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Tuesday, 23 September 2014

Two Down, One to Go

SPX broke down hard yesterday and closed near the lows, giving bears their first complete day in a while. SPX broke back below the daily middle band and, as long as we don't see a daily close back above it, the next obvious targets are the daily lower band at 1985 and the 50 DMA at 1976. The band pinch here means that it is very likely that SPX will start an extended band ride in the near future. The bulls had a shot at starting an upper band ride last week and couldn't sustain it. If bears can get SPX to the lower band then they get a shot at starting a lower band ride instead. SPX daily chart:
The first thing to say about the SPX 60min chart is that my second important support level at the 50 hour MA was broken yesterday and then held as resistance into the close. This might still be a wave 2 move with a wave 3 up starting shortly, but at minimum the uptrend from 1978 broke yesterday. The third and last important support level that I gave on Friday morning is possible double top support at the 1978 low. On a sustained break below the double-top target would be in the 1938 area.

Short term the action late yesterday afternoon looks somewhat like a bear flag, but we may see a bounce to establish a decent falling support trendline or falling trend pattern. Resistance in the SPX 50 hour MA area held overnight on ES and if a strong trend down has now been established then it may well hold again as resistance today. Strong resistance is at the 50 hour MA in the 1998 area and the daily middle band in the 1999 area. SPX 60min chart:
The RUT chart wasn't a lot of help yesterday as there are almost equally weighted bull and bear scenarios formed on this chart here. On the bull side the (55% bullish) falling megaphone overthrew slightly to establish a falling channel and we are about to see a strong bounce into declining resistance from the high. On the bear side the (45% bearish) falling megaphone is breaking down and we should soon be testing double top support at the 1107 low. If we see a break below channel support that would boost the bear case considerably, though there is always a danger of course, with the RUT P/E getting down towards the 80 area now, that bears may be crushed by a stampede of bargain hunters. RUT 60min chart:
USD broke the 2013 high yesterday, and while there is increasing negative divergence on both the RSI 5 and the RSI 14, I'm thinking we see a test of declining resistance from the 1985 high somewhere around the 86 area before we see a serious reversal. Short term support is at current rising channel support in the 84 area. USD daily chart:
Silver has broken below strong support in the 17-18 area and unless we see a break over falling channel resistance, currently in the 20 area, then the obvious target is at falling wedge support, currently in the 12 area. Obviously precious metals are likely to struggle in a strong USD uptrend, and if USD can break over 90, then this USD uptrend may last for years rather than months. Silver weekly chart:
Looking at EEM there is a failure at triangle resistance and a double top has formed and broken down with a target in the 40 area. The obvious bigger picture target is triangle support in the 38 area. EEM weekly chart:
The key levels today on SPX are resistance at the 50 hour MA and daily middle band at 1998-9, and support at the daily lower band at 1985. I'm leaning bearish overall here on the pattern setups though with the caveat that it's really been a while since the bears have been able to deliver much of substance. Nonetheless, on a sustained break below 1978 SPX, I'd be expecting a move to the double top target at 1938, and there would be a real possibility that move might just be the start of a much larger correction.

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