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Wednesday, 6 February 2013

No Free Lunches

The very nice looking topping setup on SPX that I was looking at yesterday morning is developing nicely. I mentioned yesterday morning that if we saw a break back over the 50 HMA on ES then I'd be looking for a test of the highs and a possible double-top reversal and that's coming along very well at the moment. Is it a sure thing? No, there is truly no such thing as a free lunch for traders, but the setup is nice and the odds historically are strongly in favor of seeing the first decent retracement of the year here. Here's the double-top setup on the ES 60min, with a target in the 1470 area on a clear break below 1490:
This double-top setup is strengthened on ES by being mirrored on SPX, where a clear break below 1495 will trigger a target in the 1476 area:
As I mentioned from the daily chart below yesterday, the obvious target for a setup like this one is the daily lower bollinger band, now at 1454, with trendline support from the November low just below in the 1445-50 area. There is some support though at the middle BB in the 1488 area. It is worth adding here that the extremely bearish broken rising wedge and double-top scenario on SPX and Dow is still in play here. I had been hoping for a SPX high in the 1530 area to weaken that and confirm a bull scenario for the next quarter. Nonetheless I won't be considering this bear scenario seriously (target 1175 SPX area on a clear break below 1370 SPX) unless we see rising support from the November low break down:
EURUSD and CL both look supportive of a retracement on equities here. The setup is weaker on EURUSD, as a lower low than Monday's is required to confirm a downtrend, but EURUSD is in an unconfirmed downtrend here with the obvious targets at the rising support trendlines in the 1.325 and 1.315 areas:
CL is already in a confirmed downtrend and is close to a test of the strong support level (and possible H&S neckline) in the 95 area. The double-top target on CL that I gave on Monday is at 95 so once that is tested that pattern is played out:
As I have been writing this ES has broken back below the 50 and 100 HMAs in the 1501 area and is now testing the 200 HMA in the 1499 area. I'm expecting that to break and the real test for today should come at 1490. My feeling is now that ES has most likely topped rather than being in a topping process but we will need to see that break below strong support in the 1490 area to deliver the rest of this retracement scenario.

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