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Tuesday, 9 July 2013

Many Wedges Pointing North

The remaining US equity indices that had not yet broken their declining resistance trendlines all broke up yesterday. Of these that I have been watching, which are SPX, SPXEW, INDU, TRAN, NDX, RUT, WLSH and NYA, all have now broken up, RUT actually made a new high yesterday, and there are very clear broadening descending wedges on SPX, TRAN, NYA and WLSH that have all broken up with targets at the May highs. The odds here are high that the retracement from those highs is over, and that new highs across the board will be seen soon.

Here is the setup on WLSH, the Wilshire 5000 which is the broadest US equity index. WLSH 60min chart:
Here is the setup on NYA, the NYSE Composite Index which includes over 2000 US and non-US equities listed on NYSE. NYA 60min chart:
Here is the setup on TRAN. TRAN 60min chart:
Here is the setup on SPX. SPX 60min chart:
What I'm saying here is that we are back on buy the dip for another indefinite period until we see another big reversal. Until then the bear case is dead in the water unless we see strong evidence to the contrary. In the short term I am wondering about a possible retest soon of broken wedge resistance on SPX, and I have marked in three possible trendline targets on the SPX 15min from which we may see the next short term reversal. I'm seeing the highest trendline target as lowest probability. There is currently no negative RSI divergence on this SPX 15min chart:
The pattern setups on SPX and ES are often different as ES trades 24 hours. Not in this case however where yet another broadening descending wedge has broken up. If we are to see a retest the first decent signal for that would be a break below the 50 hour MA, currently in the 1633 area, and that wedge retest level is currently in the 1628.5 area. An attractive target is the cross tomorrow of broken wedge resistance with current rising support, and that will be in the 1625.75 area. The equivalent cross on SPX would be on Thursday in the 1632 SPX area (approx 1627.5 ES). ES 60min chart:
Not much has happened on CL over the last day so CL is still just under major long term triangle resistance showing clear negative 60min RSI divergence. At the least we are seeing some retracement of consolidation here and we could see a major trend reversal. A break over this resistance level would look very bullish, though as I always mention, triangles are prone to false breaks. CL 60min chart:
I'm leaning strongly bullish on USD and have a GBPUSD target in the 1.40  area. Short term though I have GBPUSD testing the March low and at support on a possible declining channel. Any bounce here is a good short entry opportunity unless the declining channel breaks. GBPUSD 60min chart:
There are a lot of disappointed bears here looking wistfully at the SPX 200 DMA and wondering if there is a chance that might still be hit despite all the bullish setups here. The chances of that happening before we see new highs is now low in my view and this is not entirely unexpected. SPX hit the minimum target at the SPX weekly middle bollinger band that I gave in my post on 13th June, and I posted on 25th June, the day after the low, that the retracement low might well be in. SPX had an unusually small retracement and that's the way it goes. The short side is now low probability and unless we see strong evidence to the contrary, we are back on buy the dips until further notice. On the plus side buying the dips is easy money unless you fight the tape.

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