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Monday, 9 December 2013

Advantage Santa

I posted a chart on twitter on Friday evening showing the move up from the lows last week, and showing the strong setup there to retest the highs today. The low on Friday morning retested the break over a double-bottom targeting the 1814 area, and by the close a rising channel from the lows had formed on SPX. While that rising channel holds I'd expect a retest of the highs by lunchtime today, as the channel support trendline is rising an impressive 18 points per trading day. If it breaks down then the double-bottom remains a strong setup as long as Friday's low at 1796.81 holds. SPX 1min chart:
On the daily chart Friday's move up was a strong reversal at middle bollinger band support. The next obvious target is the upper bollinger band which is now in the 1816 area. That obviously supports the double-bottom target on the chart above. SPX daily chart:
If a new highs made with any confidence then that will confirm first that SPX is still making higher highs and lows. It would suggest strongly that the uptrend is resuming and we might well therefore see a strong 'Santa' rally into the end of December. The retracement has been large enough to create some room for that as the weekly upper bollinger band is at 1830 now and could end the week as high as 1835-40. At the normal rate of increase in a strong market the weekly upper band could be as high as 1870-80 by the end of the year. SPX weekly chart:
Are the bears now out of the game? No, as the possible H&S forming that I posted on Thursday morning is still very much in play. For it to continue to be in play we would need to see little further upside before a sharp reversal back down today or tomorrow morning at the latest. I think bulls have the advantage here, but the bears still have a case as long as this pattern is in play, and if we see a test of the highs then there will then be a possible double-top in play as long as the current high isn't broken with confidence, though I'd be very doubtful about that possible double-top playing out. SPX 60min chart:
I've been looking at the bonds charts this morning and TYX (30yr Treasury yields) are clearly in a rising channel at the moment and looking higher. Bonds are therefore in a clear downtrend while that channel lasts. TYX 60min chart:
The bulls are starting with the advantage this morning and if we have a strong day then they may well keep that advantage into the end of December. The bulls have seasonality and the Fed on their side. The bears have got ..... whatever it is that they have got. A strong break in either direction today should run quite a bit further so I'm looking for the main direction for the rest of the month to be established shortly.

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