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Friday 30 August 2013

A Pivotal Day

Today is the last day of both the week and the month, and is a very significant day technically for direction here. Bears want a close well below the weekly middle bollinger band at 1643, and ideally also a clear break below rising support from 1343, now in the 1625 area. A clear break below the weekly middle bollinger band will open up the 50 week MA and the weekly lower bollinger band as targets, and those are currently at 1540 and 1564 respectively. With the June low and the possible major double-top trigger level there at 1560 and the 200 DMA currently at 1561, a test of the June lows is a very attractive target if bears can deliver the goods today. SPX weekly chart:
Apart from the stop sweep in the morning with the intra-hour pinocchio through the ES 50 hour MA yesterday went much as I expected, with a rally into my 1644-50 target zone. Having formed a rising wedge to get there, ES then topped at 1644.75 and retraced back to 1634.25. I posted the chart below on twitter overnight to make the case for a break back up to retest the afternoon high. ES 5min chart from last night:
That broadening wedge broke up as I expected and made a marginal new high at 1645. As we come into today that means that we have a possible perfect double-top targeting 1623.50 on a break below 1634.25. This is the setup for today if the bears can deliver it. That target should also be an exact test of the rising support trendline from 1343 SPX. I won't show the ES 60min chart today but the marginal new high overnight has established negative RSI divergence on that, and support at the 50 hour MA is now at 1636. ES 5min chart:
On the SPX 60min chart the rally yesterday has stopped well short of key resistance levels at the breakaway gap and declining resistance. The move from the low so far has formed a perfect bear flag. Encouraging for bears as long as that breaks down. SPX 60min chart:
I've been watching the declining channel on Dow for any bullish break up there. The high yesterday was a test of declining channel resistance which is holding so far. INDU 60min chart:
The possible H&S forming on COMPQ is still looking good. The high yesterday was a test of the open breakaway and island gap there and that's holding so far. If an H&S is forming then that should be the right shoulder high. COMPQ 60min chart:
On other markets CL has been retracing hard on the UK vote against intervention in Syria yesterday, but I won't show that chart today. GBPUSD looks as though it is bottoming out short term, and we may see a test of 1.544 today to touch rising wedge support and establish a possible double-bottom with a target back in the 1.57 area on a break over 1.555. I won't show that chart today though either (space constraints)

On bonds ZB (moved to December contract) has established a rising channel after a bull flag retracement. A clear double-tap reversal trendline also formed from the retracement high to low. That bull flag has now broken up and this is a strongly bullish setup as long as the rising channel holds. Rising channel resistance is now in the 133'04 area. ZB 60min chart:
GLD didn't quite make it to my theoretical rising channel resistance trendline and may be forming a rising wedge instead. Short term rising channel support was being tested at the close yesterday and if we see a breakaway gap below that at the open today the next obvious target would be rising (wedge) support, currently in the 129 to 129.5 area. GLD 60min chart:
This is going to be an important day from a technical perspective and may well establish the direction for the next few weeks. Bears want a new low at 1623.5 ES and ideally a break below that to close very well below the SPX weekly middle bollinger band at 1643 SPX. Bulls want a clear break over resistance at the highs yesterday (and overnight), a break above the Dow declining channel and a close near or above the weekly middle bollinger band at 1643 SPX. I'm leaning strongly towards the bear side at the time of writing and am rooting for the bears today unless we see a clear resistance break. Everyone have a great holiday weekend :-)

Thursday 29 August 2013

Inflection Point Test

A key target I have been watching on this retracement has been rising support on SPX from 1343. That was tested yesterday, or very close at least, along with the 23.6% fib retracement of the move up since 1343. On my more bullish scenarios for the next year that is a key level below which they are eliminated, and a test of the 1560 low and the 200 DMA (currently at 1559) becomes likely. We have therefore made a possible retracement low, and if the last breakaway gap at 1652-7 should be filled then that would become a probable retracement low in my view. Until that happens however the bears still own this tape and what we are looking at from yesterday's low is an oversold bounce. SPX daily chart:
Will that oversold bounce go higher? There is a very clear dividing line this morning as there is a three touch rising support trendline on ES from yesterday's low hat's now at 1633.5 and the 50 hour MA is at 1633. That 50 hour MA was recovered and retested overnight so as long as rising support holds I'm leaning bullish today with an upside target in the 1644-50 area. If rising support breaks then I'm watching support levels in the 1623 and 1614 (declining channel support) areas. ES 60min chart:
I was scanning through various indices this morning and was struck by the setup on the COMPQ (broad Nasdaq) chart which perfectly fits the options that I've been looking at above. COMPQ has formed a 70% bullish broadening descending wedge from the high and wedge support was hit at the low yesterday. On the bull scenario COMPQ now returns to wedge resistance and breaks up. On the bear scenario COMPQ is forming the right shoulder on an H&S which has an ideal high in the 3625 area and should take another day or two to form. COMPQ 60min chart:
On other markets CL is treading water waiting for more news about Syria. I'm leaning bullish but won't show the chart today. ZB is retracing after making the double-bottom target and getting very overbought short term. My main upside target over 134 hasn't been hit and I'm leaning bullish as long as ZB can hold support in the 132 area. ZB 4hr chart:
GBPUSD just missed rising wedge support at the low yesterday and that is unfinished business to the downside until that is hit. Short term though GBPUSD has broken declining resistance from the high and may be forming an IHS targeting the 1.578 area. If we see a retest of the low then wedge support is now in that 1.543 area and that would be a possible double-bottom that would target the 1.57 area as long as wedge support holds. GBPUSD 60min chart:
As I'm writing ES is retracing to test rising support on ES at 1633.50. Whether that support holds or breaks will most likely determine whether we retest the lows or rally into the 1640s today.

Wednesday 28 August 2013

Testing Serious Support

SPX closed yesterday back at the daily lower bollinger band. I'm not expecting another strong break below the lower band at this stage so if the band is respected we are unlikely to see SPX close significantly below 1621/2 today. Worth noting as well are that SPX declining channel support and rising support from the 1343 low are in the 1623/4 area, and that the 23.6% retracement of the full move up from 1343 is at 1623.22. This is a very significant support confluence near where the SPX daily lower bollinger band is likely to end the day. SPX daily chart:
On the SPX 60min chart channel support looks marginally higher in the 1625 area and hasn't yet been hit. SPX 60min chart:
On the ES 60min chart I have channel support in the 1617 area and that may not be hit. If it is though then it's worth noting that the 61.8% fib retracement of the move from 1560 SPX is in at 1617 SPX, which is at about 1615 ES. The very strong positive 60min RSI divergence that has been building on the ES chart is suggesting that we will see a decent bounce soon. ES 60min chart:
On other markets I'll show the big triangle on CL today rather than on WTIC. This is a decent quality pattern which has broken up, retested broken resistance three times while forming a bull flag, and then has broken up from that flag. The triangle target is a test of the 2008 high in the 147 area and I am taking that target seriously. Next resistance is the 2011 high in the 115 area. CL daily chart:
On bonds ZB made the 133 double-bottom target yesterday and is showing signs of reversal here. A rising wedge has formed and broken down after a double-top has formed on negative RSI divergence. The double top target is in the 132'15 area. After a retracement I'm still looking for ZB to make the next target over 134 and will be watching the retracement carefully for signs of reversal back up. ZB 60min chart:
GBPUSD is now close to a test of rising wedge support which I'm expecting in the 1.541 to 1.542 area. Worth noting that 1.542 is a possible H&S neckline. GBPUSD 60min chart:
GLD is close to my next target area near 138. We may see reversal there though I'm not seeing negative divergence yet. GLD 60min chart:
This is a very key support area being reached on SPX and ES, and at the start of this retracement I highlighted the rising support trendline from 1343 particularly as a level which, if broken, would eliminate a number of bullish pattern scenarios and invite a test of the 1560 low. I'm expecting at least a decent bounce soon and I would mention that there is currently a possible double-bottom in place on ES overnight with a target at 1643.75 on a break over 1634.75. I would see yesterday's breakaway gap on SPX at 1652-7 as hard resistance that should not be broken until this move down has finished.

Tuesday 27 August 2013

Declining Channels Abound

I posted on twitter last night that my rally into the 1670s scenario might well be trashed if ES broke below 1650.75. ES did and that scenario is a write-off. ES double-topped yesterday with a target at 1650 and a declining channel has now been established with channel support in the 1620 area today. There is some positive RSI divergence here and we could see a bounce. I don't yet have a pattern for the decline from yesterday's high. ES 60min chart:
Yesterday's high also established a declining channel on the SPX chart. Channel support is in the 1625-30 area today. SPX 60min chart:
On the SPX daily There is some support at the daily lower bollinger band, which closed yesterday at 1636, but could close as low as 1628/9 today. That's a good fit with SPX declining channel support. Just below there in the 1624 area is rising support from 1343, which is a key bull/bear line, as a clear break below would invite a test of the 1560 low. That's obviously a decent fit with ES declining channel support today. SPX daily chart:
The other declining channel to be established at the high yesterday, and the strongest in terms of trendline hits, is on Dow, and that is a key channel to watch here. This is the steepest channel and I have channel support in the 14700 area today,. INDU 60min channel:
I ran all of the US equity indices this morning to get a feel for this revised situation, and haven't room to post them all today, though I'm linking to the two possible double-tops on TRAN and NDX, both of which would indicate a lot lower if they play out.

On other markets oil has broken up to a new high on news that war with Syria is increasingly likely. I'll post my WTIC weekly chart today to remind everyone that I have a triangle there that targets the 2008 highs in the 147 area, and that the most recent low was a retest of broken triangle support. With another war in the Middle East in the air this is definitely worth bearing in mind and shorting oil could get VERY expensive over the next few weeks. WTIC weekly chart:
Bonds have strengthened as equities have weakened over the last day and so my rally scenario on ZB is still looking good, with the double-bottom target at 133 almost made and the declining channel target over 134 getting closer. However today I'll post the inverse of that ZB chart on the TYX (30yr Bond Yields) chart. You can see the inverted setup there as at the close yesterday, with rising channel support in the 36.5 area looking good with ZB breaking up overnight, and possible H&S necklines in the 36 and 35.3 areas. This is just to point out that this rally on bonds may extend further than my 134 target on ZB. TYX 60min:
GBPUSD is now testing 1.55 and rising wedge support in the 1.54 area is within easy reach. I am hoping that this wedge will break down and if we are seeing a flight to safety then that may well happen as USD may be boosted with bonds. Also worth noting here is the possible H&S neckline in the 1.542 area. GBPUSD 60min chart:
I'm expecting to see a test of SPX declining channel support in the 1628-30 area and that may well happen this morning. There is also decent SPX support in the 1618-20 area, with rising support from 1343 at 1624/5 this morning. If positive RSI divergence on ES holds into this support area then we may well see a decent rally from there, and possibly a retracement low.

Monday 26 August 2013

Three Blind Mice

Just a short post today as it is a holiday here in the UK today. SPX broke up over 1660 on Friday, so the bottoming pattern is a double-bottom with a technical target in the 1680 area. The real target however is declining (channel) resistance from the high, at 1680 at the moment but declining of course.  The SPX daily middle bollinger band is also currently at 1680. SPX 60min chart:
Assuming that target is reached, which I think is likely, there are three main options from there. Firstly SPX may break up, in which case we would most likely see a test of the highs, and then either a conviction break over that to resume the bull trend or a double-top there to target the 1560 lows. Secondly a reversal at declining channel resistance to a marginal lower low that respects rising support from 1343, so probably no lower than 1625. Thirdly a reversal at channel resistance that tests the 1560 lows. The daily chart below favors the third option, on the basis that SPX is still in a topping process from the broadening ascending wedge from the 1343 low. That isn't necessarily the way this will go, but it is a technically perfectly valid scenario. SPX daily chart:
On other markets the broadening ascending wedge on CL broke up and after topping out on negative RSI divergence some of that move has been given back. It isn't obvious where the next move will go so I'm currently neutral on direction here. CL 60min chart:
On ZB the double-bottom has broken up with a target at 133, though I'm looking for a move to test declining channel resistance over 134. As I was saying last week, this rally is strongly tied to the rally on SPX and will most likely end with that. Recent action looks like a bull flag consolidating for the next move up. ZB 60min chart.
GBPUSD has tested 1.553 area support, but the decline so far has lacked conviction. The 1.553 test was on positive RSI divergence so we may see a larger bounce before the next decline. Ideally GBPUSD would test rising wedge support in the 1.54 area. GBPUSD 60min chart
GLD broke over short term resistance on Friday and the next obvious target is slightly over 137.5 at short term rising channel resistance. I've also marked in currently theoretical but very possible larger rising channel resistance in the same area so that could be an interesting short entry area. GLD 60min chart:
Looking at the overnight charts on ES I'm seeing some positive RSI divergence at the low on the 15min chart. I was wondering about a test of broken resistance and the ES 50 hour MA in the 1657 area but we may not see that. Assuming those support areas don't break with conviction today I'm leaning long.

Friday 23 August 2013

Rally Setup Forming

SPX made a short term higher high yesterday just above the possible IHS neckline that I have been watching and if we are to see this rally play out then we will either retrace to form the right shoulder of an IHS today or just break up on an already valid double bottom setup. The target in both cases would be the 1680 area, with declining resistance from the high currently in the 1683 area. This is obviously a counter-trend play, but the technical setup is excellent and I think we have a high chance of seeing this play out. SPX 60min chart:
SPX broke away from the lower bollinger band yesterday and closed close to the 50 day MA. That is a standard target for a move away from a band and this rally could fail there. If SPX can break above the 50 DMA (currently) at 1659 then the next target would be the daily middle bollinger band, currently at 1682 and a very good fit with my rally scenario above.

I'm showing a different SPX daily chart today as this one has my current bear scenario marked up on it. In this scenario the rising wedge that broke up early this year evolved into a rising channel, which is now reversing back towards channel support, currently in the 1520 area. I haven't been using this as a primary scenario, mainly because the May SPX high fell slightly short of the ideal channel target, but in practice trendlines can often be a little rough, and it should be borne in mind. If we were to break below rising support from 1343, currently in the 1615-20 area, this would become a primary scenario, backed up of course by the strong negative RSI divergence on the SPX weekly chart. SPX daily chart:
Is there anything that backs up this much more bearish scenario? Yes, and that is the pattern structure that we have seen since the 1560 low. The 1709 high fell short of establishing any sort of easily identifiable resistance trendline for a new pattern from the 1560 low, and fell within the normal range for the second high for a double-top from the move from 1343. There is also the matter of the support trendline for the broadening ascending wedge from 1343. That was initial resistance after the 1560 low, which isn't that unusual, but what was more unusual was the way that it was the support that SPX tested and then gapped below last Friday. That is suggesting that the immediate pattern on SPX at the time of that break was still that broadening wedge, and if so then everything we have seen since the first breakdown below wedge support in May has been a topping pattern. Food for thought. SPX daily chart:
TRAN broke up from the possible bear flag yesterday, which was bullish, but I won't show that chart today. On other markets the CL bounce is stronger than I was expecting and I don't have any particularly interesting short term trendlines or patterns to show there so I'll show instead the updated version of a WTIC (CL in real trading hours) chart I posted a few weeks ago. This is a large triangle scenario predicting a very big move in either direction. WTIC has broken up from the triangle but these patterns are prone to false breaks. The current CL bounce was at broken triangle resistance and if CL breaks back into the triangle the next target at triangle support would be close to the 96 double-top target that I was looking at yesterday on the CL chart. If CL were to break that level the triangle target would be at long term support in the 45 area which would be interesting. WTIC weekly chart:
ZB is trying to get up from the floor with limited success so far. If it can break over the double-bottom trigger level at 131'14 I would expect a strong rally, which would fit best with a rally on equities at the same time. ZB 240min chart:
GBPUSD rallied a little overnight at news that UK GDP had been revised upwards and then immediately retraced that move and more. Rising wedge support is now in the 1.536 area. GBPUSD 60min chart:
GLD is trading in a small rising channel and finding resistance at 133.46. The next obvious move in the channel is up towards 137.5, but strongly negative 60min RSI divergence is suggesting that the channel may well break soon. GLD 60min channel:
I really like the setup for a bounce into the 1680 SPX area here, and I think that will most likely play out. I'd expect a reversal there but a break above declining resistance there would be a bullish break suggesting resumption of the bullish trend. There are two options for the path to 1680. On the first SPX makes a clear break above 1660 towards 1680 as a double-bottom target. On the second SPX retraces here to an ideal right shoulder low in the 1646/7 area, and then the IHS plays out towards the 1680 target. I'm rooting for the IHS scenario. ES has been holding the 1657/8 area overnight and while that continues to be the case there is a decent case for that right shoulder retracement today. The ES 50 hour MA has turned up and is now at 1647.

I'll be trying to get out a weekend post on bonds tomorrow but may not have time. If not that is coming as my next weekend post soon.

Thursday 22 August 2013

FOMC Shakeout

I'm not keen on FOMC days, and even by usual standards yesterday's FOMC action was pretty wild, which was odd as essentially nothing new was revealed. On the wild spike up after after the first spike down the declining channel on SPX was broken and I posted a very nice technical rally scenario on twitter. Even after the next wild spike down yesterday that is still very much in play as long as yesterday's low area holds, and so here is that chart that I posted then. SPX 60min chart:
I was talking yesterday morning about the possibility that SPX might well stay within or very close to the bollinger bands after the recovery back into the bands on Tuesday. That is happening so far with the close yesterday at 1642 less than a point below the lower bollinger band. The lower bollinger band should close at 1636 or higher today so if the decline continues then that is the target closing range. If we see the rally scenario on the chart above play out then obvious resistance is at the daily middle bollinger band, currently at 1683 and therefore a good fit with that scenario. SPX daily chart:
When I gave downside targets a few days ago I gave the double-top target at 1642, and that has been made. I also gave the 50% fib retracement level and the weekly middle bollinger bands at 1635, and while 1635 has not been hit, the weekly middle bollinger band was tested yesterday at 1639. If the downtrend continues today that leaves the remaining targets and support levels I gave then as the 50% fib retracement at 1635 SPX and the 100 DMA at 1630. SPX weekly chart:
ES had a wild night, getting as low as 1631.50 before rallying on strongly positive RSI divergence. So far that rally has failed at the 50 hour MA at 1645, though ES appear to be forming a bull flag below that at the moment. If ES can break above it then strong resistance and possible IHS necklines are in the 1655-7 area on ES. ES 60min chart:
I was saying yesterday morning that TRAN had broken above the declining channel there, but so far looked as though a bear flag was forming. That still looks like a bear flag this morning, so mixed signals there. TRAN 60min chart:
On other markets CL is bouncing on strongly positive RSI divergence. I'm expecting this to be a rally within an overall downtrend and have drawn a couple of possible trendline targets on the chart. CL 60min chart:
ZB broke down yesterday and so far has made the double-bottom that I was talking about as a possibility yesterday morning. I have shown this on the 4 hour chart below and this is an attractive rally setup, though obviously counter-trend in a long decline that I don't think is bottoming out yet. ZB needs to hold that channel support trendline just below on an hourly close basis. ZB 240min chart:
GBPUSD pinocchioed rising wedge resistance slightly at the (post-FOMC) high yesterday and then reversed downwards hard (at last). The obvious target is rising wedge support, now in the 1.534 area, and if the USD uptrend is to resume that rising wedge will need to break down at some point. GBPUSD 60min chart:
One thing that has been very obvious over the last few days is that SPX and bonds have been positively correlated. Therefore the rally scenarios here on SPX and ZB are linked, and they will most likely either both succeed or both fail. I'm leaning towards both being successful here but it could go the other way. The hard failure at 1655 ES yesterday showed how little confidence the bulls have here at the moment.

Wednesday 21 August 2013

Ask and Ye Shall Receive

I was grumbling yesterday morning that the lack of any bounces in the decline so far meant that I had little to work with in terms of trendlines or patterns. After yesterday's bounce I'm happy to say that has all changed today.

The script for the bounce yesterday followed the double-bottom scenario I outlined yesterday morning. ES broke over the 50 hour MA at 1650, made the double-bottom target at 1655.50, and reversed at 1657 at the possible IHS neckline to close at 1650 in the ideal right shoulder low area. ES needed to hold that area overnight but didn't so we have two options this morning. The first option is that ES tests the low and perhaps makes a marginal new low as part of a double-bottom setup, and the second is that ES resumes the downtrend to test support in the 1630s and perhaps below. ES 60min chart:
Whichever way it goes today, I do now have a perfect declining channel on SPX. As with ES a possible IHS is forming on the SPX chart and that isn't broken yet. If ES can recover back to the 1650 area by the open that may still be in play. If we see a resumption of the downtrend I have channel support in the 1630 area and declining rapidly. When we see a break above the declining channel that should be a good signal that this move has bottomed or is bottoming. SPX 15min chart:
SPX closed back above the lower bollinger band and if this was a bull move I would be fairly confident that SPX would now continue closing within the band. That's less certain in a downtrend but if that's the case here then I am expecting the daily lower bollinger band to close today at 1642/3 SPX or above. SPX daily chart:
The declining channel that I was looking at on TRAN yesterday morning broke up and was retested at the close.. So far however the break over the channel has the look of a bear flag so we'll see how that goes. TRAN 60min chart:
On other markets CL broke down yesterday to make the 105 H&S target I gave in the morning. I'm expecting a bounce short term but am leaning bearish on CL after that. I've done a bigger picture CL chart today to show that CL could well fall back into the 90s on this move. CL 60min chart:
I tweeted a nice looking long setup on ZB yesterday and that still looks very nice. The action since the break up looks like a bullish pennant so far but we might still see a reversal to test the lows and make a double-bottom. ZB 60min chart:
I'll post the trading hours only GBPUSD chart today to show quite how strong the performance of RSI divergences on GBPUSD have been in delivering reversals. GBPUSD has also formed two bearish rising wedges of differing degrees. I'm still expecting GBPUSD to break downwards here but that might not happen. 30% of rising wedges do break upwards of course. I'm looking for GBPUSD to make a short term lower low soon if it is going to break down. GBPUSD 60min chart:
The bounce scenario is still in play here on ES & SPX and if ES can recover back to the 1650 area by the open then the IHS setup is still in play on SPX. If we see a break above the SPX declining channel today I will be treating that as strong bounce confirmation. If the downtrend resumes I have strong support for SPX in the 1630s and key trendline support in the 1615 area.