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Wednesday 10 July 2013

Last Orders

I wasn't entirely happy with the high yesterday, which at 1654.18 was just one tick below the mid-June high at 1654.19. A reversal from there would leave a sliver of a chance that the retracement might develop into something more. It also didn't quite hit the lower trendline target I showed in the SPX 15min chart yesterday, though there is a little play in the target area and is was an arguable hit rather than the ideal hit that I was looking for a point or so higher. The chart below is the one I posted on twitter last night with a possible wedge retest retracement scenario from yesterday's high, and we could see that today with clear negative RSI divergence on the ES 60min and SPX 15min charts here. SPX 15min chart:
Yesterday's high was at 1654 and the SPX daily upper bollinger band closed at 1660. That is what I would consider as a technical hit, though we could see SPX go higher to hit this target more exactly today. Either way there is a strong historical pattern of the first hit of the daily upper bollinger band after a significant retracement low being followed soon after by a retracement to retest either daily middle or lower bollinger band support. These closed yesterday in the 1617 and 1575 areas respectively, though obviously both are rising and I'd expect the daily middle BB to close in the 1619-23 area today. SPX daily chart:
SPX gapped up over wedge resistance this week and that is the strongest kind of break upwards. Generally we wouldn't see a break back below this so my primary retracement target here is a retest of that broken wedge resistance. On SPX the ideal target would be the cross of rising support from the low with broken wedge resistance in the 1631 area about halfway through the trading day today (50 DMA currently at 1628/9). On ES the ideal target would be the cross of rising support with broken wedge resistance in the 1625 area this morning. These ideal targets may not be hit, but targets like this are hit regularly and if we see a sharp decline this morning I'll be watching these carefully. Overnight the 50 hour MA, now at 1641.5, has been acting as support on ES and as ever, there's nothing to get particularly excited about on the bear side here unless we see a significant break below that. ES 60min chart:
On other markets CL broke over declining resistance from the 2011 high yesterday which is a very interesting development. I've been looking very carefully at the pattern setup and I have a couple of options that I have looked at on the chart. Regardless, if CL can hold the break the obvious next target is the early 2012 high at 110.55. WTIC daily chart:
I'm considering the possibility of a rally on GBPUSD again this morning and we may well see that with clear positive divergence on the 60min RSI. The obvious target would be broken rising support in the 151.3 area. GBPUSD 60min chart:
Obviously I have been looking at the current low area on TLT as a possible reversal area for several months now. What are the chances of seeing that strong multi-month bounce to form the right shoulder on the possible TLT H&S I sketched in March? Not bad I think. There is some positive divergence on the TLT daily RSI, but on a pattern basis the setup on TNX (10yr treasury yields) looks very promising. The pattern since the early May low is a reasonable quality broadening ascending wedge, the last high was a marginal new high on clear negative 60min RSI divergence, and there is a possible M top forming that would have a target at the 50% fib retracement of the spike up since the May low. The trigger level for the M top is in the 24.5 area so we'll see whether TNX can make a clear break below that. If it can we may well then see TNX run to the 61.8% fib retrace area around 20.38. TNX 60min chart:
After a significant retracement low there is usually one decent retracement from the daily upper bollinger band to reload longs (last orders as it were) before the serious business of grinding up again begins in earnest. That retracement generally starts well before new highs are made. I've been putting the case for a possible retracement from yesterday's high, though in all honesty I'm thinking SPX may well go higher before that retracement begins. If we go higher today then there is significant resistance at the daily upper bollinger band, now at 1660 but which could close today as high as 1665. Above that there is very significant resistance at the weekly upper bollinger band, currently in the 1680 area. If we get as high at 1670 before the next retracement then I wouldn't be looking for a wedge retest (too close to pattern target) and would mainly be looking at the daily bollinger bands for support and targets.

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