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Wednesday 5 February 2014

Minor Inflection Point Here and Yen

We had a nice little oversold rally yesterday and that has established a perfect declining channel on the SPX 5min chart from the 1793 high. That may hold, and if so the next move is going to be down. This is the chart I posted on twitter last night. SPX 5min chart:
That isn't necessarily going to be the case though. Channels often break shortly after being established, and if we are seeing a series of falling wedges form on the main indices then the target for the current rally is the resistance trendlines on those falling wedges. The example of NDX below is fairly representative and shows that there would still be some way to go. On SPX that resistance trendline would also be a decent fit with a retest of broken support in the 1765-70 area. NDX 60min chart:
As I was saying yesterday, the minimum target for a decent correction in my view would be a test of the 200 DMA on SPX, currently at 1708. I'm showing this on a chart with other main indices below showing how far they are from their respective 200 DMAs. Dow peaked first and is now the only index on this chart to have already reached the 200 DMA. I'm watching Dow with interest to see whether it continues to lead down or starts to outperform here as that may deliver a valuable clue as to whether the SPX 200 DMA might hold as support. Multi-Index Daily 200 MA chart:
On other markets oil has broken the declining channel and is now trading with the 50DMA as support and the 200DMA as resistance. Oil needs to establish the 200DMA as support on the possibly very bullish scenario forming here. WTIC daily chart:
Looking at EURUSD this morning I noticed that from the break of the falling wedge EURUSD has formed a megaphone. I would generally treat this as a continuation pattern so that looks bearish, and I would most likely expect a break down without a break back above declining resistance, now in the 136.5 area. If EURUSD breaks that to return to megaphone resistance I would see this setup as more direction neutral. EURUSD 60min chart:
I don't tend to refer back much to my many successful directional calls and that's because I'm a Brit, and boasting is culturally very frowned upon here. This is sometimes interpreted by my mainly US audience as evidence that I have little to boast about, which is far from the case as any of my regular readers know. I mention this because I'm about to make a bold call on Yen, and the last bold call I made on Yen was one of my best calls ever, when I called JPYUSD as a strong short at 125.9 on 14th November 2012. Here is that post here, and the Yen chart from that post here. As you can see from the chart below Yen then dropped like a stone over the next six months to a low at 96.41.

My point is that much as I hate to call a long setup on Yen, the currency for a country where bankruptcy and default at some point in the next few years seems a foregone conclusion, there is a really nice long setup here within what I would expect to be a larger continuing downtrend. Yen has retraced 61.8% of the preceding move up and has established a falling channel at the second low of a large double bottom that appears to be forming there on very strong weekly positive RSI divergence. The target on a decent break back over 106.5 would be the 118 area, with falling channel resistance currently at 125. This is sweet long setup and may well deliver, so I am reversing back long on Yen here. Watch this space! JPUSD weekly chart:
Important resistance for today is the ES 50 hour MA, now at 44 and being tested for the first time since 1779. Slightly above that is falling channel resistance which should start today slightly under yesterday's SPX highs. If these break up then expect a retest of broken support in the 1765-70 SPX area. If they hold as resistance then I would expect a test of the current lows today.

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