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Tuesday, 11 June 2013

Possible IHS Patterns Forming

I was going to be putting the case again this morning for a retracement to form a right shoulder on the possible IHSes I was looking at yesterday morning on SPX/ES and TRAN, but I see from the strong reversal overnight that there is now no need. On ES the ideal right shoulder low would be in the 1621 area. ES 60min chart:
I posted another SPX 15min chart on twitter yesterday night updating the way that this IHS right shoulder might form there. A small H&S formed at the highs yesterday and I was looking at the possibility that a larger H&S might form at a 1633ish neckline. That now seems unlikely but the ideal right shoulder low is still obviously at the same level in the 1623 area. SPX 15min chart:
On TRAN the ideal right shoulder low would be in the 6215 area. TRAN 60min chart:
On other markets USD is still holding the key 81.5 level and there's not much to report there. On CL there has been a sharp fall overnight that has broken short term rising support. It may be however that CL is just establishing a shallower rising support trendline and I'm feeling fairly neutral on CL here. Key trendline support for CL is now in the 92.25 area:
I posted a couple of AAPL charts on twitter yesterday and noted with concern the break below rising support from the 382 low there. That broken trendline retested and was rejected yesterday which looks bearish short term. That doesn't kill off the overall IHS scenario which could go lower on the right shoulder and take another couple of weeks to form without being weakened. Obviously further downside would need to be limited though:
The last chart of the day is the SPX daily chart, which I want to look at in slightly more detail than usual to consider the merits of the IHS scenario that I've been looking at this week. If we are to see a strong retracement this summer the obvious target would be the 200 DMA, now in the 1496 area but very possibly in the 1510-30 by the time it was reached. If we are to reach that target then breaking down from a large bearish pattern like the broadening ascending wedge from the November low would obviously be a step in the right direction, but ideally, and usually, there would be a large H&S or double-top on SPX at the interim top.

Prospects for a decent H&S forming here look limited but if we were to see these IHSes form and play out to retest the current highs, then a possible double-top would have formed at that stage with a target in the 1510-15 area on a break below the 1598 low made last week. If the current highs were exceeded then further upside is limited by broadening wedge resistance, now in the 1710 area, and that would still be well within the right range for the second high of a double-top. If the move up from here took us into early July that is also a date area where numerous significant highs have been made. Just thinking aloud but you can see why I'm favoring some more upside from here, and that is supported by the breaks of declining resistance trendlines from the high on this rally on SPX/ES, Dow, TRAN, RUT and (since yesterday morning) NDX.

While this would all be technically elegant however it's worth noting that the interim top may already be in, and the rally to test the daily middle bollinger band on SPX may be all the rally that we are going to get. We may see SPX/ES reach the ideal right shoulder lows and just keep on going downwards, and that's worth bearing in mind here. SPX daily chart:

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