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Tuesday, 14 October 2014

And Now For Something Completely Different

I was asked yesterday morning why the tone of yesterday's post was so bearish, and the reason was of course that I thought the odds favored a significant move down. We saw that move and both the SPX 200 DMA and main double top support broke down with a lot of conviction. The double-top  target is the 1789 area and I'm expecting SPX should hit that target within a few days. The trend on the market has changed for the moment and while we will get some rallies, I won't start looking seriously for a low here until we reach that 1789 target area. I'm not expecting to be waiting long for that.

I've been looking at my RSI 5 / NYMO daily buy signal that triggered at the 1970 high with some concern here, as it might have delivered a stronger rally than I'm expecting, but it failed at the close yesterday, so it is no longer a concern. That was the first outright fail from the signal trigger since the start of 2007, but there's a first time for everything. It's not unprecedented. Looking back further I found another fail in a strong downtrend in 2002. The timing of this signal was particularly annoying, but hey, that's the market we trade in. SPX daily chart:
I was posting a falling wedge (not megaphone) from the 1970 high on twitter yesterday, and the low was at wedge support. These patterns break up 70% of the time, and this very nice example has an excellent chance of delivering a strong bounce. If so we could see a slight break lower to underthrow the pattern and my bounce targets would be firstly falling wedge resistance in the 1895-1900 area, but ideally the 50% fib retrace of this move down in the 1922 area, and the test of the ES weekly pivot at 1919.3 that would be an excellent fit with that target. If we see that bounce it would be an opportunity to reload short for the next move down to the 1789 target area.  SPX 1min chart:
TLT has hit rising channel resistance at the high yesterday, and this is a natural area to see a short term reversal. That would of course be a very good fit with bounce on equities here. After this retrace I would then be looking for another push up on TLT to make what might well be the 2014 high. After that I may well reverse bearish on bonds for the first time this year. We could see a very large decline from this next high and I'll be talking about that more another day. TLT daily chart:
EURUSD has bounced nicely at 1.25 as expected, but I'm not seeing any decent reversal pattern so far. We may see EURUSD retrace here to retest the 1.25 low and make the second low of a double bottom. EURUSD daily chart
A very nice triangle has been forming on CL here, and I'm expecting CL to break down from this towards a target in the 82.80 area. After that I have a couple of seriously bearish scenarios in play, but I'll nonetheless be looking for signs that might indicate a significant low and possible swing long entry. CL 60min chart:
I very much like the rally scenario here, and will be watching the falling wedge on SPX for direction this morning. If we see that bounce then it may well last a couple of days, and should give everyone  a pleasant intermission before the next wave down begins, probably later this week.

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