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Thursday 28 March 2013

ES Triangle Breaks Up

ES failed to make the top of the current channel on the last move up and formed a small triangle. That has now broken up and another test of the current high looks likely. If ES breaks above then channel resistance is now at 1566:
On the SPX 60min chart the possible double-top is still in play. If we see a move up to test the next big resistance level at the 2007 high at 1576, then this would be more likely to be an early stage H&S forming:
The daily upper bollinger band is also at 1576. Middle BB support is now at 1548:
CL bulldozed through negative RSI divergence yesterday and is close to testing 97. The current move up has the look of a bearish rising wedge however:
There's been a lot of talk about USD this week, and the prospects for a big USD rally over the summer. That could happen, as even though the Fed is printing hard, and this is obviously a form of devaluation, the components of the USD index are in the main looking even weaker. From a technical standpoint however I have concerns about this in the short term. The USD rally established a strong support trendline which broke a few days ago and was then recovered. The conservative double-bottom target is just over 84, and that is now in reach, but if that support trendline should break again a significant high may well then be in. I'm watching that carefully:
This USD rally only really got going when EURUSD peaked in early February. Until then the Yen and Sterling particularly were falling hard against USD, but as EURUSD is over 50% of the USD index, USD was still trading sideways. Yen and Sterling have been rallying weakly for some weeks now and EURUSD is showing signs that it may be close to some kind of low. CADUSD is 9% of the USD index and I marked in a possible rising channel support trendline sometime near the end of 2012 with some comments. Looking at that chart again this morning I see that CADUSD has bounced there, and so we may have a very significant low now made on CAD. My feeling is that we could see a significant high on USD made very shortly. Here is that CADUSD daily chart without any alterations made this morning:
ES has been dropping since I capped the chart at the top, but at the moment it is only retesting broken triangle resistance in the 1555.50 area. The 50 hour moving average is there as well. I'm leaning long but the RSI setup is ambiguous here, and if we see a break below the last low at 1551 I'd be inclined to interpret it as a sell signal with the obvious target in the 1545/6 area.

What would I like to see happen here? That's an easy one to answer. I would like 1538 SPX to be an H&S neckline, with the ideal top of the head in the 1575-80 range. Since the 2009 low significant highs have all been at big established resistance levels and that is now the last big level standing, and therefore the last chance to see such a high. The H&S target would obviously then be in the 1500 area. I was saying in the last weeks of December that the timing was wrong then for a big decline, which would normally begin in the range between the last week of March and the first week of May. We are now in that ideal topping range of course.

Everyone have a great Easter. My next post will be on Tuesday next week. :-)

Wednesday 27 March 2013

Breakout Coming Soon

If the SPX rising channel had broken down on this recent retracement I would have little doubt that we were looking at topping action here, with a steep channel being replaced with a shallower channel prior to a significant breakdown. The rising channel on SPX has not yet broken down however, so this may just be consolidation.

On the current ES channel an RSI 15min sell signal triggered overnight, but unlike the previous seven signals this was at the test of the last high rather than at channel resistance. This should mean that we are going to see this channel break soon. If we see a break downwards then there are decent looking candidate double-tops on ES and SPX. Here's that reversal on the ES 15min chart:
Short term ES has broken back below the 50 hour moving average and is trying to hold above the 100 and 200 hour moving averages. On a break below 1550 the path is open to test channel support in the 1542.50 area:
On SPX rising channel support is now in the 1530 area and the double-top trigger level is at 1538:
SPX daily middle bollinger band support is in the 1545 area, slightly below channel support on ES:
As I was suggesting was likely yesterday, EURUSD has continued downwards after the break below 1.288. The next big support level is at 1.266, and the last foreign bank depositor to leave the Euro-zone should try to remember to turn out the lights:-)
CL broke back above 96 yesterday, which augurs well for a test of the Jan/Feb highs in the next few weeks. Short term though there is significant negative divergence on the 60min RSI, and CL may have now established a rising channel with the next obvious move being a strong retracement:
The ES 15min is currently on a sell signal and the next obvious target is a test of channel support in the 1542.50 area. If we see a break below then we may well see these candidate double-tops on ES and SPX break down and play out. Rising channel support on SPX is in the 1530 area.

Tuesday 26 March 2013

The ES Channel

The channel I posted on twitter last Thursday is still going strong. I gave the target area as 1538-40 yesterday morning and the low was 1539. As with the previous six reversals within this channel the reversal was signaled with 15min RSI divergence so we are back on a buy signal today:
Channel resistance is now at 1562. ES has been crawling up the 50 hour moving average overnight and will obviously need to break back over it with some conviction to make it to channel resistance:
One thing worth noting here is that there is now a very nice looking double-top setup on SPX. These are best when the two tops are very close together as these are. The target would be 1512 on a conviction break below 1538, though there is obviously rising channel support in the 1528 area now:
On the SPX daily chart SPX is riding up above the middle bollinger band, now at 1542. That is also significant support:
The megaphone type pattern I've been marking up but not talking about much in recent days on CL is a broadening top. I don't much care for these patterns as they are both bad at making target (19 out of 23 according to Bulkowski), and also very misleadingly named, as these are actually direction neutral. For what it's worth this pattern has now broken up with a target back at the Jan/Feb highs. Strong resistance not far above though at 96:
EURUSD tested 1.288 yesterday as I expected and broke below it to a marginal new low. What now? There is still a chance of a strong bounce from here but I think that ship has most likely now sailed. All things considered looking at the EURUSD and DX charts I'm leaning short here on EURUSD, which isn't going to be helped in the coming months by the Cyprus deal, even if everyone involved is claiming that the losses there by depositors and senior bank bondholders set no precedent. That's funny, but much less funny for anyone with large cash or bond holdings in marginal EU countries, and I'm expecting a steady stream of capital from these countries in coming months. Some of that will stay in the EU. Much won't:
I'm definitely wondering about a double-top here on ES and SPX, and we'll see whether ES can reach channel resistance today. If it does, watch the 15min RSI for signs of reversal.

Monday 25 March 2013

Diamond or Channel?

A deal was agreed on Cyprus last night and equities and EURUSD rallied strongly. I follow San's work and he was suggesting on Friday that we might well be looking at a diamond top forming on ES. Here's how that looks on the SPX 60min chart:
If SPX can break up out of this diamond at the open then we might see the 2007 high at 1576 tested shortly. The daily upper bollinger band is now at 1581, so we could now see that within the daily bollinger bands:
This might well however not be a diamond. The ES channel I posted on twitter on Thursday is still looking strong, and after testing channel resistance ES has topped out short term on strongly negative 60min RSI divergence. On ES at least there is now an active RSI sell signal and the obvious target is at channel support in the 1538-40 area:
EURUSD rallied strongly on the Cyprus news, but developed strongly negative 60min RSI divergence as well and has since fallen back sharply. Arguably the ragged IHS I was talking about on Friday morning has made target and main support on EURUSD is still therefore at 1.288. We'll see whether EURUSD can hold there:
I've been drawing in what might be the first half of another diamond forming on CL the last couple of days without commenting on that. CL has rallied sharply overnight but has not yet reached the obvious target there in the 95 area:
If we see ES break up confidently over 1560 today then the target is a test of the 2007 high. Until we see that though the obvious next move is to short term channel support in the 1538-40 area.

Friday 22 March 2013

Point of Decision ... Again

This morning we're looking at very much the same setup as we were yesterday morning, only we have moved to the other side of the looking glass. Yesterday morning we had an active ES 15min RSI sell signal and were sitting three points above the ES 50 hour MA at 1546, and this morning we have an active ES 15min RSI buy signal, and at the time of writing are sitting 2.5 points below the ES 50 hour MA at 1545. I posted an intraday ES 15min chart on twitter yesterday with a channel support target and you can see that ES reversed there with a slight pinocchio. On a break above the 50 HMA at 1545 the target is channel resistance near the current ES high, and that would now be a strong double-top candidate. If we see short term channel support break then main support is in the 1530 area, and on a break below there the double-top target would be in the 1500 area:
Could ES make it all the way back to 1500? If it did I think it might well make the major support area and possible H&S neckline in the 1485 area, but there is some serious support to get through to make it to 1500 ES. The first support is at the daily middle bollinger band, now at 1537. If that breaks the next support levels on the daily chart are the 50 DMA at 1515 and the lower bollinger band in the 1495 area though by then, as I mentioned, the obvious target would be the 1485 area::
The second important support level is rising channel support from the November low, now in the 1523 area. This is serious support, and a break below would signal that the move up since then has either peaked, or at least that the topping process has started:
CL is still holding the strong support area at 92.3, just, but that's starting to look like a losing battle. If CL breaks below there on an hourly close basis the next big support level is at 90:
I have been mentioning every day that we might see a significant rally on EURUSD, despite the ongoing confrontation in Cyprus. The reason I'm wondering about that is that the plunge on the Yen has stalled, Sterling is rallying a bit, and a sloppy IHS that I have been watching form on EURUSD is now almost complete. Looking at the DX daily chart the current move towards the double-bottom target just over 84 has been making good progress and has developed a very strong rising support trendline, but there is a lot of negative divergence on the daily RSI. Either we see a sharp move up here to kill that divergence, or the rising support trendline will break and we will see a sharp retracement on USD. Either way it ain't staying here:
The last chart for today is the copper chart, where after the break of the 18 month symmetrical triangle copper has been moving towards next trendline support at 333. No reason to expect reversal back up here and if 333 breaks the next major support level is at 300. Copper looks depressed here but as it has traded sideways throughout the current cyclical bull market from October 2011, there isn't much to read into that apart from the obvious observation that you don't need a lot of copper to print digital money.
Key short term resistance is at the ES 50 HMA at 1545, and if we see ES break over that the next obvious target is at a test of the current highs, for a very possible double-top in that area. The last five ES highs and lows have been signaled on the 15min RSI so I'll be watching that carefully.

Thursday 21 March 2013

Point of Decision

The decision on Cyprus has been delayed until Monday and may be delayed further. The principle that depositors' money has to be appropriated seems to be off the table and Cyprus is looking hard for a viable alternative. Cyprus may well not be a market mover over the next few weeks if an alternative solution can be found.

This toxic precedent has been set however even in the failed attempt, and this is likely to have a strong effect over the next couple of years as bank deposits leave the EU for friendlier climes. This also fits in with my view of bonds, where I think a major decline over the next couple of years is just getting started. I'll be explaining my technical reasons for this view another day, but for now I think an H&S is forming on TLT with the next major downside target in the 106.5 area as the H&S neckline. I have sketched a possible path for this on the TLT chart below:
While ES / SPX has been in retracement mode, each significant high or low has been signaled with divergence on the ES 15min RSI. A topping signal was given on this at the high yesterday and I'm watching with great interest to see what happens here. If ES / SPX is still in retracement mode then we should now see a move back into the ES 1530s, with a possible double-top formed that would target the 1505-10 area on a conviction break below 1530. If a new wave up has started then this sell signal will get steamrollered as ES makes a new post 2007 high. If we are in a new wave up then the next big resistance is at the 2007 high in the 1576 SPX area:
There is an obvious candidate double-top setup on NDX that strengthens the bear scenario here, though as always it's worth noting that 65% of these setups never make it back to the trigger level:
There are a couple of things worth noting here on the SPX weekly chart. I was saying last year at the two major highs then that there could be no normal weekly RSI divergence signal yet that would generally be seen at a bull market high, as the weekly RSI had not reached 70 since the 2011 high. The weekly RSI has now reached and exceeded this level so this signal can now start to form. The high in 2011 rose only another 40 points or so after this level was reached but it's worth noting that the 2007 high was a further 150 points and a year after the equivalent level. This countdown is beginning, but it might last a while yet:
CL is holding main support at 92.3, and that is cautiously bullish while it lasts:
EURUSD is fighting to hold the 1.288 support level. If it can hold it there is a decent chance of a multi-week EURUSD rally here:
Now that AAPL has broken up from the falling wedge I am running three higher probability scenarios here, two bullish and one bearish. All expect AAPL to test the 485 level and I have detailed these on the chart:
The ES 50 hour moving average is in the 1546 area and held as support overnight. The 100 HMA is in the same area. That is main support this morning and if the bears are to have a shot here they will need to break and hold below it.

Wednesday 20 March 2013

C'est magnifique mais ....

On 25th October 1854 one of the most famous mistakes in modern (ish) warfare was made in the Crimean war at the Battle of Balaclava. Due to a mix up in communications the Light Brigade of the British Cavalry was sent to frontally assault a very well defended artillery battery. This they did with panache and appalling losses, prompting the watching French Marshal Pierre Bosquet to remark 'C'est magnifique, mais ce n'est pas the guerre, c'est de la folie' which translates as 'It's magnificent, but it's not war, it's madness'.

Fast forward almost 160 years and similar orders were given by EU leaders to Cyprus. This time there was no miscommunication, simply arrogance and miscalculation. The attempted appropriation of a portion of the savings of bank depositors in Cyprus has set an unambiguous precedent that bank depositors in marginally solvent EU countries are now seen as a legitimate source of funds to shore up failing EU banking systems, and despite the overwhelming rejection of the plan by the Cyprus Parliament that precedent remains, though short term the EU has overnight been pulling back from their threat to pull ECB support from cypriot banks and force them into immediate bankruptcy unless Cyprus proceeded with this plan. A nod here to german comedian Wolfgang Schauble for his hilarious comment this week that the situation in Cyprus is 'unique' and sets no precedent for deposits elsewhere. Who says Germans have no sense of humor?

What does it mean now that the ECB (and IMF) have put forward this plan? It means that in addition to receiving almost no interest on their deposits in EU banks, depositors now know that their cash assets may be subject to arbitrary seizure by marginal EU governments with the full support of the ECB and IMF. What will be the effect of this going forward? Well it is very hard to imagine that this won't lead to serious capital flight from banks in Cyprus, Portugal, Italy, Ireland, Greece and Spain, and that capital flight may then force those countries into bailout plans that they might otherwise manage to avoid. It is quite simply an act of monumental stupidity on the part of the ECB and the Germans that might well precipitate the financial meltdown in Europe that they have so far gone to unprecedented lengths to avoid.

As with the doomed Charge of the Light Brigade however, there is a magnificence, almost even a grandeur to the actions of the ECB here. In a western world where central bankers, politicians and economists have been competing hard to find the fastest and most certain roads to insolvency and ruin it almost stirs the soul to see the ECB pull so effortlessly ahead of the pack.  In a world where our rulers have wasted our assets, mortgaged our future, and have recently been burning the economic furniture to maintain the illusion of warmth, there is something almost inspiring about seeing the ECB move confidently to the obvious next step of setting fire to the house.

At the risk of giving the ECB far too much credit for their planning skills, I will let Bluto and Otter of Delta House speak for them in my favorite scene from National Lampoon's Animal House. Let this be my salute to the ECB, a place where inspirational courage is eclipsed only by breathtaking stupidity:

Moving on to the markets, we have seen a strong recovery overnight after the rejection of the plan by Cyprus and the ECB's indication that liquidity would not be withdrawn from Cypriot banks. ES has formed a triangle over the last couple of days and that has broken up in the last couple of hours:
Looking at the SPX 60min chart the RSI has hit 40, which was my minimum target for this retracement. We could still see more but I can't see a good technical reason to expect that here:
CL fell hard again yesterday but still held the 92 support area. I'm inclined to write off the IHS setup now but as long as CL holds 92 the outlook remains cautiously bullish:
EURUSD broke below 1.288 support briefly yesterday and has since recovered back above. Technically we could see a decent rally here but this Cyprus debacle is likely to depress EURUSD over coming months as bank deposits are moved from the Eurozone to areas with clearer attitudes towards property rights:
A move to test the current high on ES seems likely here as long as ES can manage to do what it failed to do yesterday in taking out the intraday high on Monday. There is a possible double-top back at the current highs but ES could easily go higher. We will most likely see another larger retracement soon however. 

Tuesday 19 March 2013

ES Bull Flag

The overnight action on ES was not encouraging for the bear side. ES has recovered over the 50 hour MA and that has now held as support overnight. Declining resistance from the high has also broken. We could decline from here still but on a decent break over 1550 a retest of the current highs seems likely:
On the SPX 15min the H&S I've been looking at as a possibility is still in play though. Yesterday's highs would need to hold for this to have a chance of playing out:
We are likely to see a retracement soon and a retest of the current highs may just be setting up a double-top on ES. Looking at other indices they are looking toppy here. TRAN is a good example of that with a hit of rising channel resistance and major negative divergence on the daily RSI:
I'm mulling over the implications of the AAPL break up here. There is an obvious failure level at 485 but if it gets over that the target is 20% up from here at 550. AAPL won't support the market alone of course, any more than it could depress the market alone, but a move of that magnitude on a company of this magnitude would certainly help to support equity indices:
CL held the key support area at 92 yesterday and bounced back to new rally highs. The IHS scenario into the 77.5 area is still in play here, though it has been weakened by the retracement below the right shoulder low and the loss of the rising channel. Still a bullish setup overall however at the moment:
I had two possible H&S necklines on the EURUSD chart if we are to see much more downside over the summer. My preferred neckline was at 1.30 at EURUSD blew straight through it. My second choice was in the 1.288 area and that is the current low. if we see that H&S continue to form the ideal right shoulder high would be in the 1.313 area:
Looking at ES this morning I'm thinking a retest of the highs looks likely now. ES is holding over the 50 HMA, declining resistance from the high has broken, and the overnight action looks like a bull flag. On a break over yesterday's high I'll be expecting a retest of the highs.

Monday 18 March 2013

Scalded Frogs

There will be some mystified expressions among European bureaucrats this morning after the blow-up over the EU plan to fund the bailout in Cyprus by appropriating up to 10% of bank balances in that EU member. Their confusion has some cause.

Over the last few years, as government central planners have responded to ever increasing crises (caused in the main by incompetent government central planners) by appropriating ever more powers and employing ever more 'unconventional' methods to avoid facing the consequences of previous mistakes, savers have had to become used to their pension funds being required to be invested in increasingly risky government bonds at very low rates, to centrally set interest rates every year that confiscate and redistribute to borrowers all of their real interest income and some of their (real terms) capital. There has been discussion and approving talk in the press of the possibility that interest rates might go negative, meaning that in addition to losing all of their real interest income, and some of their (real terms) capital every year, savers would also be fined some of their nominal capital per year for not spending their savings on consumption or non-cash assets.

Surely all this means that the principle that cash assets are held only at the whim of the state is well established, and that moving to direct confiscation of cash assets is just an logical extension of these now well established policies?

Alas not all savers can see the situation so clearly. The stealthy confiscation and redistribution of their assets by states has been pitched to them as not being state-managed theft, and strangely enough many of them have continued to believe that their property rights are still protected and respected by their governments. The EU has forgotten the important principle of successfully boiling frogs, which is that you put the frog into warm water and then increase the heat gradually until the frog dies. At no stage should you scald the frog, which might then realize the danger and jump out of the pot. This attempted confiscation of cash assets in Cyprus has torn away some of the camouflage concealing the vast thefts from savers by their governments in recent years, and I suspect that much of this week will be spent repairing that damage.

In the interim ES fell to test 1530 overnight and has recovered back to just over 1540 at the time of writing. I suspect that this is just an oversold bounce and that there is some further distance to go, though it may not be a great deal more. The fall was signaled on Friday by the break and retest of the rising wedge on the SPX 15min chart. I was looking then at a possible fall to a candidate H&S neckline in the 1548 area and that might still be respected at the open. If it is and this pattern continues to form the ideal right shoulder high would be in the 1555/6 area, and the H&S target would be in the 1533 area:
On the SPX 60min chart the potential negative divergence that I was looking at on Friday morning has been confirmed and this would generally deliver a move into the RSI 40 level or below. Rising channel support is in the 1515-20 area but I'd be surprised to see this move get that far. On a break below the rising channel the obvious target would be the potential H&S neckline at 1485:
On the SPX daily chart the middle and lower bollinger band support levels are at the 1530 and 1486 levels respectively. These areas are the two main targets for this move with the middle bollinger band being the higher probability target in my view:
On other markets DX has bounced strongly from short term rising support. With the Europeans now caught robbing their citizens so shamelessly that may be it for the USD retracement:
The really nice bull setup on CL is in major trouble. When double-tops and bottoms fail it tends to be very shortly after the break of the pattern trigger level and that's where CL is failing so far. The nice rising channel on CL has also broken on this retracement and is no longer adding support. Main support is in the 92 area:
AAPL has been falling while equities generally have risen for a few months now. AAPL broke up from the falling wedge and over declining resistance on Friday and the next obvious target is in the 485 area. Could this be a topping signal for equity indices? Perhaps :-)
I'm expecting at least some more downside this week and am wondering seriously about the possibility that an H&S will form on SPX at the 1548 neckline. The 50 and 100 hourly MAs on ES are in the 1549 area and I'd like to see ES respect that level on any bounce to keep the outlook bearish for further retracement.