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Monday, 24 June 2013

No Bounce Yet

As the markets closed on Friday I was concerned about the possibility of a strong bounce starting and the possibility that strong bounce might develop into a major low. Of course, just as promising reversal setups can be steamrollered in strong uptrends, the same can happen in strong downtrends, and we may well be seeing that here. . The triangle targets on ES are still well below here of course, though the strong positive RSI divergence on the ES 60min chart is still worth noting today. ES 60min chart:
In the event that ES manages to struggle back to the 1577 level by the open, this reversal setup on the SPX 60min chart is worth keeping on mind. There is a possible IHS forming there with a target at a retest of broken broadening wedge support in the 1618-20 area on a break back over 1599. SPX 60min chart:
In terms of why I was concerned about a major low being made on Friday I was looking at the raft of significant support levels hit on Friday. SPX traded below the weekly middle bollinger band of course, and the low for the day was a test of the 2007 high and the 100 day MA. SPX also bounced to close near the daily lower bollinger band and while it trades below that SPX is obviously significantly oversold. SPX weekly chart:
On other markets CL last week followed up on the break of the short term rising channel with a break below rising (possibly rising wedge) support from the April low. I'm watching to see if CL can now undercut the June low, though we have now seen a 50% retracement of the move up from the April low and there is some positive divergence on the 60min RSI. At the moment CL is still making higher lows and highs from the April low. CL 60min chart:
TLT broke the falling wedge a week ago and is approaching the key support level and possible H&S neckline in the 105/6 area. I'm concerned that this may not hold, as TYX and TNX have now both overshot the possible IHS necklines on those charts. I would note that in addition to the other support in the area, the 105.5 level is the 50% retrace of the bull move between February 2011 and June 2012, but if it breaks then the falling wedge target is in the 97 area and that would be my next TLT target. TLT daily chart:
My last chart for today is the FTSE chart, which I'm posting for two reasons. Firstly my brother was asking what the key support levels there are, and secondly it is an interesting proxy to watch when considering possible lows for the current retracement on SPX.

FTSE tends to trend well and there are two possible patterns in play from the March 2009 low. Of these the rising wedge support trendline is in the 5800-5825 area and should be solid support for the current retracement. On a conviction break below 5800 the obvious target would be possible ascending triangle support in the 4790 area. There is some shorter term rising support from the 2012 low in the 6025-50 area.

How does this relate to SPX? well for starters there's no reason why the decline would stop at Friday's low, but there is very strong support another 5% or so below. That's similar to SPX though FTSE, as with most markets, has obviously fallen considerably further than SPX so far. The rising wedge support trendline on FTSE is comparable to the rising support trendline from the 20011 low on SPX, now in the 1490 area, in that a conviction break would most likely trigger a strong further move to the next big support level, which on SPX would be rising support from the 2009 low in the 1325 area. As with FTSE however, I'm not expecting to see that happen here. FTSE daily chart:
I would very much like to see this overnight weakness on SPX last into the open for a strongly bearish open below the weekly middle bollinger band, the 100 day MA and the 2007 high. This will clear the technical way for the obvious main targets for this retracement, which are strong support and the possible H&S neckline in the 1535-40 area, and the 50% fib retrace for the move since November in the 1515 area, which is my preferred target as it is a good fit with both the 200 day MA and a nearish miss of the weekly lower bollinger band. It is also a relatively low risk long entry area as it is not far above rising support from the October 2011 low in the 1490 area.

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