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Tuesday, 5 March 2013

Ersatz H&S Patterns

ES broke up from the triangle developing yesterday morning and is testing the February highs. There is a possibility that a double-top is forming here but I'm not at all keen on this as I think the time for this pre-main high retracement has come and gone. Worth bearing in mind though. What looks like a bullish IHS has developed during this retracement but the appearance is deceiving. H&S patterns are purely reversal patterns and the technical targets given for these patterns are taken from reversal patterns only. The decline into this pattern was very short and this is therefore not a reversal pattern. Having said that I have seen some strong up moves developing from setups like this, and those can often make the reversal IHS target. That would be 1562 in this instance but that is not to be relied upon:
There is no negative divergence on the SPX 60min or 15min RSI at the close yesterday, and though there is a little on the ES 60min chart it isn't strong. If we do see a reversal here then the obvious target is a test of the current retracement lows and rising support from the November low, now in the same area. However I don't think that's likely now as instead of a broadening ascending wedge on the 60min chart we now have a perfect rising channel established at the retracement low. The chances are that this channel will hold until after the main Spring high:
There is some resistance on the SPX daily chart at the daily upper bollinger band at 1533.63, and it looks as though SPX may open over that level. I would expect further upside to be more two way as this is a significant resistance area:
There are two points to note from the SPX weekly chart, and the first is that weekly upper bollinger band resistance is now in the 1560 area and this is a primary target for this move up. I'll be posting charts talking about the resistance levels around the 2000 and 2007 highs later this week. Am I expecting a cyclical bull market high at the main spring high? No. I mentioned last fall that a significant technical problem with a bull market high then was that the weekly high could not show the usual bull market high signal as the weekly RSI had not reached overbought since the 2011 high. It still hasn't so while a bull market high is obviously possible, it doesn't look that likely from a technical viewpoint. This puts the likely top for this cyclical bull market from October 2011 in 2014 at a level considerably higher than the 2007 top. Food for thought:
AAPL broke below 420 yesterday and is now breaking below primary support at the rising channel support trendline on the weekly (LOG) chart below. If AAPL can recover strongly into the end of the week then this could just be a pinocchio but either way this support is at best compromised. Next major support is at 360 but the chances of a big rally sooner than that are boosted by the falling wedge forming on the daily chart. Wedge support is now in the 400 area:
CL broke below falling wedge support yesterday and that means one of two things.Firstly this could be a wedge overthrow signalling an imminent break up. Secondly this may not be a falling wedge at all. We'll see whether CL can now break wedge/declining resistance. No strong sign of reversal on RSI:
DX is retracing and there is now clear negative RSI divergence on the daily chart. This doesn't negate the overall bullish setup and there is obvious support in the 81.5 area at both rising support and broken resistance:
I was saying yesterday morning that the retracement low was most likely in, but was puzzled that rising support from the November low had not been tested. Now that I have identified a rising channel on the SPX 60min chart the pattern I was expecting to be established on this retracement is clearly that channel, and I'm not now expecting 1485 to be broken until after the main Spring high. We are now therefore in the final move up into that high and dips should be bought until we see definite signs of that top forming.

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