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Thursday 1 May 2014

A Wall of Worry

The bears have had some decent opportunities this week, but each time the bulls have reeled them back and pushed up a bit further. With just a little more upside NDX is close to another test of falling megaphone resistance, and if NDX can break over that and hold above that trendline, then a major obstacle to more upside is cleared. NDX 60min chart:
On SPX the 1884.89 high was taken out at the highs yesterday, and the next target is the 1897.28 all time high. Support at the 50 hour MA held well at the low yesterday and if we are starting a new impulse upwards, as many think, then that should continue to hold. Any significant break of the 50 hour MA, currently at 1875, will suggest strongly that SPX is still in retracement / consolidation mode. If we are in a new impulse upwards then I would note that the 1965 upside target that I gave last June could now be reached easily within the current rising channel. SPX 60min chart:
If we do see a break below the 50 hour MA then strong support below is in the 1861-3 range at the daily middle band and the 50 DMA. Resistance at the daily upper bollinger band is now at 1903, but there is better resistance below at the weekly upper band, now at 1896. In practical terms I'd be surprised to see any break over 1905 intraday this week, and I'd expect SPX to close this week no higher than 1900. SPX daily chart:
Looking round the world my attention keeps getting drawn to the FTSE, where last year's spring high has not yet been beaten, and where there is a really nice looking possible major double-top. Bulls shouldn't get too complacent here as we are now in prime topping season, with a lot of very nice part-formed topping patterns that could start to look very dangerous given the right trigger. FTSE daily chart:
I've posted a few times over the last year talking about the almost universally accepted meme that QE pushes bond yields down, and posted the charts that demonstrate without any real room for doubt that this is the opposite of what has actually happened in all three QE periods to date. People are concerned now that as QE3 winds down, then interest rates may start to push up hard. Back on Planet Earth I am looking for indications that they may be preparing to decline sharply.

If history is a guide here, and we are going to see a sharp decline in bond yields soon as QE3 is wound down to zero, then I'd be looking on the TNX chart for a big bearish pattern that has broken down, strongly negative RSI divergence, and ideally a part formed H&S or double-top. What I see is a broken rising wedge, on strongly negative weekly RSI divergence, and a very nice looking part-formed double-top. On a sustained break below 24.71 the double-top target would be in the 19 area, and if it stopped there it would still be a much smaller decline than either of the yield declines seen at the ends of QE1 and QE2. Just sayin'. TNX weekly chart:
For today I'm looking for an AM low with an ideal target in the 1875-8 area, and then a push up towards the test of the 1897 high. I'll be watching NDX to see whether that large megaphone can break up. The historical stats for today and tomorrow are strongly bullish, though that's not the case for most of the remainder of the month, so for the rest of this week I'll be leaning bullish until we see any decent evidence to the contrary. 

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