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Thursday, 13 March 2014

Hammer vs Panda

There are times when the bears are a genuine force to be reckoned with. The bears in 2000-2 and 2008/9 were large, slavering grizzlies with huge claws and teeth. Nowadays however they are fluffy vegetarians who are almost entirely impotent and in constant danger of extinction, so they are currently much more like Pandas.

The Pandas had an excellent opportunity yesterday morning and almost immediately seem to have snatched defeat from the jaws of victory, reversing three points short of the double-top target to return and test broken double-top support for the remainder of the day. I remarked to a trading bud in the morning that a near miss of the double-top target and return to broken pattern support was not a normal retest, in that the next move would generally be a break upwards, and when that support/resistance level is strong, then that break upwards would often be a gap over resistance at the next open. The SPX 50 hour MA closed at 1872.62 yesterday and with ES currently at 1872.50, we may well see that gap over resistance at the open today, just as we did after the last short-lived foray under the 50 hour MA at the beginning of March. The gap up then was followed through with a trend day up and we could well see that happen again today. SPX 60min chart:
On the SPX daily chart the low yesterday was two points away from the middle bollinger band, which was a technical hit, so I am treating that target as reached. The daily candle was a 60% bullish hammer, which on a break up this morning would have a target in the 1882 area. SPX daily chart:
On the SPX weekly chart we still have strong weekly closing resistance not far above at the weekly upper band. I gave the weekly closing ceiling on that in the 1890-5 range on Monday morning. Given the intraweek weakness this week that may have dropped five points. If we have a strong day then I'll have a better idea of the closing range tomorrow morning. SPX weekly chart:
So if we do see a break up today to retest the highs, what then? Well there are three main options. The first and least likely option is that SPX continues to crawl up under the weekly upper band, which would be unusual but can't be ruled out. The second and more likely option is that we now see a strong punch over the weekly upper band. that would be rare and bearish, but as SPX is almost within striking distance of the 1965 wedge target, it is now an option. The third and most likely option is that this test of the highs would make the second high of a larger double-top, which will then be followed by a more convincing retracement. My TRAN chart is supportive of that scenario here, and I think we may well see that happen. TRAN 60min chart:
If we see a gap up over the SPX 50 hour MA this morning, then we may well see a trend day up to retest the highs today or tomorrow. The short side would start to look interesting only if SPX managed to both fill the opening gap and close the first hourly candle of the day back under the 50 hour MA.

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