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Tuesday, 24 September 2013

The Joy of SPX

I'm going to do an all equities edition today, as the most important thing to consider this morning is where equities are going from here. I focus most of my equity index analysis on SPX as it is the largest and deepest of the main equity indices, and trends well, which is my description for something that will generally produce good trendlines, patterns and divergences. However, sometimes SPX is not enough, and I keep an eye on all the major US indices to consider what they are telling me at a point where SPX is at an inflection point. This morning I'm going to have a close look at the broad Nasdaq index COMPQ.

Looking at the COMPQ daily chart back to the low last November, the post FOMC high on COMPQ made a fourth touch on a now very strong rising channel resistance trendline. I posted this after the 3694 high in the expectation that the next target would be at channel support, but COMPQ reversed earlier than  expected to touch the upper channel trendline a second time. A direct break up from a channel like this are rare, so COMPQ makes a higher high from here then it will most likely be marginal, and the next obvious major target is at rising channel support, currently in the 3500-50 area. As with the SPX daily the RSI 5 is what I mainly use to identify important reversal areas, and there is currently no negative divergence there, suggesting that we may well see a higher high or at least a test of the highs before the move towards channel support. COMPQ daily chart:
Looking at the COMPQ 15min chart we can see that it touched rising wedge support from the late August low at the low yesterday, and bounced to test declining resistance from the high at the high yesterday. COMPQ will break out one way or the other today as the two lines will meet this afternoon, and the direction of the break will most likely tell us (or confirm) a bounce or further break downwards on SPX. COMPQ 15min chart:
I'm leaning towards seeing a bounce on COMPQ here, partly because of the decent bounce setup on SPX/ES, but also because of the open targets above on AAPL, with an IHS target in the 505-10 area, and a large double-bottom target in the 540 area. Here is the setup on my main AAPL (60min) chart, and this is a very strong bullish reversal setup that I have been tracing out all year. I'm expecting both upside targets on AAPL to be made, and that may well give COMPQ a boost here. AAPL 60min chart:
What does COMPQ tell us about SPX? Firstly it tells us that the perfect retest of broken rising megaphone support at the FOMC high was most likely because we are still making a top from that pattern, and that SPX is currently most likely making a high for a large retracement that may be the largest we have seen so far this year. I'll also mention that in the event of a breakdown today that the 50 DMA is at 1679 and the 20 DMA (middle BB) is at 1674. SPX daily chart:
On the SPX 60min chart we can see that a possible H&S is almost formed, and that on a break down SPX would have a target back in the early 1660s, filling both remaining gaps below. On a strong bounce here the obvious target would be a test of broken rising channel support, which would now effectively be at a test of the post FOMC high. SPX 60min chart:
Lastly on ES I would add a third possible option. Any strong bounce today would be on the basis of a double-bottom that has formed on ES with a target in the 1707 area on a break over 1698.25. The third option I have added is that an H&S may be forming on ES with a target equivalent to the SPX H&S, and that if we were to see a strong reversal close to 1707, that would be an option to consider. ES 60min chart
My preferred option here is for a retest of the post-FOMC highs, and early indications on ES are that we may well at least get that strong bounce today and tomorrow. I'll be posting some charts for bonds, gold, CL etc on twitter after the RTH open.

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