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Tuesday 17 September 2013

Dealing with Rejection

I came into yesterday assuming that we would see a bit of a pullback during the day, and then would most likely make a new 2013 high this week on SPX as the weekly upper bollinger band (BB) was tested. That could still happen, but yesterday's strong rejection from the open and weak close was characteristic of a high, and the short term high may be in. Also, though there was some action above the daily upper BB (which rose by ten points) yesterday, the body of the daily candle was under the upper band and the close just underneath it. This suggests strongly that at the least the daily upper BB is likely to be respected as resistance today and I would put the maximum likely closing range in the 1703-7 area. We may well see much more bearish action to fill yesterday's open gap however. SPX daily chart:
So if we retrace this week what are the targets? They've moved slightly from last week but the key targets are the 50 DMA, the daily middle BB and the weekly middle BB. These are currently at 1674, 1658 and 1657 respectively. There is an open gap just over 1670 SPX of course and there are good arguments for both target areas, in effect in the 1670-5 and 1655-60 areas. SPX weekly chart:
On the SPX 60min chart I gloomily noted yesterday morning that my decent resistance trendline was likely to be broken, as indeed it was. However the morning high established another resistance trendline and I have what looks like a steep rising wedge from the 1640 low. I'll be watching that today and would note that I have possible rising trendline support in the 1657 area currently. SPX 60min chart:
On ES I was not taking the possible rising channel on the 60min chart seriously yesterday, but it has my attention this morning. Channel support is currently at 1653/4. I have marked in a little double-bottom with a target at 1693.75 that is playing out at the moment. ES 60min chart:
Bonds rallied strongly into the the morning yesterday, but turned down in the afternoon to close the day having made a daily bearish engulfing candlestick. The rally setup on TLT and ZB still looks very good here but that is a nasty candle and I'll be watching that for a day or two to see whether it follows through. TLT daily chart:
CL has been forming a nice looking falling wedge on the current decline. These are 70% bullish of course and if CL reaches wedge support in the 105 to 105.25 area that would be an interesting place for a long entry. CL 60min chart:
There's a nice looking double-bottom setting up on GC here on strongly positive 60min RSI divergence. I've marked the target and resistance levels on the chart. GC 60min chart:
Lastly AAPL where a very nice looking falling wedge has formed from the last high and this looked very promising at the close yesterday with a slight bullish overthrow and recovery. With AAPL at 447 in the premarket it is possible that AAPL may gap under wedge support at the open. If so that might turn out to be a breakaway gap under support, at which point it's important to remember that these patterns break downwards 30% of the time, and in my experience are rather better at making target when they do. If we see a strong break down on AAPL here the wedge target would be a test of the 2013 lows. AAPL 60min chart:
The bulls were MIA yesterday and that leaves us with an unconfirmed top this morning. If the bears are MIA today as well then I'd expect an early high and then a move to try and fill yesterday's open gap. If we see yesterday's lows taken out today, then the obvious retracement target areas are in the 1655-60 and 1670-5 areas. On the bull scenario SPX would reverse there and move onward to glory, on the bear scenario support there would break, in which case the next support levels would be rising support from 1343 in the 1640-5 area and the current retracement lows. I'm leaning towards more downside short term, and favor the bull scenario after that.

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