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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.

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