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Tuesday 2 July 2013

Inflection Point Here

I've been saying since the SPX broadening ascending wedge from the November low broke that we were unlikely to see a break back above broken wedge support before the retracement low was in. Broken wedge support was tested at the high yesterday and obviously hasn't broken as yet. Here's the chart I posted on twitter just after that high showing the declining channel that was also established at that test. SPX 60min chart (intraday yesterday):
The establishment of this declining channel does two things. Firstly it strengthens the bear case here, though I have seen a lot of these break soon after being established. Secondly it crystallizes the boundary between the bull and bear cases here. Resistance is at channel resistance and broken wedge support, and on a break above the retracement low is in with a high degree of certainty. While this resistance holds however, we may well see another wave down to reach a low below 1560.

On the SPX daily chart the high yesterday was a failed attempt to break over the daily middle bollinger band, and SPX closed the day back slightly under there. If we now see a return to the daily lower bollinger band, that is now in the 1576 area. SPX daily chart:
On the SPX weekly chart middle bollinger band support is now at 1591 and the weekly lower bollinger band is now in the 1507 area. I have mentioned before that the current low is high in weekly bollinger band terms for a retracement like this one, and there are two target areas lower that would fit the historical norms better. The first is the established support level (and possible H&S neckline) in the 1535-40 area and if we see the 1560 low broken that is a decent candidate. On a break below there my preferred target is the cluster of support levels between 1495 and 1515, and they are as follows:

  • 1495 - Rising support from October 2011 bear market low
  • 1498.22 - 50 week MA
  • 1506.74 - Weekly lower BB
  • 1511.35 - 200 day MA
  • 1515.26 - 50% fib retrace of wedge from November low
I would be leaning strongly towards a low in that case near 1515, and am not expecting primary bull market rising support in the 1495 area to be hit. SPX weekly chart:
On the ES chart a big reversal here would most likely be an M top, with a target in the 1566 area on a clear break below 1593. A move there wouldn't necessarily mean that the 1560 SPX low would be broken with any confidence of course. As I have mentioned many times, a clear IHS or double-bottom tends to form on SPX at significant lows. We would see how the setup looks when we reached the test area. As ever the first step on any decent decline is that the ES 50 hour MA must be broken. That was the low yesterday and hasn't broken as yet overnight. ES 60min chart:
On other markets the next obvious target on CL is a higher high over the last big high at 99.24. A sort of rising wedge appears to be forming but it isn't of high quality yet. Something to bear in mind though. CL 60min chart:
Using GBPUSD as an inverted proxy for USD, the current move looks likely to fail soon. A clear falling wedge has formed and GBPUSD looks unlikely to get as far as a test of the last big low. I've noted on the chart that there is also arguably some unfinished fibonacci business above the last high. GBPUSD 60min chart:
On TLT I'm watching to see whether TLT can make any kind of decent low near the key 105/6 support level. There is a decent declining channel from the 123.68 high and a break above there would look bullish, but we would normally see a clear reversal pattern on TLT at a big reversal, and I don't see that yet. TLT 60min chart:
If ES can break decisively below the 50 hour MA (1606) area then I will be leaning strongly short looking first for the 1593 area, and on a clear break below there, the 1566 area and a possible test and break of the current lows. I would stress though that first the bears have to break below the 50 hour MA, which was support yesterday and is being tested at the moment. 

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