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Monday, 28 October 2013

FOMC Tomorrow

The big news this week is FOMC tomorrow, and that is a big risk factor for this week as it may well be that some Fed members are irritated that there is now talk that, with Yellen coming in to replace Bernanke, there is no prospect of QE being tapered in the foreseeable future and that it may well be expanded. A number of Fed members have significant reservations about QE still and it would be strange if they weren't disturbed by such talk, which may prompt some hawkish talk tomorrow that in turn could well trigger a retracement.

Regardless of that risk/reward is tilted towards the downside here. I said when SPX reached the weekly upper bollinger band that the weekly upper band would now be the main resistance level. SPX closed Friday at 1759.77, just 0.04 above the weekly upper band. I would see a maximum closing range for that weekly upper band in the 1770-5 area this week with a possible overshoot to 1780. Potential downside is considerably larger here. SPX weekly chart:
One last thing that I would note from the chart above is that in my view the resistance trendline from the October 2008 rally high through the 2010 and 2011 highs has now broken and should no longer be considered as significant resistance even on a retrace below it. One other key resistance trendline I have been watching was rising wedge resistance from the June low and that has also broken upwards. As I mentioned some 90 points ago, a break up through that would target over 1900 and I have the target now for that at 1930. That target joins the 1965 target already in place from the rising wedge from the 2011 low that broke up earlier this year, and my main scenario here is that we hit that target area for the Spring high next year. I am regarding any retracement soon as a buying opportunity for the push into that target area. SPX daily chart:
Will we see such a retracement soon? I think so, and the setup for seeing that soon looks increasingly good. From the chart above I would note that another test of broken broadening wedge support from November 2012 is now in the 1770-5 SPX area, which is a good fit with weekly upper band resistance. From the chart below I would note that we now have a setup to deliver both daily NYMO and RSI 5 negative divergence on a high made in the expected range this week, which is promising. SPX daily chart vs NYMO:
I'm not expecting that retracement to have already started, but I would be remiss not to note that there is now a perfect possible double-top made on SPX here, and that if we were to see a break below 1740 SPX next then the double-top target would be in the 1720 area. SPX 60min chart:
On ES the possible bull pennant I was looking at on Friday morning obviously broke up, and ES is currently retracing from an overnight high at 1762.25. I have 50 hour MA support at 1750.75. ES 60min chart:
On other markets I am watching USD carefully as it approaches the possible double-top trigger level at 78.60. This is the do or die level for US Dollar bulls, and will be particularly interesting to watch this week in the context of the FOMC meeting tomorrow. If an expansion of QE is announced I would expect USD to trigger that double-top shortly afterwards. USD daily chart:
GC formed a rising wedge from the last low which has now broken down on strongly negative RSI divergence. I'm expecting some significant retracement to start shortly. GC 60min chart
I was updating my AAPL chart over the weekend as my double-bottom target at 540 has almost been reached and I've been considering the possibility that the next target for AAPL would be channel resistance in the 570 area.That's possible, but what was looking on the chart was the very sharp negative 60min RSI divergence here at the 50% retracement of the move down from the high last year. The last two equivalent negative divergences were both after that low and both delivered declines over 5%. Worth bearing in mind as AAPL reports earnings today. The chart setup suggests that those may well disappoint. AAPL 60min chart:
The main story this week is ts the weekly upper bollinger band on SPX. A punch above it on a weekly close basis would be rare and would usually signal an imminent top that would look more significant than anything I am expecting to see this year. If it doesn't break up on a weekly closing basis then I have the likely closing range in the 1770-5 area with a possible overshoot into 1780 SPX. That's not a lot of headroom and a retest of the overnight highs would take ES to just below the lower end of that range. I'm leaning cautiously bullish today and, subject to any possible policy lunacies discussed at FOMC, bearish from there.

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