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Friday, 27 September 2013

Knife Fight at Support - Day 3

First let me express some sympathy for those who bought the close yesterday in the expectation that the falling wedge on SPX had broken up and retested and that yesterday's strong close was a break up. I did say yesterday morning that the falling wedge on SPX wasn't of high quality. However the falling wedge on ES is a decent quality pattern and that broke up at the close yesterday. As long as support holds this morning, with ES having currently made marginal new lows for the week, there is a strongly bullish setup here with the broken falling wedge and possible double-bottom targeting the 1710.5 area on a break over 1696.5.

It should be borne in mind though that if the gap fills, and I gave that target at 1683.75 on the basis of the ES Dec contract, (but I've been given 1682.5 and 1681 as alternate gap fill targets on the basis that the gap was established in the ES September contract,) and falling wedge support (currently at 1679) breaks, then the falling wedge break up was a bearish overthrow and the downside target would be in the 1640-5 area, somewhat below the H&S target in the 1649 area. Either way ES is at an important inflection point that should set direction for the next few days. ES 60min chart:
On the SPX 15min chart I have shown the falling wedge in close-up so you can see how weak the upper trendline is. However you can also see that there is a very nicely formed megaphone or broadening bottom (direction neutral despite the name). The next target within the megaphone is to pattern resistance in the 1715 SPX area. The megaphone support trendline is a match with the falling wedge support trendline on ES so a break below one should be a break on both, and all the more bearish for that. SPX 15min chart:
On the SPX daily chart I would note that the support levels at the 50 DMA and middle bollinger band (20 DMA) are now at 1680 and 1682 respectively so there is potential support there on a break downwards, though given the pattern setup I wouldn't expect that to hold. SPX daily chart:
On COMPQ the second high of a very nice looking possible double-top has now been made. Something to watch if ES and SPX break down. COMPQ 15min chart:
There's some talk that bonds may reverse back down here but I think we're just seeing consolidation. My M top target on the TNX chart is in the 24 area and I'm not seeing much reason to think that won't be made. TNX daily chart:
Oil is still at a major inflection point on my WTIC weekly chart. Much lower starts to look very bearish, a new high from here looks very bullish. Right here is just oil kicking around waiting for an indicative move either way. WTIC weekly chart:
The precious metals complex is also still at a major inflection point. GDX is currently at 25 and I have a target in the 40 area on my bull scenario and a target at 15 on my bear scenario. If an IHS is forming on GDX (similar setups also on gold and silver) then I'd expect it to turn back up here and then break the declining channel to confirm. A move much below 25 would suggest new and possibly much lower lows. GDX weekly chart:
ES/SPX support may or may not hold today, but just above major support with the odds evenly balanced between bulls and bears only delivers one decent swing risk/reward trade, and obviously that would be a long trade with a stop below support. As it is I would say the bulls currently have the edge in terms of the pattern setup here as long as we don't see a strong support break before the open, which might well then be a breakaway gap through support. Unless we see that I'm leaning towards seeing at least a fill of the opening gap today.

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