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Thursday 21 November 2013

Dogfight at 1780 ES

Something very unusual happened yesterday. There was a strong bull setup that ended the day looking as though it may have been steamrollered by the bears. That will need confirmation today, and might well not get that confirmation, but if it is confirmed it will be an impressive show of strength from the short side here.

That setup was the falling wedge that I posted on twitter last night showing what may well be that 70% bullish wedge breaking down. The break downwards may just have been a strong bullish underthrow and if so we should see a break over wedge resistance in the next day or two and at least a test of the highs shortly thereafter. If SPX should dip back below wedge support today however, then most likely that wedge is breaking down with a target in the 1765 area and, as I said, that would be the most impressive bull setup failure that I have seen in quite a while. SPX 5min chart:
So which was is this going to break today? There has been a strong recovery on ES overnight, and at the time of writing ES has recovered back over the weekly pivot at 1781.8 and retested that as support. ES has also recovered back over the 50 hour MA at 1784 and as long as that can hold as support the bulls are in with a shot today. I would put key resistance today at declining resistance in the 1791.5 area and the key support that the bulls need to hold at the weekly pivot at 1781.8. ES 60min chart:
I have been using RUT as my canary in the coal mine over the last few days and while the setup on SPX gives the technical edge to the bear side in my view, the setup on RUT is strongly bullish. RUT broke up from a falling wedge yesterday morning and then returned to put in the second low of a possible double bottom at the afternoon low. It has formed a strongly bullish double-tap reversal (DTR) that I have pointed out and explained on the chart. As long as yesterday's low holds this is a strongly bullish setup. RUT 15min chart:
Even if we see the highs retested and new highs made, I'm expecting a strong retracement soon and on the weekly chart that should be a decline of 4% or more as I explained on Monday after the punch over the weekly upper bollinger band on Friday. That would be a decent fit with a test of the weekly middle bollinger band, currently at 1708. SPX weekly chart:
If we do see a break downwards today, I mentioned that the wedge target would be in the 1765 SPX area, a decent fit with a test of the daily middle bollinger band at 1771. The support level to watch however would be the 1650 SPX level, at the broken rising wedge resistance trendline from the June low that was retested at the last low. That would be a decent fit with the daily lower bollinger band which will soon hit the 1650 area, and is in my view the key resistance level below. As long as the bulls can hold the 1750 area they remain in control. if the 1750 SPX area is lost then a lot of potential downside will open up. SPX daily chart:
I was asked overnight what my thought on TLT were after the strong move down there yesterday. I posted a TNX chart two days ago with the comment that I was expecting a strong move down on bonds (and up on bond yields) over the next few months and I suspect that is now starting. I'll be posting a TLT chart on twitter after the open. Gold also appears to be starting a serious move downwards and I'm expecting to see the whole precious metals complex carried down with it. I've been posting the perfect falling channel on GDX regularly in recent months and am posting it again today to show that this next move down may cut GDX by a third and undercut the late 2008 low at 15.48. Don't be long GDX unless that channel breaks up until at least the test of the 2008 low. GDX weekly chart:
This will be an important day technically and could go either way. As long as the bulls can hold first the 50 hour MA on ES, and secondly the weekly pivot at 1781.8 I will be leaning cautiously bullish. Bears want to kill support at both and break back below the SPX falling wedge, at which point the advantage would be strongly back with the bears.

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