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Friday, 12 July 2013

Roll With It

SPX hit and closed at the daily upper bollinger band yesterday. The upper bollinger band rose a very impressive ten points yesterday, which was more than I expected. Now that the upper bollinger band has been hit that should slow down to a more moderate 3 to 6 points maximum increase in a day. SPX daily chart:
I can't see any particular reason to expect reversal today from the SPX charts. Now that SPX has come so far since the wedge broke there's unlikely to be a retest, and the target back at the current highs is now close. What is strong resistance here, particularly on a Friday, is the weekly upper bollinger band, and weekly closes significantly above these are rare. That's at 1686 now but could close the week as high as 1690 if we see a strong push today. SPX weekly chart:
I posted a SPX 60min chart on twitter after the close yesterday showing likely rising channel resistance in the 1680-5 area. That is now a very attractive short term target. If we see some early weakness before a rise into that resistance we may well also see strong negative 60min RSI divergence develop. The best divergences develop from very overbought/sold levels and RSI was trading over 80 on the SPX 60min yesterday. SPX 60min chart:
There is a warning signal on the ES 60min RSI, where there is already strong negative RSI divergence, though I take this more seriously when there is matching divergence on the SPX charts. Nonetheless we may see a decline this morning to test strong support at the 50 hour MA and short term rising support, both slightly over 1660 now. ES 60min chart:
On other markets CL retraced yesterday and has hit rising support on some weakly positive 60min RSI. If the uptrend is continuing, and there's no negative RSI divergence on the daily chart yet to suggest that it has ended, then this is the obvious level to reverse back up to new highs. CL 60min chart:
On GBPUSD, which I'm using here as a decent inverse proxy for USD, there was a marginal higher high overnight on strongly negative RSI divergence. Short term I'm expecting retracement but I would add that the declining channel from the last high is now clearly broken, and that what I would normally expect to see next on GBPUSD is a multi-week rally. What we may see here therefore is a decline to test the lows and establish a double-bottom followed by a rally into the 1.55/6 area before the greater downtrend resumes. I'll be watching this retracement with great interest. GBPUSD 60min:
Lastly bonds where I think ZB is in the process of making a significant trend reversal that may last months. In the short term the setup is a bullish broadening descending wedge from the last high and a possible W bottom forming on strongly positive daily RSI divergence. This is a very attractive reversal setup, particularly so because TLT has hit major support, I have a nice looking larger H&S scenario where we would see a big rally to establish the right shoulder on that H&S, and further that ZB made the third hit on a previously established (though previously weak) support trendline back into early 2011. The figures are on the chart but in broad terms a break over 137 would target the 141/2 area. ZB daily chart:
On this last point I want to add something to this bonds forecast. I track bonds because they are interesting and economically important, though I don't actually trade them much. I'm also modest about celebrating past successes, but I'm currently writing a page on my blog tracking my forecasts on bonds back into 2010 because my big calls and levels on bonds have very possibly been the most accurate of any analyst in the world over that period, and I'm thinking that I should publicize that somewhat. I dare say some of that has been luck but a lot wasn't. I've been predicting a multi-month rally on bonds at this level, and near this time, since March, and with this reversal setup on ZB that's really looking attractive now. Even if you don't trade bonds regularly you should have a look at this setup for a speculative long.

On SPX I'm wondering about early weakness, very possibly testing the ES 50 hour MA level, and then a push upwards that may go as high as 1680-5 SPX, but most likely closing close to the daily upper bollinger band, which is likely to close the day in the 1676-9 range.

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