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Thursday, 21 August 2014

Bigger Picture Options

SPX made the IHS target at 1987 and is now close to testing the current all time high at 1991.39. I'm expecting to see a new high made, very possibly today. So what then?

Assuming that we don't see a strong rejection at the highs retest, the obvious next target just above is at the daily upper band, currently at 2000. I would very much like to see a decent retracement shortly, at the least to give me more to work with in terms of trendlines, and the obvious place to see that retracement start is now at a test of that daily upper band. On the bigger picture, if the rising wedge from the January low is still the main pattern here, then I would not expect this move to close a day back over rising wedge resistance, currently in the 2015 area. SPX daily chart:
In terms of the lack of retracements from the low last Friday, this is a problem because this may be telling us that this uptrend has much further to go. My primary scenario is still that SPX is making the second high of a double top, and as I mentioned above, I would be looking for hard closing resistance at wedge resistance in the 2015 area This wedge however is part of a larger setup from the November 2012 low at 1343.35, and looking at that chart, my primary scenario is only one of the two main options here.

The low at 1904 was a very good test of rising support from that November 2012 low. That has confirmed that rising support trendline as main support, and that should be the lower trendline of the current overall pattern. The options for that pattern are rising wedge, channel or megaphone, but I'm disregarding the megaphone option for the moment as I can't see any support for it, and working on the assumption that this pattern is either a rising wedge (my primary scenario) or a rising channel (my secondary scenario). Of these two I already have a decent rising wedge resistance trendline and that is in the 2020 area, along with the weekly upper bollinger band. That should be strong resistance and only on a conviction break above would I switch to my alternate channel scenario. The channel scenario has channel resistance currently in the 2060 area, but rising of course.

The trendline setup here strongly favors the rising wedge from the November 2011 low scenario, as the resistance trendline for that has already been established, but my alternate scenario has been gaining traction because of the strength of this move. We may see this move break up over rising wedge resistance in which case I would be moving over to the higher channel target. Either way it should be clearer what the likely outcome will be by the time we get close to the 2015-20 resistance area, as if I don't have a decent bear setup by then, we'll most likely break up. SPX daily chart from 2012:
The double bottom on WLSH, and the IHSes on NDX, Dow and SPX have now all made target, leaving TRAN and NYA close to target and RUT still trailing far behind. One of the two reasonable patterns from this low that I have here is on RUT, and that is a rising channel suggesting that we may well see a significant further retracement from RUT short term to test channel support in the 1140-5 area. Given that I'm expecting to see a retracement starting soon on other indices, that target looks reasonable and may well be made. This is still a nicely formed IHS on RUT, but I'm very doubtful about seeing that target made unless SPX breaks up towards my alternate higher target. RUT 60min chart:
The other reasonable quality pattern I have here is on NDX, where the FOMC low yesterday made the third hit on a decent support trendline from the IHS right shoulder low. That is most likely the lower trendline on a rising wedge and as and when that breaks I'd be looking for a retracement to test rising support from the last low, currently at 3980 and rising at about ten points per day. I'll be watching for that break, and will call it on twitter when that happens. NDX 60min chart:
I've been looking at a possible bounce setup on EURUSD and that is still in play. However the latest decline is either a bullish underthrow of the falling wedge for that bounce, or that falling wedge is breaking down with a target in the 1.26 area. Given that there is already an open H&S target in the 1.30 area, I'm leaning towards the break down. If EURUSD is going to bounce it needs to be very soon. EURUSD daily chart:
Bonds have pulled back a bit in the last few days but nothing so far that is threatening the rising channel from the January low. TLT daily chart:
SPX and most other US indices are very short term overbought and I'm expecting to see a significant retracement starting soon. The obvious place for that to start would be at the retest of 1991 or at the daily upper band, currently at 2000. The obvious target would be rising support from the 1904 low, currently at 1967 and rising at about six points per day. I would note that I have possible rising channel resistance in the 1995 area now, and that could be a target that will need to be hit before that retracement.

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