing throughout February. Neither of the two obvious rising support trendlines have yet been hit and I'm expecting more downside:
Second the FTSE. This also has strongly negative RSI divergence on the daily chart and has seen a marginal higher high in February. A very nice looking double top is forming with a target in the 6030 area, though there is strong support on the way in the 6100 area at the 2012 highs. Again, more downside seems likely:
I've been posting the symmetrical triangle on copper futures once a week or so and have been wondering whether this might finally break upwards to support further rises on equities. It's reversed at triangle resistance instead however, and on a break of the short term support trendline the target is main triangle support in the 450 area:
If we are working from the usual seasonal script here, then we should see a potentially very sharp retracement sometime in the next four weeks, followed by a higher high in the late March to early May period, before a larger decline in the summer. The obvious place to see that first retracement is here, given also that Februarys tend to close flat or down. Will it actually happen? Hard to say, but with significant daily negative RSI divergence more or less across the board on US and international equity indices, including on the US leaders TRAN and RUT, this is a risky area to be long short term.