- This blog has a copy of all header posts that I publish anywhere, so that those interested in seeing what my thoughts are on the markets can find them easily.
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Sunday 29 June 2014

Bear Window Closing

My daughter is getting braces tomorrow morning and I'm going with her so I'm unlikely to manage to put a post together before the open tomorrow. I've given this some thought and decided to do a short post tonight and then if I see anything else worth posting before the open tomorrow I'll post it on twitter then or, if I get back in enough time before the open, I might manage to put up another short post then, but at the moment I think that's unlikely.

SPX had a decent day yesterday, closing on the key resistance level at 1861 that I flagged as an important bull/bear level in the morning. That may hold tomorrow, as the stats for the last day of the second quarter are bearish, with Dow showing 33% positive closes over the last twenty years or so and SPX at 38%. I looked at the last ten years of these on SPX in detail and pulled out the following interesting points:

  • Six out of ten red closes
  • Seven closes less than ten points either way
  • Biggest red close -11 (2010)
  • Biggest green close +33 (2012)
The +32 close is an outlier as all the other closes were at 12 or less, but it's worth noting that the two largest moves, the +32 and the +12, were both upwards. We could see a retest of the highs tomorrow on this history, and if SPX takes the obvious red close option, there's no historical reason to expect a close under 1950 SPX.

So where does this leave the immediate case for a move to retest 1926? Not in a great place next week. After we made the 1968 high on Tuesday I was looking at the period from there through to the close tomorrow as the window of opportunity to see that retracement, and unless we see an almost 2% move down tomorrow, that window will close without the bears having managed anything more than a test of my first support level at the daily middle bollinger band. SPX daily chart:
I was also watching the SPX 50 hour MA all week and SPX just couldn't hold below it, despite it helpfully rising ten points to 1957 over the course of the week. A strong downtrend tends to hold below that as resistance, consolidations and weak retracements do not. This was a weak retracement that isn't showing any obvious sign of expanding. 

After the close on Monday we are into the last three trading days before the holiday weekend and the stats for those, and indeed generally for trading weeks into holiday weekends, lean bullish. We may well just see more consolidation, but the best chance for a significant retracement before the holiday weekend has already been lost, and the bulls should get another shot at breaking very strong resistance at the SPX weekly primary rising channel from the 2011 low, though I would repeat that really is strong resistance, and after two punches over the weekly upper bollinger band during the last four weeks, the historical odds strongly favor correction or at minimum another couple of weeks of sideways consolidation. SPX weekly chart:
So what are the odds of that strong channel resistance being broken? I'd still go with less than 25%, but it can happen. My third and last chart today is the AAPL chart where a decent channel from the low a year ago broke up in early June. It wasn't as good a channel, but it was decent and would normally have held. The other reason I'm posting this chart today is because since the small rising wedge has broken down AAPL seems to have been forming a bull flag, and has now established a new rising channel that could well mean that a new leg up is starting, if it holds. At the least I'm thinking that a retest of the current high looks likely on this setup. AAPL daily chart:

So what if the primary channel does breaks up? Well if that break wasn't swiftly and decisively reversed the case for seeing a big retracement at all this year would be badly weakened, and as I mentioned a couple of times last week I would then have a new rising wedge target in the 2160 area, with a possible fail area in the 2020 area if the wedge evolved into a rising channel from the 1736 low. Could that happen? Well it was interesting that on the top chart in this post you can see that SPX broke above rising wedge resistance for the third time last week, and that it was then acting as support on both Wednesday and Friday, though I would also note that the SPX 50 hour MA was at the same level both days and it may have been that which was actually the support. I'm definitely not ruling out this wedge breaking up though, and I'll be looking at this in more detail if that primary channel resistance breaks.

Short term though the stats for Monday lean bearish and I'd be surprised to see much more than a test of the current high at 1968 tomorrow. The SPX 50 hour MA and broken rising wedge resistance from 1737 are both in the 1957-9 area and the bulls would like another open and close above those. The chances of seeing a big retracement next week would improve considerably with a conviction break below 1950, but there's no historical reason to expect that tomorrow.

Friday 27 June 2014

Two Main Options Today

SPX tested the daily middle bollinger band yesterday and as with Wednesday, there was then a sustained rally to a lower high (so far). The SPX daily middle band is obviously a significant support level, but there should be more downside coming if the bears can put a whole day together. SPX daily chart:
For today there are two main options. The first is that if yesterday's low can be taken out, then the 1,2 - 1,2 setup of the last two days should deliver a more sustained move with a chance of breaking the daily middle band and making my 1926 target to test larger double top support there. The second option, if SPX can break back over 1960.83, is that the 1968 high should then be tested. SPX 15min chart:
TRAN broke rising channel support again at the low yesterday, but again the break was small and of limited duration. The channel is badly compromised now, but only a sustained break below channel support will open up the downside. I'll be seeing if the bears can do better today. TRAN 60min chart:
TNX broke slightly below double top yesterday and if that turns into a sustained break then my first target area would be 23.5 to 24, with a target of 16 opening up on a break below falling wedge support. That target wouldn't be out of line with the moves at the ends of QE1 & QE2, though QE3 isn't of course quite finished yet, and the sharp correction in equity prices also seen at the ends of QE1 and QE2 remains elusive here so far, though it may be starting now of course. TNX 60min chart:
GLD looks weak here to my eye and on a break below 126 I'd be looking for a test of rising support, currently in the 124 area. GLD 60min chart:
CL also looks weak on the daily chart, with negative RSI divergence at a level that suggests that correction is close. On a sustained break below 105 I'd be looking for a move to testing rising wedge support in the 102.5 - 103 area. CL daily chart:
The bears had an ideal window from Wednesday through to the close next Monday to impress, as after that we go into the bullish leaning period around the holiday weekend. Two days have passed without a sustained decline and bears really need to perform today. The opening setup looks encouraging at the moment so we shall see. If we see that break back over 1960.83 today then I'll be writing the bears off until Monday or until the 1968 high has been tested and rejected again.

Thursday 26 June 2014

Counting Cards

I've had quite a few new readers in the last few months and it struck me yesterday from a couple of comments that at least some of these were obviously still hazy on the distinction between technical analysis and fortune telling. It can be an easy mistake to confuse the first with the second, as a good analyst can sometimes make calls that seem almost supernatural. Some of my past calls have been amazingly and rapidly accurate, and some offhand examples I'd pick would be:

  1. My June 2010 call of the low area on BP just before the end of the wild decline after the oil spill, 
  2. My February 2011 call of the inflection point area on TYX (30yr Treasury Yields), days before TYX reversed at channel resistance and started a decline halving the long term bond yield over the next 18 months
  3. My November 2012 call to short the Yen just before it declined over 20% over the next six months
  4. My June 2013 call for SPX to rise to 1965

There are many others that I should really list on a page on my blog at some point, but my point here is that while this sometimes may appear to be magic, it's actually just good technical analysis. I don't have any supernatural powers, and I cannot see into the future. Any setup I show, however impressive the historical precedents, can go the other way, taking a lower probability path. I have no magical power to see into the future. No technical analyst does.

At school I used to supplement my pocket money by counting cards while playing blackjack for money. It's not an easy skill to learn, but if you can do it you can tilt the odds into your favor to a degree where over a period, and on average, you can win reliably. That's why they watch out for card counters in Las Vegas, and ban them for life from casinos as soon as they are identified. Casinos don't want customers who can turn a game of chance into a game of skill. That's because they don't like losing money, which is fair enough.

Technical analysis is akin to counting cards at blackjack. You can never know what the next card dealt will be, but it is a skill that can tilt the odds in your favor to a significant enough degree that you can beat the market with a reasonable degree of consistency. Unlike casinos you don't get banned from exchanges for using it, which is why trading the markets can be a game of skill in a way that playing blackjack in a casino can't.

When I was looking at the setup yesterday morning I warned that the bears might collapse at the open, that a break back over the the SPX 50 hour MA would badly damage the chances of more short term downside. I flagged a break below the rising channel on TRAN as important for opening up the downside. I tweeted after the bullish open that we might see a retest of the highs. Nonetheless some readers seem to have condensed everything I said into 'market-go-down-now', and were disappointed that didn't happen. Alas, that just isn't the way it works:
Equally the strong recovery yesterday doesn't actually change much, and those who have concluded from it that the market will power up directly through 2000 from here over the next few days are just as likely to be disappointed as they were at the start of the week. Not only are significant tops often signalled by declines just beforehand that are quickly reversed amid premature celebration parties thrown by bullish ignoramuses, but neither a 61.8% fib retracement of a decline nor a retest of the highs are inherently bullish, and are both frequently part of a topping process.

The main obstacle for the bull side here remains the same, and that is very strong resistance at the primary rising channel resistance trendline slightly above the current highs. That could break of course, but until it does it is rising at about 15 points per month, and potential upside is limited to that. The SPX weekly chart:
Are we definitely going to make a significant high here? No, anyone with a guaranteed forecast can be reasonably assumed to be a fool or a liar. There are no guarantees. What I would show today though, in addition to all the other various historical precedents that I've looked at over the last week, is the daily SPX chart with the marked divergences against the daily NYMO, and the SPX daily RSI 14 and RSI 5.

I think we can all agree that the period from the start of 2013 has been unusually bullish by historical standards, so I've started this chart there, and the eight shaded areas on the chart are the areas where SPX has positively diverged from NYMO and either or both of the RSI 14 and RSI 5. There are seven previous instances over this very bullish period and the smallest retracement after these previous seven instances was about 2.2%, which if we were to see that minimal retrace here, would target 1926 SPX, a key retracement target that I've been looking at and also the target on the possible double-top that would form if we were to see a retest of the 1968 high. No guarantees but just sayin'. SPX daily chart vs NYMO and RSI:
The main options that I am looking at today are that either we saw a 62% retrace of Tuesday's decline yesterday and the decline will resume early today, possibly after a retest of yesterday afternoon's high, or that we will see a retest of the 1968 high, making the second high on a double top targeting the 1926 SPX area. After either we should decline again, with the obvious first real target at a retest of the 1926 low SPX 60min chart:
TRAN pinocchioed the rising channel support trendline near the open yesterday, but it didn't break, and the small double bottom failed on the bounce. That was disappointing as that channel is most likely going to need to break soon to allow a decent general decline. I am watching the chart and seeing if I discern a context for the current move. TRAN 60min chart:
TNX is still in the inflection point that it has been pinned in for a while now. As and when it breaks this should signal a big move in the direction of the break. Short term TNX tested possible double top support yesterday and it has held so far. TNX 60min chart:
I posted a bearish looking USO chart yesterday morning and would add that if we were to see a decline on oil here, then the ideal signal for that would be a marginal new high in the 108 area to establish negative daily RSI 14 divergence. I'm in two minds about this chart as the rising channel is strong and the bullish triangle target is still open, but the price action in recent days hasn't been particularly encouraging, and whatever it is that Al-Qaeda/ISIS are doing out there in Iraq, it hasn't been bringing home the bacon for oil bulls so far. WTIC daily chart:
What are the odds that the primary channel is about to break up? Well a lot higher than your chances of being killed in an asteroid impact, which are themselves a surprisingly high 1 in 700,000. Looking at the history I'd give the odds to this breaking up at all at perhaps 25%, but it's important to remember that while that means that I think that there is a 75% chance that the channel will hold, I am assigning a 25% chance that it won't, even if that's as high as 25% only because I too have been very impressed by the tenacity of this energizer bunny of a market.

Barring that though, and I suspect strongly that the chances of a break up are lower than 25%, and in any case that wouldn't be 25% odds of it breaking up right here and now, which I'd put at no more than a generous 10%, then the main options are the ones I laid out above, which I'll repeat below:

The main options that I am looking at today are that either we saw a 62% retrace of Tuesday's decline yesterday and the decline will resume early today, possibly after a retest of yesterday afternoon's high, or that we will see a retest of the 1968 high, making the second high on a double top targeting the 1926 SPX area. After either we should decline again, with the obvious first real target at a retest of the 1926 low.

Wednesday 25 June 2014

A Road to 1884

SPX made my target area at 1965-70 and rejected hard there. A candidate significant high for a 10%+ correction is in place but we're going to need to see some follow through here first to open up the obvious downside targets for that correction. On the SPX 60min chart the 50 hour MA was broken near the close yesterday and SPX closed below it. I'd like to see that established as resistance today and after that any significant break back above it would be a warning that this retracement might be over. 

Assuming we see some follow through today the next serious support is at the daily middle bollinger band, currently at 1940, and if the bears are to have a shot at a decent retracement here then it will need to break. That would open up a test of double top support at 1926, and a sustained break below that would trigger a double-top target at 1884. If that target were to be made, that would break a cluster of important support levels between 1895-1910, with the daily lower band at 1910, the 50 DMA at 1903, and rising wedge support from 1737 currently in the 1895 area. If these levels are broken and the target at 1884 is reached then more significant downside targets would open up. SPX daily chart:
On the SPX 60min chart the trendline support levels are rising channel support from 1814, currently in the 1915 area, and rising wedge support from 1737, currently in the 1937 area. Bears need to hold the 50 hour MA above and aim to break down from this wedge. SPX 60min chart:
The 1884 double top target is supported by the weekly middle bollinger band, currently at 1882. Another thing worth noting here is the negative divergence on the weekly RSI 5. This needs to persist into the close on Friday, but if it does then historically I'd expect the weekly RSI 5 to decline to at least the 50 level. That would suggest at least a test of the 1900 area for this decline, and most likely more. SPX weekly chart:
TRAN is important today. A small double-top has broken down with a target in the 8050 area and if that makes target, the perfect rising channel from the April low will break. That would open up a test of larger double-top support at 7960 and a sustained break below that would open up a double-top target in the 7650 area. I'll be posting this chart every day while this is in play. TRAN 60min chart:
Last chart for today is USO, which is suggesting more retracement on oil before (most likely) the next big push up. The setup may not deliver, but it suggests some caution at minimum, and I would note that I have main uptrend support for CL in the 101 area at the moment. USO 60min chart:
ES has taken out yesterday's low overnight and assuming that we don't see the bears crushed back into dust at the open, which I'm not expecting, but have become very used to seeing since the end of 2012, then I would expect to see the SPX daily middle band at 1940 tested today, and very possibly broken to start a further move down to test 1926. 

Tuesday 24 June 2014

Precious Metals - Definitely Maybe

Back on 22nd January I posted a chart showing that the falling channel on GDX from 54.18 had broken up and wondered aloud whether the precious metals bear market was bottoming out. That low was supported by very powerful positive divergence on the weekly RSI that I would normally associate with a major low. That low has held since and GDX has put in a higher high and (most likely) low since then, although that would also generally be the case on a bear flag of course, and that is always a possibility for a shallowly rising channel coming off a steep decline. If GDX can break over falling channel resistance from the high, currently in the 34 area, that should confirm a major low. GDX weekly chart:
Gold is also looking pretty decent as as a classical major low here, with a very nice looking double bottom setup that would target the 1700 area on a sustained break over 1434. Declining resistance from the second high of the double top has also broken, which is a bullish signal. Gold weekly chart:
Last but definitely not least is silver, where a monster falling wedge from the 2011 high finally broke up last week. I'm not concerned that this might be a bearish overthrow, not least because the downside target in the -25 area seems overambitious, but it wouldn't be unusual to see a retest that could take out the current low. On a sustained break over 25.12 I would have a double bottom target in the 32 area and any decent move back over 26/7 should confirm a major low in my view. As with gold and GDX there is strong positive divergence on the weekly RSI, but unlike GDX it was not cemented with a lower low, as neither gold nor silver made lower lows after the summer 2013 lows. Silver weekly chart:
So what are the pros and cons here?


1 - The consensus EW view is that there is more downside coming on gold and silver and the skilled EWers are generally worth listening to about these things, though I do remember with regret selling large silver positions in the low teens in early 2009 because EWI was convinced that there would be a last move down to six coming. Nonetheless the dedicated wealth-destroying team at EWI aren't worthy to shine the shoes of the EWers I read these days.

2 - Gold and silver did not make new lows after the Summer 2013 lows and that weakens the positive weekly RSI divergence on both, though new lows were not strictly necessary.

3 - All three of GDX, gold and silver have topping pattern targets that have not yet been reached. Those targets are 11 on GDX, though in my view any reversal pattern target that more than reverses the entire previous trend is a weak one so I would adjust this to the 2008 low at 15.34, the 1150 area on gold and the 14.5 area on silver. The more conservative versions of the gold and silver patterns have been made, but a final move for GDX to test the 2008 low, and for gold and silver to make the full targets can't yet be ruled out.


1 - My friend Alphahorn does have a count that has the lows possibly already made, though he too is waiting for more confirmation, and his precious metals longs of recent months have been poor performers relative to pretty much everything else. He's up over 15% on his model portfolio so far this year and called the move up from 1862 on SPX perfectly. I respect his view.

2 - It's hard to see precious metals getting much cheaper than this without driving much of the gold mining sector into serious unprofitability. As it is GDX almost made it to a retest of the 2008 lows and it's hard to see it going much lower.

Overall it's hard to say but I would say that I wouldn't expect any new lows from here to run much further, if they happen at all. The break up on silver last week suggests strongly that the short term rally on precious metals has further to run, and as and when that runs out of steam I'll be watching the next move to see whether it looks impulsive. As and when I think that a low is confirmed I'll call it.

One Last Push

On the FOMC stats I was looking at last week, of the four similar instances since the start of 2010, and of the three of those that topped in the next few days, one topped on the Monday afterwards, and the other two topped on the Tuesday. If we are to see that intraday high today my target range is in the 1965-70 area and that would respect resistance on the primary rising channel on my weekly chart below. SPX weekly chart:
The daily upper band is now at 1970. With the close yesterday at 1962 that shouldn't close higher than 1973 today and we might see a close enough intraday hit to be a visual hit of the upper band. SPX daily chart:
My ideal topping range would be 1965-70 as that would make my wedge targets, and I'll be concerned with any move over 1970 that my channel resistance might be in trouble. From a technical perspective that should be a higher high on SPX with a lower high on the hourly RSI 14. I've listed the obvious support levels and targets on the chart below. SPX 60min chart:
For an ideal double-top on TRAN I'd like to see that go a little higher too, though that's not required. A break below this rising channel should be a signal that a retracement on SPX should reach at least 1925 double top support. TRAN 60min chart:
I thought I should post an updated TNX chart, even though nothing much of interest is happening at the moment. TNX is currently pinned in an inflection point. A sustained break above 26.60 will trigger an IHS target in the 29.25 area, as well as the wedge target at a retest of the 30.36 high. A sustained break below 25.30 double top support should deliver a test of the last low at 24.02, and very possibly a test of falling wedge support in the 23.50 area. TNX 60min chart:
Everything looks lined up today. ES has been trading below the 50 hour MA, suggesting that we are at an inflection point which may well be a reversal area, and the ES 60min RSI is looking for a higher high short term. Overhead resistance looks solid and the timing is right, there is a decent chance of making a short term high today, and if a surviving bear can be located to take advantage of that, then this might well be a significant high leading into a retracement that can be seen without the aid of a microscope. Don't bet the farm on that however, the bears have disappointed very regularly in recent years.

I didn't have time to finish my precious metals post yesterday afternoon. All the charts are done now however and it will be out this afternoon without fail.

Monday 23 June 2014

The One That Got Away

SPX punched over the weekly upper band again on Friday for the second punch above the band in the last three weeks,. I don't want to overemphasize this as a topping signal, but it goes without saying that these punches tend to happen when SPX is looking rather overbought, and on the four previous examples that I have marked on the chart below from the 2011 low, none rose significantly further before a consolidation or retracement period lasting four weeks or more. This would not generally be a place to look for a strong push upwards.

In terms of the primary rising channel, the high on Friday at 1963.91 was just short of my 1965 wedge targets, and was a test of primary rising channel resistance. I had a look at this using the thinnest possible trendlines over the weekend and there is very little play left in the trendline. Even a move to 1970 now would risk breaking it. SPX weekly chart:
So what if the primary rising channel does break up? It's rare but it happens, and I'll be showing you a very good example where it has happened before at the bottom of today's post. If it breaks up then my conservative target for SPX will be the wedge turns channel resistance trendline that is currently in the 2010 area. If that doesn't hold then the full target for the rising wedge from 1737 breaking up would be the 2160 area. SPX daily chart:
TRAN is showing some slight signs of weakness at the close on Friday, but that may not be significant. If the SPX primary channel holds a break of this current rising channel on TRAN should signal that a significant decline has started. TRAN 60min chart:
I'm going to be doing a dedicated post on precious metals this afternoon, but I'm posting the silver chart from that post here as well because it has a very good example of a past two year primary rising channel that broke up in late 2010. That was the start of a major move that saw the silver price double in the next six months into the 49.82 high and then start a decline that retraced that entire move over the next two years. I'm not saying that the same thing would happen here if this channel breaks up, but this is what I had in mind when I said a few days ago that a break above the primary rising channel on SPX might signal a big acceleration to the upside. If the SPX channel does break that will NOT be an attractive shorting opportunity. Silver weekly chart:
I'm favoring a significant decline starting this week, ideally after an intraday test of the 1965-70 area. The stats on my post-FOMC setup that I was looking at last week would favor that intraday high being made today or tomorrow. If we see any break above 1975, sustained or otherwise, I would advise being extremely cautious with shorting SPX as for me that would open up possible targets above 2000. The intraday high on Friday was only a point below my 1965 wedge targets, and there is very little room under primary channel resistance, so it's possible that high may hold this week.

Friday 20 June 2014

The Importance of Not Being Earnest

I just wanted to talk for a moment about conviction bulls and bears today. I'm not one to disparage anyone's religious convictions, but that being said, it is a firm rule that any genuine chartist will consider the price data before forming any conclusions from that data, and those conclusions will always be a matter of relative probabilities, never absolutes. Any chartist who doesn't do that isn't a chartist at all. What they are is something between preachers and public entertainers, without either the long term incentives offered by the first, or the amusing antics of the second. There are a couple of quotes that say this better than I can:

'The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt' - Bertrand Russell

'The best lack all conviction, while the worst are full of passionate intensity' - WB Yeats

Reasoned analysis can generate opinions, but never faith. Very strong convictions in financial analysis are warning signals that you are reading something written by either a charlatan or a fool. For those suggesting that I am a permabear here, and also those suggesting that I was a permabull a year ago, I offer the following wisdom attributed to Denis Thatcher :-)

'Better keep your mouth shut and be thought a fool, than open it and remove all doubt'

On to the markets where the +3 close yesterday has lined up this week's FOMC stats with the only three other examples going back to 2011 where there was a decent gain on FOMC day followed by a green close of more than a few ticks the next day. As I mentioned yesterday all three previous examples were no more than three days before each of the only three retracements over that period that exceeded 10% from intraday high to low.

I ran this back to the start of 2010 and picked a fourth example that was from the FOMC meeting before the fourth 10%+ retracement this decade, but in that case SPX ran up another fifty points over five weeks weeks to make that high just before the next FOMC meeting. I'd take this signal as strongly bearish and a signal that a significant top is close, but there are no certain outcomes and no family farms should be mortgaged to position short here.

I was asked yesterday what the obvious target would be for a retracement here and the obvious target would be primary channel support on my weekly chart below ...... as long as that channel remains unbroken. That is currently in the area of the 1737 low, which is also a possible larger H&S neckline area. To open up any lower targets the channel would obviously then need to break down, but I wouldn't be assuming that would happen.

The close yesterday was 3 points over the weekly upper bollinger band. That weekly candle fixes today as it is the end of the week, and if we can close at or over 1965 today that would both make the two wedge targets there, and should also deliver a punch close above the weekly band, which would be another decent topping signal. SPX weekly chart:
On the daily chart I have a possible target above at the daily upper band, which on a strong day today I'd expect to close in the 1970-3 area. SPX daily chart:
I have a perfect rising channel on TRAN from the last low and I'll be watching that for indications as to when the current uptrend has ended. As long as it doesn't break up from the channel here then a decent double top should be set up on any break down in the next few days. TRAN 60min chart:
Oil has retested broken triangle resistance and looks ready to resume the march towards the triangle target over 112. WTIC daily chart:
The stats from the last post FOMC examples are suggesting a flattish open and a modest rise today. With ES currently five handles over the close yesterday we may well see a more bullish day than that today and I have main resistance in the 1965-70 SPX area, stretching possibly as high as 1975. Any higher and we could be looking at a break of primary channel resistance.

Thursday 19 June 2014

The Sheep Look Up

I've been hearing a lot this week, and particularly with the break up yesterday that we have moved beyond an area where TA can help forecast the markets. I have to say the evidence for that right here looks pretty thin. I said in my post last Friday that SPX might well retest the highs unless the 50 hour MA held as resistance. In my post yesterday morning I noted that SPX had broken back over the 50 hour MA and showed a rising wedge from the 1925 low, giving my reasons why I thought that wedge might well break up with a target in the 1960-5 area rather than break down. Yesterday that wedge broke up with a target in the 1965 area, and that joins the 1965 target that I gave almost a year ago in my weekend post on on 30th June 2013 after the break up from a much larger rising wedge. So far at least we have not demonstrably moved out of predictable territory.

Nonetheless I was much cheered to read this, and watch the hugely bullish comments on twitter. It seems likely that complacency about equities has now reached even beyond the high levels achieved at the 2010 and 2011 tops, which is really very impressive. Any charts or comments I post on twitter suggesting that this market might retrace anyway soon are losing me followers and that's just as it should be here.

Of course massive complacency of itself isn't enough to signal an imminent top. I posted a checklist on twitter last night that covered a few more important things that I like to see and we have them all here now:
Now this doesn't mean that there must be an imminent high here and this could still break up. Overhead resistance looks very strong though and I have that in the 1965-70 area today, possibly getting as far as 1975 on a stretch. As long as SPX stays under that we should be making the second high of a double-top here:
Only the one chart today as I was crunching numbers last night and will devote the rest of the post to the results of my research. What I was looking at was FOMC days since the start of 2011 and what happened the following day. I was looking particularly at FOMC days with decent green closes, which I took as a close more than five points up.

There were ten previous examples of these since the start of 2011 and the results from those were as follows:

  1. The following days all opened flat or with a gap up of one point only. 
  2. On three of the days after the move up was entirely retraced the next day
  3. On four of the days after the move was sideways to max down 4 handles
  4. On the other three of the days after there was a green close of 5 points or more
Looking just at this last group of green closes on the day after a strongly green FOMC day:
  1. All three were within three days before making a major high followed by a retracement of more than 10%. This group includes all three such retracements since the start of 2011
  2. On two of those days the open was the low of the day
  3. On the third day there was an intraday decline of only 4 points below the open. 
The takeaway here is that if we see a decent green day today then that will be another strong topping signal, so it's encouraging that we still have two open SPX wedge targets at 1965 to shoot for today. 

I'm leaning long today, with a target at 1965 and an expectation that any early dip today may be either modest or absent altogether. I'm ideally looking for a close at 1961 or higher, though any green close will do fine. If we see a strong intraday decline today we should either close fairly flat or see the whole of yesterday's decline wiped out. This erasure of the previous day's move is a strong theme with the largest example among these ten being a 53 point rise followed by a 52 point fall, so if a significant decline develops then the obvious closing target is 1942 SPX. 

Don't get me wrong here. It could be different this time. SPX could break up. The Fed may know what they're doing. Santa Claus and the Easter Bunny could be real. I'm just calling the odds on the assumption that we are not in a new paradigm. If my primary rising channel breaks up hard I'll adjust my expectations accordingly. Until we see that though, this looks very like the usual period when the sheep line up to be sheared just before a decent move down. 

Wednesday 18 June 2014

Can't Get The Help

Having lost new data a few days ago, stockcharts appears to been down altogether this morning. Hopefully this isn't becoming a regular thing. I've managed to locate enough charts for the post this morning as I tend to post quite a few charts during the day, and I have picked three that I posted yesterday for this morning.

The first chart I posted on twitter yesterday afternoon, and it shows the rising wedge on the SPX 5min chart. This overthrew twice before the close and although this is a 70% bearish pattern targeting a retest of the lows on a break down, it may be that this one is going to take the 30% odds route and break up with a target in the  1960-5 area. SPX 5min chart (Tuesday PM):
There is a matching rising wedge on ES, with the support trendline in the 1927/8 area this morning, and one way or the other I suspect strongly that this wedge will break out today. ES 60min chart:
I was showing a trading bud my bigger picture view on EURUSD yesterday evening, and that is my rising wedge from the 2012 low. EURUSD is bouncing slightly at the moment but I'm expecting at least a touch of rising wedge support in the 1.345 area on this current move down. EURUSD daily chart:
I have been bullish bonds and bearish bond yields al year but I'm starting to lean the other way now. There is a very nice looking bear setup here on TNX on a break below the falling wedge but there are a couple of reasons why I think TNX may just break up here instead. One of those reasons is that falling wedges are 70% bullish patterns of course, and the natural direction for the next break is therefore upwards.

Another reason is that the 2012 low had a very good chance in my view of being the final low for the bear market in bond yields from 1980. From an EW perspective there would then be a five part wave 1 up, a three part wave 2 retrace that would most likely bottom near a significant fibonacci retracement level, and then a wave 3 up. There seem to be a clear and very typically formed five waves up for wave 1, and then three clear waves for the retracement from that so far, bottoming almost exactly at the 38.2% fib retracement of wave 1. If that count is right, and though I'm no EWer I do know the basics, then wave 3 up is starting and TNX will break up here towards infinity and beyond.

If that turns out to be the case, take a good look at bond prices at the current level, as you may not see these levels again in your lifetime. Bull and bear markets on bonds tend to last two or three decades and if the next bear market on bond yields is as powerful as this one, then we might see similar prices again somewhere in the 2060-70 time range. TNX daily chart with count:
Yesterday afternoon SPX recovered above the 50 hour MA and held it as support. Unless that changes this morning the bulls have the advantage and the rising wedges on SPX and ES may well be about to break up. If bears can break back below that and stay below it then the odds will favor a retest of the lows as rising wedges break down 70% of the time. FOMC today of course, and that may be a market mover even if the Fed just trims QE3 by another $10bn per month as expected. Which way will FOMC push equities? Unfortunately my crystal ball is at the cleaners so we'll just have to wait and see.

Tuesday 17 June 2014

Looking at Bond Yields

Yesterday was another day just chopping around while we wait for this consolidation to finish. We have been seeing higher highs and lows, which seems bullish until you remember that a typical bear flag forms against the trend, and trends sideways to up. Both SPX and NDX have been doing that under their respective 50 hour MAs and until the break back up over those my working assumption is that we have been watching bear flags forming.There is a decent chance that we will see a break either way today from this consolidation. SPX 60min chart:
There's really not much else to say on equities today so I'm going to look at other things. Firstly on TNX I have two nested double-tops in play short term and if we see a break below 25.79 then I'd be expecting those to carry TNX down to test falling wedge support, currently in the 23.70 area. TNX 60min chart:
Having a look again on the big picture, that has changed slightly with the formation of the falling wedge. On a break below the wedge there would still be the original double top target in the 1.9 area, but there would also be the wedge target in the 1.7 area.

How likely is that move on bond yields? Well the setup is there and it may happen. I would note though that the current low was a marginal new low, which is often a sign of reversal, and that low was also an almost perfect 38.2% fibonacci retracement of the move up from August 2012, whereas neither 1.9 nor 1.7 come out near any fibonacci level of significance. If the May low was a serious low and TNX breaks back up to retest the 30.36 high, I would not be surprised, and that could just be the start of a very major move up in bond yields, and decline in bond prices. I'm watching what happens here with the greatest of interest. TNX daily chart:
CL has hit my rising channel support target that I posted on twitter on Monday. If we aren't to see a full retest of broken resistance in the 104 area (Aug futures), then this is the obvious place to start the next leg up towards the 111/2 area. CL 60min chart:
GC has also been retracing and may also be starting a new leg up. I'm watching for a break of the small declining channel to signal that the current move down has ended. GC 60min chart:
ES has been in a large range overnight and looks likely to gap down slightly at the time of writing. I'm looking for a break either way out of the current consolidation today and am leaning short for that break. Nothing we're likely to see today has much longer term significance though. A break up would most likely just be setting up the second high of a double-top, and on a break down here the bears have to break back below 1900 before they begin to impress.

Monday 16 June 2014

The Daily Middle Band

Friday was more bullish than I expected but resistance at 1937 held on repeated tests and if we are to see an opening gap today, then it seems likely at the time of writing that it will be a gap down. The SPX 50 hour MA is now at 1939 and is still primary resistance. In the event that is broken then main rising wedge resistance is in the 1947 area. I'm expecting more downside today however.

I think this retracement may develop into something substantial if the bears can develop some momentum, and we'll see whether they can. At minimum though I'm looking for a test of the SPX daily middle bollinger band, which closed yesterday at 1918, and that target could be hit today. This is a target that is often pinocchioed intra-day, so it's important not to read too much into a break below it unless that persists into the close. SPX daily chart:
In the event that the daily middle band is broken, then the next trendline target is channel support in the 1903 area, and below that the 50 DMA at 1889, and main rising wedge support in the 1882 area. If SPX should reach rising wedge support then the overthrow at the last high means that rising wedge support may well break down at the next test, opening up targets further down. SPX 60min chart:
NDX is supportive of a continuing downtrend, with the obvious target there at rising channel support in the 3670 area. NDX 60min chart:
RUT is also still supportive of a continuing downtrend, with rising megaphone support in the 1145 area. That support however isn't far away and I'll be watching that carefully with SPX today. RUT 60min:
I've been giving the TNX chart some serious thought over the weekend and my lean is still bearish yields / bullish bonds here. TNX broke briefly over falling wedge resistance, but seems to be forming a double-top there that would take it back to wedge support. That retrace is supported by the 60min RSI 14 so I'll be assuming that plays out until we see strong evidence to the contrary. If TNX does return to wedge support then the short-lived break over wedge resistance will look like a bearish overthrow favoring a break down from the wedge. If we see that happen then that puts TNX firmly on the next leg of the very bearish yields and bullish bonds path that I outlined at the beginning of January (to general disbelief) and which has been playing out pretty much as I expected then so far. TNX 60min chart:
I've also been looking carefully at the oil charts over the weekend and on the WTIC chart the current setup is very clear. Oil is within a decent rising channel and has broken up from a clear ascending triangle. The target is a retest of the 2013 high at 112.24 and there is a setup here to take oil to a retest of the 2008 high at 145 if oil breaks up there. With a following wind from Al-Qaeda I'm expecting to see that test at 112.24 in the near future. WTIC daily chart:
The key points to remember today are that the odds of a retest of the highs increase dramatically on a break above the 50 hour MA at 1839 SPX, so if we see that then it is time to get very cautious with shorts. I'll also be keeping a very close eye on RUT as we could see a general bounce on a test of that support trendline there. I don't yet have the short term decline pattern on SPX. I would generally identify that before a bounce though not always. As soon as I have one I will post it on twitter.