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Tuesday, 10 September 2013

Honey Eating Surrender Monkeys

Yesterday was a key day technically and by the end of the day the bulls had broken all the key levels I was watching for bullish breaks. The buying was steady and relentless, and even on the 1min chart the SPX RSI never hit 30 at any point during the day.

Bears shouldn't feel bad about that, that's just the way it goes sometimes, and no-one should be judging them just because, for whatever reason, they seem to be having a very hard time getting it down. This sort of performance issue is something that can happen to either side of the trade as trends gets older and can sometimes unexpectedly reverse altogether. :-)

Joking apart though, the very nice short setup I had for another swing down went up in smoke and, from a trendline and pattern perspective at least, the retracement low is in unless we see very strong evidence to the contrary.

The important bullish breaks yesterday from a target perspective were the bullish falling megaphone on SPX breaking up with a target back at the 2013 highs, the break over 1669.51 to establish a higher high, and the close well above the 50 DMA that triggers the next bollinger band target at the daily upper bollinger band, now in the 1691 area. Now that normal bullish programming seems to be resuming, I've marked in my two best guesses at the upper trendline on SPX that this next bull move on SPX would target. There is a third line which would be the possible rising wedge resistance trendline, and that would be lower than the other two, but I don't have enough data points to project that yet. SPX daily chart:
At the close yesterday there was good reason to think that we would see some retracement overnight. A perfect rising channel had been established from the lows and looked ready to retrace. With ES up another 8 points overnight at the time of writing that retracement looks doubtful now though if ES should retrace the overnight gains before SPX opens that might still be in play. SPX 15min chart:
If we do see that gap filled before the open there is still a possibility that we might see the right shoulder on an IHS form on SPX, though that also obviously seems doubtful at the time of writing. If not then the obvious next target above is to fill the breakaway gap at 1685.39. That would also fit with a hit of the daily upper bollinger band, where I would count anything over 1687 as a technical hit. SPX 60min chart:
I was concerned before the bullish breaks yesterday that AAPL might struggle to get to the double-bottom target in the 540 area over the next few weeks in the teeth of another swing down below 1600 SPX. That is no longer a problem and AAPL has broken above the bull flag that I was looking at yesterday. AAPL 60min chart:
Every day I hear some pundit talking about how the prospect of tapering has depressed bond prices, though the price action over QE1 through QE3 tells us that all three QE periods have seen substantial moves down in bonds just as they have seen substantial moves up in equities. It would be interesting to see some research into the mechanism that seemingly forces considerably more money out of the bond markets during QE periods than the Fed puts into the bond markets, but as no-one else seems to have noticed it seems unlikely that we'll see that research anytime soon.

Nonetheless this leaves the prospects for a strong rally on bonds here in some question. The perfect time would have been during the next move down on equities that now isn't at all likely to happen, and it may be that the downtrend on bonds will resume here without any rally. I still have a possible rally scenario that I've put on the chart, but I'd now be treating any rally mainly as an opportunity to short bonds from a higher level. ZB 60min chart:
I was wondering how durable the uptrend on CL would be if the prospects for intervention in Syria dimmed, and CL has broken back down under 110, then the IHS neckline at 109, was testing 108 at the time I capped the chart below, and is now testing 107 at the time of writing. If we see 104.2 broken that would deliver a lower low and possible significant trend reversal. CL 60min chart:
The next upside target on SPX in my view is the 1685-90 area and I'd expect that to be hit this week. If we see some retracement today I'd be looking for support at the weekly R1 pivot at 1668 ES and the 50 hour MA, currently at 1664 ES.

There is a possibility that this move up, which I am expecting to retest the 2013 highs, is just putting in the second high on a double-top, but for a number of reasons I doubt that. My main scenario here has a target of 1965 in spring/summer of 2014, as QE3 is tapering to a close. Traders should be considering the best long entries here to take advantage of that move.

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