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Wednesday, 15 January 2014

Unfinished Business?

I gave two important resistance levels on ES yesterday morning at 1823-5 and 1830, and ES blew through both of them. This action suggests that the retracement low may be in, and if we see SPX break over the last lower high at 1843.45 then the current downtrend will be broken. Furthermore we now have what look like failed double-tops across most US indices, and when these fail there tends to be a strong reaction in the opposite direction, so we may have now started a powerful move up. Nonetheless I think that the retracement low may still be ahead of us, and I'll show you why I think that may be the case.

Normally in a bull trend the first trendline to be established is a rising support trendline, and equally a falling resistance trendline generally first in a downtrend. After that other trendlines may become established to form patterns. Every so often though, as in the current uptrend from the 1646 low, the other trendline will establish first , with the obvious trendline then playing catchup.

SPX has established a good rising resistance trendline from the 1729 high (just before the 1646 low), and this trendline is likely to be the resistance trendline for either a rising wedge or a rising channel. At the start of this retracement I gave my primary target at what would be a rising wedge support trendline from the 1646 low. I was carefully examining the option of a retracement into the 1670 area yesterday because the currently entirely theoretical possible channel resistance trendline is there.

If the retracement low was made on Monday then the possible wedge trendline is unconfirmed, and I'd expect that (at least) to be hit before a hit of the wedge resistance trendline, currently in the 1870 area. Without a hit of this trendline this seems like unfinished business below, and I have serious doubts about the quality of this current low. SPX daily chart:
I have marked this up as a megaphone on the SPX 60min chart below not because this is a decent pattern, which it isn't, but because a break over declining resistance would be a bullish break, with breaks over 1843.45 and the 1849.44 as confirmations for that break. If we see a new high made with any confidence then I would have a target derived from the failed double-top in the 1875 area. SPX 60min chart:
I have marked up the RUT 60min chart the same way for the same reasons. A break over 1164.53 breaks the current series of lower highs and lows. RUT 60min chart:
On other market the last high on oil established a decent quality declining channel. While that channel holds then the obvious next target is at triangle support in the 80- area. If it breaks up then a possible double-bottom is in place which would target the 2012 highs on a clear break over 100.75. WTIC daily chart:
TNX has been declining as expected after the rising wedge broke down, and is bouncing at the moment in what may be a right shoulder bounce to establish an H&S pattern targeting the 26 area. As I have mentioned before, this may be the start of a huge rally on bonds in the event that QE3 is drawing to a close. There were huge rallies on bonds at the ends of both QE1 and QE2. TNX 60min chart:
I haven't posted a GDX chart in some months, but when I last did so, I said that the long downtrend on GDX would be ending or over if we saw a break over declining channel resistance there. GDX is testing that resistance again and I think it may well now break up. If it does that would be a strong signal that the bear market in precious metals is over. I'm watching this carefully on a weekly close basis. There are similar setups on both gold and silver, but neither as close to key resistance as GDX. Where GDX leads however, most likely the others will follow. GDX weekly chart:
Yesterday, for all the strength shown, was an inside day. I'm watching to see whether bulls can build on that to break over 1843.46 to break the current downtrend. Until that happens I'm leaning very cautiously bearish.

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