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Friday, 8 November 2013

Black is White

What a strange looking glass world we live in nowadays. The NFP figures strongly beat 204 vs 148 expected this morning and this good news prompted an initial strong decline on ES, as good employment numbers make QE tapering more likely and therefore are bearish for equities.

Yesterday saw SPX test the last high to form a perfect double-top and then strong rejection there to deliver a daily bearish engulfing daily candlestick. That is a very bearish candle but needs to followed through shortly, and I would note that I have a possible failure level for this reversal at the low yesterday. That failure level is at the SPX daily middle bollinger band and broken rising wedge resistance from the 1560 low, and bears will need to break underneath that to deliver the main retracement targets here. SPX daily chart:
Assuming that level can be taken out, the first retracement target is at 1729 SPX at the double-top target. That is very close to the 38.2% fib retracement level at 1726. SPX 60min chart:
The second target area is around the 50% fib retracement at 1711 SPX. That area is close to the 50 DMA, currently at 1707, and the daily lower bollinger band, currently at 1703 and rising rapidly. Based on the daily bollinger band setup this 50% retracement target is my preferred downside target. Hopefully while this retracement is in progress a pattern or at minimum strong declining resistance trendline will develop, which would help identify when the move has ended. The highs retest yesterday has delivered decent trend reversal signals on the daily chart now though, with clear divergence on both NYMO and the RSI 5. At absolute minimum I would normally expect the RSI 5 to hit the 30 level before a reversal back up. SPX daily chart vs NYMO:
What else can we use as a guide here? Well the failure of the IHS on RUT was the first warning of this reversal, and as there is now a clear declining resistance trendline on RUT from the high there I'm planning to watch that for a warning signal if the decline on SPX is too fast to develop one there. The RUT chart is relatively very weak and if SPX hits the 50% fib retracement target it is possible that RUT may have retraced 1005 of the previous move by then. RUT 60min chart:
I also have an H&S target on WLSH that I'll be keeping an eye on. That made it about halfway to the target yesterday. WLSH 60min:
In the event that we see a decent bounce from the open today , and I'm hoping we do as there are no usable trendlines without decent bounces, then there is an area worth noting as a possible target on ES. I have mentioned that the weekly pivot on ES at 1757.4 is important a couple of times this week and would note that the 50 hour MA is currently at the same level, with the 100 and 200 hour MAs at 1759. If we see an early bounce that area will be the obvious target.

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