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Thursday, 27 June 2013

No Retrace Yet

SPX blew through the 1597/8 level easily enough yesterday, and so far there is no sign of any IHS forming on SPX, with the best opportunity to do that behind us now. This increases the probability that the lows will be retested later as there is usually (though not always) a clear IHS or double or W bottom at a main retracement low.

Have we seen that main retracement low? NYMO supports that strongly, and the low was a 38.2% fib retrace of the move from November, and a retest of the rising wedge that broke up earlier this year with a target in the 1965 area, and a test of the 100 DMA on a closing basis. I'm assuming that was the low until demonstrated otherwise.

To illustrate the importance of fib retracement levels after strong pushes up on SPX I have divided the current cyclical bull market since October 2011 into four component moves and their subsequent retracements. As you can see all three previous retracements were fairly precise Fibonacci retracements. SPX daily chart:
On the weekly chart the candle this week is on the lower bollinger band with the low being an intraweek low only. On the usual closing basis that is a test of major support that has held. Between this being for several reasons a good technical level for a low (if somewhat high), and the NYMO divergence, my default assumption here has to be that the low is most likely in, and that the best the bears are likely to see here is a retest near the lows. SPX weekly chart:
I've been considering the merits of the close area yesterday in terms of a possible retracement today. On the plus side the high yesterday was a 50% fib retracement of the move down from 1654.19 and a test of the 50 hour MA. There is also some negative divergence on the more sensitive RSI settings. On the negative side the best opportunity to form an IHS was lost yesterday with the break back over 1597/8. We'll see what happens at the open today. SPX 60min chart:
On the ES 60min chart there is some negative RSI divergence but this might just be consolidation. If we see some retracement then 50 hour MA support is in the 1587 area. ES 60min chart:
I won't post silver , gold or USD charts today and will just say that I have the next big levels on gold and silver at 1160 and 16.25 respectively. On USD I am waiting to see whether the last highs can be taken out with confidence. If they can then I am VERY bullish on USD, and if they can't then I am VERY bearish on USD, so we'll see. My baseline here assumption is the bullish scenario until demonstrated otherwise.

CL is testing resistance in the 96.2 area and for the current uptrend to continue that will need to be broken soon. CL 60min chart:
I'm going to finish today with two thought-provoking charts, and the first is of the Hang Seng index. I've been reading a lot this week about how China is doomed and Shanghai is doomed with it, and my possible IHS there did fail to complete. On the other hand when an IHS in a larger promising bottoming setup fails to complete I then look for a double or W bottom, and that is still very much in play here. I won't show that chart today however as instead I want to show the massive support confluence hit on the related Hang Seng index at the current low. Just sayin'. HSI daily chart:
The last chart today is 30yr treasury yields back to 1945, which is as far back as my data goes. This is just to show the overall bottoming setup on bond yields here and to show how long major trends in bonds tend to last. Just to illustrate that I would note that if I am right about the major reversal setup on bonds here, and I think that I probably am, then I'd expect the next test of 25 (2.5%) on TYX sometime between 2075 and 2100. Don't buy the dips on bonds here as a long term trade. We might see a big H&S right shoulder rally on TLT over the next few months here, and I'm watching TLT and TNX carefully with that in mind, but it might well not happen, and if it does it would only be an opportunity to dump remaining bond longs and reload on shorts. TYX quarterly chart:
I'm expecting higher on SPX and ES, looking for a test of resistance in the 1620-30 SPX area at the minimum. I'd expect a retracement at some point on the way there ...... probably.

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