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Tuesday, 17 December 2013

Hold or Fold?

I often talk about the need, fairly early in any trend, to establish either a significant rising support trendline (in an uptrend) or a significant declining resistance trendline (in a downtrend). That is a key reason that I was looking for a strong rally here and I think those key trendlines have now been established on both SPX and RUT. The question now is whether those trendlines will hold or fold. If the downtrend is to continue then the RTH yesterday was the rally high and both SPX and RUT should turn down from there. If the downtrend is to break and open up a retest of the highs and a Santa Rally, then I'd expect those trendlines to break up today or tomorrow.

On the SPX 15min chart there is now a perfect falling channel from the last highs with three trendline hits above and below. This setup was strongly confirmed with two hits yesterday and this trendline is the key resistance here on SPX in my view. SPX 15min chart:
I've been treating the setup on RUT as a rough falling channel, but I think this is most likely instead a perfect but gently narrowing falling wedge. If so then the rally high there was also hit yesterday and a break up from this wedge would also be a strongly bullish signal. RUT 60min chart:
I gave the ideal right shoulder high area on NDX yesterday morning as the 3500 area and the opening high was 3494.41. For symmetry I'd normally expect another day or so of consolidation, but that's high enough for the right shoulder. A conviction break above 3500 would be a bullish signal here. NDX 60min chart:
The other important resistance here, though less important as it is currently higher than trendline resistance, is the daily middle bollinger band on SPX. A close back above this would be bullish confirmation of the bullish break of the falling channel on the chart at the top that would already have taken place. The upper band would be the next target and that's currently at 1815. SPX daily chart:
Not much of importance has been happening on bonds and precious metals recently, as we are close on both to very significant longer term levels, but haven't hit them yet. On bonds the 30 year bond yield (TYX) is nearing channel resistance on my declining channel from 1985 and a break above would be a strong signal that the bull market on bonds since 1980 has at last finished. Equally a strong reversal there would signal the opposite. TYX monthly chart:
On precious metals (PMs) my primary scenario is that both gold and silver make marginal new lows before most likely breaking back up for what might well then be a new bull market in precious metals. I have key levels to watch on all my PMs charts, but the first one to break up would most likely be the falling channel on GDX., with resistance there currently in the 23.5 area. As and when this does break up this should be a VERY strong buy signal. GDX weekly chart:
The top two charts are the key ones today. I'm leaning short here unless and until we see those resistance trendlines break, but if they do break up then we could be looking at a powerful move up over the next few weeks that would be boosted by the failure of the technically decent double-top on SPX. When these patterns fail there tends to be a strong reaction in the opposite direction.

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