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Friday, 7 February 2014

All That Glitters Is Not Gold

SPX and other indices finally broke away from the daily lower bollinger band yesterday, ending the ten day lower band ride downwards. My view here, though I could be mistaken, is that this is a counter-trend rally that will be followed by another move down to a lower low somewhere in the range between a test of the SPX 200 day MA, currently at 1710, and rising support from the 1074 low, currently in the 1650 area. My rally thesis would be weakened by a sustained move above the daily middle bollinger band, which closed yesterday at 1806.

For today I'm going to look at likely rally targets on SPX, and look at the support for those targets on other indices. Obviously we have a huge wild card today in the NFP figures before the open, but I'll just consider the technical merits of the three obvious target areas. First though here is my multi-index daily chart showing the moves of the lower band and which indices have broken over declining resistance. Multi-index daily BB chart:
Looking at SPX there are three obvious failure levels for this rally and the first is at the highs yesterday. The bollinger band target on a break away from the lower band is at a major MA (50, 100, 200) or at the middle bollinger band. The 100 DMA is currently at 1772 SPX and the close yesterday was at 1773 SPX. The break on Monday was through support in the 1770-3 area. I'm not expecting failure here but it's a possibility worth bearing in mind.

The second area is near the double bottom target in the 1780 SPX area. That would be supported by the 38.2% fib retracement being at 1781 but not a lot else. Again a target to bear in mind.

The third area is my favorite target and that is the strong resistance zone and possible IHS or W bottom neckline in the 1795-9 area. This is also an excellent fit with a test of the daily middle bollinger band, currently at 1806 but likely to reach 1799 in a day or two. This is my preferred target as long as the NFP numbers don't kill this rally right here: SPX 15min chart:
The NDX chart has a similar setup to SPX, with a double-bottom and falling wedge, both of which have broken up. The obvious target is the 3544-52 area at the double-bottom target, the 61.8% fib retracement and another possible IHS or double-bottom neckline. NDX 60min chart:
The RUT chart has a similar setup but interestingly neither the W bottom (or part formed IHS) nor the falling wedge have yet broken up. This adds some weight to a reversal or retracement at yesterday's highs. in the case of the retracement the goal would be to add a right shoulder to what looks like a part-formed IHS. If RUT goes higher I would have preferred targets at the 50% fib retracement at 1132 or at the 61.8% fib retracement level at 1144, another possible IHS neckline. RUT is lagging SPX seriously though and to reach either target that would need to change today. RUT 60min chart:
On TRAN a double-bottom has again broken up and a falling wedge is breaking up. My preferred target is the double-bottom target and the 50% fib retracement in the 7300 area. TRAN 60min chart:
I'll close with a look at gold today. I don't post my main gold chart very often, but that's only because it takes a while for much of interest to happen on it. The last time I posted this was on 13th September when I was looking for a test of the lows on a break back below 1300. Fast forward almost five months and the low has now been tested with a possible major double-bottom in play. Key resistance is the same as last summer at the key 150 day MA, currently at 1292, and if gold can recover back over that and hold above it then there will be very good odds that gold is back in a bull market. On a further break of 1434 the double-bottom target would be in the 1688 area, and from there I would be looking for continuation to new highs. This chart may be one of the most significant trading setups for the year and I'll be watching gold very carefully to see whether it breaks up or fails at this key bull/bear level. Watch this space. Gold daily chart:
NFP figures are out and after the usual wild action ES is settling higher than before those figures were released, so I'm not expecting a rally fail at my first target, and most likely not at my second either, though that is still possible. My main target here is that 1795-99 SPX zone or Monday or Tuesday, with a possible overshoot into the 1800-10 area on a false break up. Anything over 1810 SPX would invite a test of the current highs,and on a break to new all time highs I would be back to looking for my 1965 wedge target to be made. Everyone have a great weekend :-)

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