- 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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Wednesday 31 December 2014

The Folly of Crowds

SPX broke below 5 DMA support as expected yesterday and tested the 50 hour MA. That will often hold as support at the first pass and may do so here, particularly as the low was also a retest of the 2079.47 high. Well see whether that holds today and the 60min RSI at least is still suggesting lower. SPX 60min chart:
On the SPX 15min chart the setup looks bullish though, with a rising channel from the 1972 low established at the lows yesterday on strongly positive 15min RSI 14 divergence. If this setup delivers then the opening gap up today should not fill. SPX 15min chart:
I've been reading a lot in recent days about the bullish implications of the new all time highs on RUT. Maybe, but a marginal new high is only bullish if price continues upwards. As the pattern setup on RUT from the October low is a simply beautiful 70% bearish rising wedge, then that may well be a tall order here, at least during the next few weeks. RUT 60min chart:
I remember in December last year there was a very strong consensus that bonds were going to fall hard in 2014. When I and a couple of other analysts worldwide suggested that a strong rally was likely based on the TA and the history there was a polite but incredulous silence, punctuated by the occasional pitying explanation that the fundamental picture for bonds in 2014 meant that we could not be right. . Hopefully not too many were buried in the big rally on bonds that followed, but it was a very good example of where when it is obvious to all that something will go down (or up) it can be an ideal time to take the other side of that trade.

I mention this because there is now a strong consensus that USD will rise a lot next year, and while I expected 2014 to be a good year for USD, I'm thinking that is unlikely to be the case in 2015. Why? Well the weekly EURUSD chart is one that I posted regularly in 2014 forecasting a likely hit of main triangle support from 2004. That has now been hit and the weekly RSI setup here suggests strongly that a major low on EURUSD is getting close. EURUSD might underthrow the triangle a bit here but I am now actively looking for that EURUSD low. When that low is made then EURUSD should be a strong buy and USD, with EURUSD making up 57.6% of the USD index, should then be a strong sell.  Again there is an apparently strong fundamental argument that USD should strengthen in 2015 while EURUSD weakens. Again I strongly suspect that we will see the opposite. EURUSD Weekly chart:
The historical stats for the last trading day of the year are strongly bearish, but if you just look at the last five years I have two red closes, one flat and two green, with the average (mean) move being slightly positive. The stats for Friday over the last five years are strongly bullish, but SPX could very much go either way today, and as long as the opening gap remains unfilled, the initial setup here looks cautiously bullish.

Tuesday 30 December 2014

Holiday Indigestion on SPX

Late post today but I'm not feeling well.

There has been a strong daily intraday setup since Xmas Eve of an early push higher followed by weakness near the close and overnight. That early push up has been slow to get going this morning but if we are going to see any real retracement this week the odds strongly favor tomorrow for the main part of that retracement. If we do see a push up today then I'll be looking for short entries this afternoon to take advantage of the strongly bearish stats for tomorrow.

The first main target on a retracement would be a test of the 50 hour MA and that closed at 2070.5 last night. That support may well hold as support before a run back up to at least test the highs. SPX 60min chart:
Of the four runs over the 5 DMA from significant lows this year two closed back below the 5 DMA on the eighth day of the run. Today is day nine on SPX and this is not likely to be a long run IMO. I'm expecting SPX to close back below the 5 DMA today or tomorrow and that closed at 2086 yesterday. SPX daily 5 DMA chart:
The last few days have been looking like short term topping action. That's likely to resolve into a retracement in the next few trading hours, though that retracement may not get any further than a test of the 50 hour MA. After the retracement I'll be looking for new highs and the test of major resistance in the 2100-20 area.

Monday 29 December 2014

December Bull Bias Ended Friday

The stats were strongly with the bulls last week but that ended on Friday. The historical stats this week are neutral today, tomorrow and Friday, strongly bearish on Wednesday, and the markets are closed of course on Thursday. SPX needs a retracement to set up a decent rising support trendlineand we  should see that this week before SPX makes the first run at 2100. SPX daily 5 DMA chart:
How far will SPX retrace? Not that far I suspect, though I do have a couple of options that make a retracement to the 2040-60 area a possibility. SPX 60min chart:
I'm writing this on my iPad at a restaurant using a new bluetooth keyboard, though I did the charts earlier as it seems that Stockcharts are never going to release an iPad app. I'm going to try to post every trading day this week but I have guests so I may not manage it every day.

Friday 26 December 2014

Ho Ho Ho Hum

Apart from Wednesday the stats for the trading days this week have been very bullish and the most historically bullish day of this week is today. Notwithstanding that, the close on Wednesday looked bearish and if we should see a break back below 2082 then I would have a modest double top target at 2076.5. Regardless of that though the stats for today are so bullish that I'd be expecting a very likely close up from Wednesday's close at 2082. SPX 60min chart:
Of the four previous runs over the 5 DMA from a significant low this year the shortest run ended on the eighth day. Today is day seven so even without the bullish stats for today that would suggest decent support at the 5 DMA, which closed at 2075 on Wednesday. SPX daily 5 DMA chart:
The playing field becomes more even next week as volume comes back into the markets. Monday and Tuesday have neutral stats and the stats for Wednesday as the last trading day of 2014 are strongly bearish. If we see 2077 today I'll be a buyer there.

Wednesday 24 December 2014

Stub Day

SPX made a new all time high yesterday, so the stats I posted a month or so ago for what had happened in the past after big 5 DMA bull runs have now all played out, with everything within the expected ranges. This is a good illustration of why it's often worth crunching some numbers after a rare setup like the all time record run in November of consecutive daily closes above the 5 DMA. The last small thing to take away from the chart below is that I would expect a minimum of two more daily closes above the 5 DMA, which should be over 2070 SPX by the close on Friday. SPX daily 5 DMA chart:
The stats for the last two days have been historically very bullish, but that's not the case today. If we see some weakness, and we might, then I have a target trendline in the 2070 SPX area at the open today, rising to about 2075 by the early close. SPX 15min chart:
Apologies for the late post today. I've been out doing the last of my Xmas shopping. Everyone have a great Xmas/Hanukkah/Holiday and my next post will be on Friday morning. :-)

Tuesday 23 December 2014

Icing The Cake

Over the last four weeks, since SPX broke back below the 5 DMA after the (all time longest) run over it from the 1820 low, I've been using the stats from the largest previous runs to call the likely moves afterwards. We are almost at the end of those stats now, with the last part being to make a new high. That's already been done on globex overnight but needs to be done in regular trading hours as well.

After that's done I'd mention that the shortest run over the 5 DMA from a significant low this year was eight days, and we are currently on day five. By day eight I'd expect the 5 DMA to be well over 2060. SPX daily 5 DMA chart:
I'm doubtful about managing any significant  retracement in this holiday tape, but just in case I have sketched in possible support trendlines from the lows and would mention that I have possible rising channel support and the daily middle band now in the 2050 area. That's not a short I'll be taking but in the unlikely event SPX tests that support I'd be taking a substantial long there. SPX 5min chart:
This tape is low volume and tilted to the upside. If you aren't one of the large numbers of traders who have sensibly taken this week off then I'd suggest buying the morning dip and catching up with paperwork in the afternoons today, tomorrow and Friday. The market will be closed tomorrow afternoon but it remains to be seen whether that makes watching this tape more or less interesting than it will be today or on Friday.

Monday 22 December 2014

Xmas Week Begins

Today is the first day of what is in effect a two week holiday trading period into Friday 2nd January 2015. For most of this period volumes will be low and the lean will be bullish. The historical stats for today for instance are that it has closed up about 76% of the time. That said SPX needs some retracement or consolidation to establish a rising sustainable support from the last low. I was expecting that on Friday but we may see it today or tomorrow instead.

A decent rising channel has been established from the 1820 low now and the 60min buy signal at the low has made the target at the 70 level on the RSI 14. I am expecting a new all time high on SPX as the last part of the stats from the post 5 DMA runs, but that needn't be done today of course. SPX 60min chart:
Main overhead resistance is at the weekly upper band at 2101 and rising megaphone resistance in the 2110-20 area. This 2110-20 area is one that I am expecting to see tested over the holiday period or shortly afterwards. SPX weekly chart:
The stats are very bullish for today but there should be a decent retracement somewhere close here. Any dips of whatever size should be a strong buy.

Friday 19 December 2014

Back in Crazytown

That was an amazing move yesterday and the double bottom target at 2060 on SPX was hit just before the close. That was rather faster than I had expected, and ES even made a new all time high overnight. ES made it back to over 70 handles over the 45 day pivot (1997.08) again overnight and so was back in Crazytown, where ES has spent much of the last few weeks. I'm expecting that ES may spend much of the rest of December there as well.

What are the odds of retracement today? Well I have a rising channel from the 1992 SPX low and as and when that breaks, most likely today, then I'll be looking for some retracement. SPX 1min chart:
The two huge white candles for the last two days are the largest pair this year of a double candle setup that is very rare historically, but that we have seen at most of the big lows this year. This setup comes at a break back over the 5 DMA, and starts with a large white candle like the one on Wednesday. The second candle is a breakaway candle with an unfilled opening gap and a tall white candle that closes on the high as we saw yesterday.

What happens the day after the breakaway candle? Well all three of the previous examples filled any opening gap and retraced at least 20% to 25% of the preceding day's candle. A sample of three is small, but I'd be expecting the opening gap on SPX to fill today at minimum, and if we see that minimum 20% retracement then that would target a retest of the 2045-48 area, close to a retest of the daily middle band at 2047. We could see that retracement today and that level would be obvious support.

After the retracement two of the three days then closed modestly up, and the third closed at a 50% retracement of the preceding day's candle. All three examples then closed up the following day. The SPX daily chart:
On the bigger picture I posted the SPX weekly chart on Thursday last week talking about strong support at the SPX middle band. Unless we see a collapse today the retracement would be a test of the middle band with an intraweek pinocchio down through it. The next obvious target is the upper band at 2100, and given that the 5 DMA stats tell us that after the past 5 DMA run retracement all five examples since the start of 1962 then made new highs, it's no stretch to see SPX testing 2100 soon. SPX weekly chart:
This may be the last day of decent volume before the Xmas lull. If ES still has the volatility the historical stats suggest that SPX fills the opening gap, then retests the SPX daily middle band in the 2048 area, and then (2 out of 3) closes up today and (3 out of 3) Monday. If we see a retest of the daily middle band today that should be a strong buy.

Thursday 18 December 2014

Breakaway Santa

SPX closed back over the 5 DMA yesterday and unless a war starts in the next few minutes, looks likely to gap up hard at the open today. Bulls need a green day today to confirm a likely retrace low and after that SPX should be off to the races for the rest of December. If this is a true breakaway gap then the opening gap today will not fill. Daily middle band resistance is at 2045. SPX daily 5DMA chart:
I posted the 60min chart below on twitter last night showing the resistance levels above that the bulls needed to take out to open up a retest of the highs, and we may well gap over all of them this morning. If so I'll be looking for support at or not far below the declining resistance trendline from the highs, and that closed yesterday at 2030. SPX 60min chart:
I also did a RUT chart last night but didn't tweet it. I was showing that RUT was leading SPX by a large margin yesterday, and was viewing that as bullish. RUT 60min chart:
The short term downtrend on CL is breaking, and I have my eye on the 38.2% fib retrace of the broken falling wedge at 63 and the 50% fib retrace at 66 as retracement targets before the downtrend resumes. There is an IHS on CL Feb that would target the 64 area on a conviction break over 59. CL daily chart:
Overall CL should still be in an downtrend here, but we are close enough to my target at long term trendline support from 1998 that we should start seeing more two way action to start the bottoming process. At some point in the next few weeks there should be a killer swing long on CL coming. WTIC weekly chart:
I've been pushing the idea, and detailing the stats supporting, that December would close strong for several days now, often to a largely incredulous silence (buffs fingernails modestly). I'm not assuming anything here but this looks very promising as the start of that move up. Bulls need a green close today, ideally the gap will not be filled. About half the time the low for today would be at or near the opening print, but I'm hoping to see a partial gap fill attempt into the 2025-30 area near the open to deliver a dip to add long into.

Wednesday 17 December 2014

Inflection Point Here

That was a wild day yesterday, and the daily candle looked impressively bearish, but in truth the shorter term pattern setup still looks bullish here, though if yesterday's lows are broken then that may change quickly. Until then though there is a falling channel from the high, and within that is a falling wedge from 2055 that broke up yesterday morning and retested broken resistance at the close. We may well see this bounce strongly at this retest and then trigger a double top target in the 2060 area with a break over yesterday's high.

If we see a break below that falling wedge support this morning however, then the lower targets in the 1950s that I was looking at yesterday will open up. SPX 60min chart:
The short term setup on RUT is very similar indeed, right down to the perfect retest at the close yesterday. The same comments apply on the wedge here though I'd add that the low on RUT yesterday was a perfect 38.2% fib retracement of the move up from October, which favors the bulls, and that there is an open H&S target at the 50% fib retrace, which favors the bears. Price action today will have to tell us which way this is going to go. I'm favoring the bull side on the basis of the historical stats I explained yesterday, but this is a powerful move, and the bears side may well push this lower today. RUT 60min chart:
We also have FOMC today of course, and 4 of the last 5 FOMC days have closed green. I'm expecting the Fed to make doveish noises with an eye on the market today, but it's hard to say what the impact might be. I'm still leaning bullish until we see those wedge support trendlines taken out. After that I would be leaning bearish looking for support in the 1950s. This market action has been wild so trade safe, and watch out for the angry badgers:

Tuesday 16 December 2014

Just The Stats Ma'am

Those who cannot remember the past are doomed to repeat it 
- George Sanatanaya in The Life of Reason 1905

I'm hoping some of you guys took the ES trade I laid out at the bottom of my post yesterday. I only took it half size as I had to be out for the first ninety minutes but shortly after my return I cashed up a very nice +32 from shorting 2012 on an order I left on when I went out, and went long at 1979 shortly afterwards. If you took the trade I would mention in passing that I have a donate button on the right hand side of my blog, and I'm currently putting together some funds for having a professional makeover on the blog, and am hoping to do that from donated funds to avoid changing my blog from being a cheap hobby into being an expensive hobby. :-)

That long trade is the one I want to talk about this morning, as I have been getting quite a few comments that the main top is in and that the current decline may well run away. Anything can happen, but I'll explain at least why historically that would be very surprising.

I have talked at some length over the last few weeks about the history of retracements after long runs over the SPX 5 DMA, and of the five examples since the end of 1961, the largest retracement was 5.9%, in the only previous example that was in December (in 1996). If we were to see a decline of the same size here then that would target 1956 SPX, or 1949/50 ES. Anything below that would be an outlier.

There's more though. I mentioned yesterday that there were only nine instances since 1970 where the low in December was lower than the low in November. Five of those happened in years that closed red for the year as a whole, so mostly that has been a bear market thing. Not a single of of those nine examples went on to close under that broken November low (at 2001 SPX here), and the historical target range for the December close here would be 2020-2150 based on these past examples. Anything above or below that range would be an extreme outlier. Five of the nine closed green on the month, which in this case would require a December close above 2067.56 SPX.

However the question on our minds here is also how low this retracement could go before the rally into the end of the year begins, and the December stats can help here too. Of the nine previous examples seven were at 2% or less from the broken November low, giving a range low in the 1959 SPX area. Obviously that is a very good fit with the range low from the 5 DMA stats. That doesn't mean that we test that level of course, it just means that we could. The other two were 4% below but I'm disregarding those as they were in 1973 and 1974, in the grip of a very brutal bear market.

I was looking at the ES 3 SD lower band stats yesterday and as I said yesterday morning, seven of the previous eleven of these went on to hit the 3 SD daily lower band the following day. Of those seven there were three that hit the 3 SD lower band on the third straight day, and so if we are to do that today I would be looking for a possible hit of that band that could be as low as the low 1950s ES March, which would again be a decent fits with the stats I've looked at above. We could hit the 3 SD band without breaking the ES globex low at 1961 however, as the 3 SD lower band would rise over that if we were to see a decent rally to the 2000 area today, so even if we do hit the 3 SD lower band today, that may already have happened. There were no previous examples that I have looked at so far where the 3 SD lower band was hit on a fourth day.

For today very strong support is in the 1955-60 SPX area, weak resistance is at the daily (2 SD) lower band at 1986 ES March (1993 SPX) and strong resistance is at the 60 hour MA at 1994 ES March (2001 SPX). I also have this in play on SPX. SPX 60min chart:
That is a perfect falling channel established on SPX at yesterday's low. If that was to hold today, and I am aware that my channels have been leading short and tragic lives in recent days, then I have channel support in the 1980 SPX area. If that holds on a test this morning, that is a possible retracement low level to be confirmed on a break up from the channel. When we do make a low for December, the rest of the month may get pretty boring, so enjoy the volatility while it lasts. :-)

Monday 15 December 2014

A Modest Proposal for Today on ES

This is a fast and short post as I have to go out soon and won't be back until a couple of hours after the open.

Obviously my falling channel broke down on Friday and the 2019 support area was broken with very high conviction, with SPX close to a test of the 50 DMA at the close. Both SPX and ES hit the 3 SD (standard deviation) daily lower band at the lows (the normal bands are 2 SD bands), and I've been compiling stats for those at the weekend. I'm not all the way through that as there is a lot of data to crunch through, but I have a good feel for the historical probabilities for today from that.

First though I would note that the SPX low on Friday was at 2002.33, just above the November low at 2001.01. SPX has only broken the November low in December in nine years since 1970, mostly in bear markets, and hasn't managed it at all in the last ten years, so that is strong support until it is broken in trading hours. If that support holds then we won't see more than a test of the SPX low today before the Xmas rally begins.

The remainder of the stats today depend on that Nov low support being broken, and if it is then there are strong stats from the historical hits of the 3 SD daily lower band that I've been compiling on ES (March).

I've written up more that 70 of these so far, and by the time I have run this all the way back to 2000 I'll most likely have over 90. Of those hits all but one rallied the next day to at least test the 2 SD daily lower band, and that one exception was in any case the short term low before a rally back over the middle band. I posted that stat on twitter last night and we have already since seen that rally.

Over those hits I have written up 11 so far that closed the daily candle at or near the low of the day, and of those 7 tested the 3 SD daily lower band again the next day. The odds therefore favor a move there today and that is currently at 1982 ES March.

My ideal scenario for today would therefore be a rally into the 2012-4 area to fail at the ES 50 hour MA, then a decline to test the 3 SD daily lower band in the 1978-82 area, and then very possibly make the December low there to start the usual Xmas move up, with a target at new highs, as the historical stats still strongly favor that here. ES 60min chart:
I've been reading a lot about the H&S (or double-top) on RUT, but just look at it. 23.6% retrace and a sideways range at the top of a tight upward channel. This has to be assumed to be a bull flag until we see a sustained conviction break below flag support. We have not seen any such break as yet, and I strongly suspect that we won't. RUT 60min chart:
Unfortunately I have to be out the first couple of hours today, which is very bad timing, but that's the way it goes. I'll be cautiously trading my ideal scenario for today by remote.

Friday 12 December 2014


It can be difficult to identify the pattern for an advance or decline, though at the least it is usually clear in retrospect. Sometimes, as with the move up from 1820, it can be hard to identify even then. This retrace hasn't been as hard as that, but has been a tough road to identify with these fast whiplash moves and a total of three decent falling channel candidates having established so far. The first that I posted yesterday broke up in the morning, the second had me looking for another two handle move up from the intraday high that never came. The third one however was clear by the end of the day, and with the quality of the trendline anchors and fit so far I'm very confident this is the correct one.

I have channel support in the 2013 area at the moment, declining obviously, and we have see channel support hit this morning. if we see a break below then I'll be treating that as this channel breaking down, possibly evolving into a falling megaphone, and I'm not sure where the next support above 1998 (50 DMA) might be. Unless we see that break I'm a buyer at channel support, though we may well see a bounce before a hit there. SPX 60min chart:
Bigger picture, yesterday was the second day of a daily lower band ride. As long as that lasts then every day should touch the lower band and anything more 20 points below the lower band should be a decent buy. The lower band closed yesterday at 2028 and the lower band isn't breaking down hard yet so that level isn't declining fast yet. SPX 60min chart:
I mentioned the other day that the closer oil got to $48, the more likely it is that the final target of this move is a test of the 16 year rising support trendline in that area. CL has dropped $9 to $58 since I wrote that and I am expecting that test soon. I'd normally expect a strong bounce first though. WTIC weekly chart:
The scale of this retracement is a fairly petite 2.5% so far (RTH) but that range has included some serious volatility. That may feed through into a break below 2000. For the moment though there is a very decent falling channel and I'll be trading that on the assumption that the channel will hold, with one eye on the exit if it breaks down.

Thursday 11 December 2014

Bears Can Occasionally Deliver

It was refreshing to see the bears deliver a decent decline yesterday, with a clear fail at the retest of the daily middle band. SPX is now into the higher part of my target zone and there is now a very nice falling channel from the highs that should define the retracement. as and when this channel breaks up, this retracement should be over or ending. SPX 60min chart:
Now that the downtrend is more than just the bare minimum I would like to talk about the two main target zones here. I have two target areas within my target range, though I'll expand that range slightly from 1995-2033 to 1990-2033.

The first range is around 2019. That is the retest of the September high, the double top target from the current highs, with the 50 day EMA now at 2020. I'm expecting a test of this area and it may hold. If so we may see a retracement low this morning, which would be within the Tuesday to Thursday bottoming window I gave on Tuesday morning.

The second range is 1990-5, with the 50 DMA at 1998, the Japanese QE announcement gap at 1994.65, and the weekly middle band at 1992. SPX daily chart:
Could SPX go lower than 1990? Well it's possible, and the outlier decline of the post 5 DMA run retracements did manage just under 6% on the eleventh day (currently starting day nine today) after the run broke. That was also near the start of December. That would target the 1955 area but I'd be very surprised to see that here. We are later in December now and I don't think the bears have that kind of time. If we did see a move like that here I'd expect a low intra-week next week that would most likely start and end the week over 1995. SPX weekly chart:
I haven't posted a TLT chart in a while and with the current rally there it's time to review my last forecast in July, which has performed decently. The obvious next step is to retest the October high and at that retest there is a major inflection point. What I am expecting to happen is a reversal that would then wipe out all gains on bonds in 2014 to test support on a large double top that on a break down would then target a full retracement of all gains on bonds since the 2009 low.

Obviously that's not the received wisdom here, as that is broadly bullish on bonds, but it would be a good fit with my longer term charts, and the same crowd of pundits that are mostly bullish on bonds now, were almost unanimously strongly bearish on bonds a year ago when I was forecasting a big move up on bonds. My experience is that fundamental analysis doesn't yield much on bonds as the moves are mainly technical. We'll see. TLT daily chart - updated July 28 forecast:
I've been asked repeatedly why I think this is just a retracement before higher highs.  The main reason is the historical stats after similar major 5 DMA runs in the past. There have been five of these since the start of 1962 and while the retracements varied in size, they were all retracement of less than 6% before new highs were made. I can't check on examples before 1962 but the only other example of which I am aware was in 1928, and I don't need a chart to tell me that the retracement there was followed by higher highs as well. As far as I am aware there has never been one of these rare setups that was not followed by higher highs soon after, and I'm assuming that the same will hold true here. I'd add that December is historically the most consistently bullish month of the year and that major highs made in December are a historical rarity.

Short term I'm looking for at minimum a hit of the 2019/20 level on SPX and we may see a break lower. towards the 1990-5 target area. At the time of writing SPX has rallied just under ten points from the close yesterday and we may see a bit more. The odds favor the opening gap filling later on today and I'd be surprised if the retracement is already over.

Wednesday 10 December 2014

Bears Will Be Bears

Another classic V shaped day with a very strong gap down where the gap was filled by the close. Pretty much par for the course for the feeble bears of 2014 and unlike the low on Monday last week, the low yesterday is a decent candidate for a post 5 DMA run retracement low.

Yesterday morning I gave my target range on SPX for this retracement as 1995-2033, with a likely retracement low time area between yesterday and tomorrow with an ideal low made today. Yesterday's low was at 2034.17, so that was effectively a hit of the target range, within the target time window. I'm counting that stat as played out now, and any further downside is a bonus before the continuation upward that I am expecting.

On the daily chart the low yesterday was two points above the lower band, which I count as a hit, and the close was two points above the middle band, which I count as a hit of the middle band rather than a break back above it. We may see a reversal back down here at the middle band, but if we see a close (3+ points) back above that today the break back up should be respected. There are still open daily sell signals, but they won't be invalidated unless RSI breaks back above the higher of the divergent RSI highs, and after this retrace we could run up to over 2100 without invalidating these. SPX daily chart:
That's not to say that we can't retest yesterday's lows and we could see that happen. A rising megaphone formed from the low yesterday and these break down about 70% of the time. If it breaks down at the open then there is a double top setup here that would target the 2042 area on a break below 2051. We may well see that this morning, and regardless there are very decent odds that we see at least some retracement today. That may extend into a full retest of yesterdays lows, but I'm doubtful about seeing much more. SPX 1min chart:
Gold and silver broke up from their respective falling megaphones yesterday. I'm expecting a retest of the lows on both and I'll be looking for a long entry there if seen. Silver daily chart:
I'm wondering whether we may be seeing a double bottom form here on oil. Oil is overdue a decent rally. WTIC daily chart:
I'm looking for some downside today unless we see a strong break back over main resistance at 2068. My expectations for that downside aren't huge and I'll repeat again that this retrace was only ever likely to be a short break before a resumption of the uptrend. That uptrend may have already resumed at the low yesterday.

Tuesday 9 December 2014

Let's Party like it's 1979

SPX had a strong decline yesterday that broke below the 50 hour MA with confidence and made the low of the day at the daily middle support at 2055 that I had mentioned in the morning. The retracement I have been looking for after the break of the daily run above the 5 DMA appears to have started, and SPX seems likely to gap below daily middle band support at the open. What should we expect next?

The smaller of the two directly comparable post 5 DMA run retracements was 2.2% in 1991, which would target the 2033 area here. The larger of the two retracements was 45 in 1979, which would target the 1996 area here. I'll be using these two numbers as the top and bottom of the likely target range here, though obviously with a sample size of only two the range is just a working hypothesis rather than a firm target. Here is the 1979 chart which was a strong move down that only took a couple of days. SPX 5 DMA chart 1979:
The 1991 retracement was more of a range trade but it's worth noting that in both case the retracement low was made on the eighth trading day after the 5 DMA run broke. Today is the seventh day since the recent 5 DMA run broke so we may well be looking at a fast and hard retracement that could end anywhere from today through Thursday if we follow the same sort of timeframe. SPX 5 DMA chart 1991:
What are the important levels to note here? Overhead important resistance is now at the daily middle band at 2056, and the 50 hour MA, now at 2068. I would be surprised to see a break over the 50 hour MA before this retracement is over and the next leg up has started. There is an open double top target at 2045 that may be hit at the open and on a sustained break below last week's low at 2049.57 There would be a large double top target at 2016. SPX 60min chart:
On the daily chart I'm looking for support at the daily lower band, which I'm expecting to be at the 2033/4 level today. If we see a move to the bottom of the target range I'd be looking for support at the 50 DMA, currently at 1995. SPX daily chart:
On thing I'll mention again today is that though there were differences in the timing and size of the retracements after these past 5 DMA runs ended, one thing was the same in every case, and that was that the retracements were swiftly followed by a continuation of the uptrend. There are quite a few people looking for a major high here. The historical stats and seasonality don't support that.

Monday 8 December 2014

Currency Wars - The Sauerkraut Conundrum

The next two days are important on the 5 DMA stats that I've been watching over the last few days. The previous two examples that retested the high before the break below the 5 DMA then retraced on the sixth and seventh days after the break. The break was six days ago so we shall see whether that repeats here.

By the end of Friday it was clear that the pattern from last last Monday's low at 2049 is a rising wedge. That leans 70% bearish as and when it breaks of course, and could take SPX back to what would now be double-top support at 2049, targeting 2019 on a sustained break below that. That would be a retracement near the lower end of what we would expect to see after the end of a 20+ day 5 DMA run. A clear break below (wedge support and then) the 50 hour MA, now at 2068, should signal that a retracement has started. SPX 60min chart:
On the daily chart SPX is still on the RSI5/NYMO sell signal that triggered a week ago. First support on a break down of the short term rising wedge is at the daily middle band, currently at 2055, and resistance in the event that SPX makes more new all time highs is at the daily upper band, which closed Friday at 2084. SPX daily chart:
EURUSD is coming up to a very important support level and inflection point at nine year triangle support, and it's possible that we could see a big reversal back up there. Everyone seems to be assuming that EURUSD will continue down , in significant part because of the QE that the ECB is expected to start seriously soonish, but there is a real question over whether there will ever be anything but talk of QE in Europe.

The Germans have an effective veto over any QE in Europe and the last big money-printing experiment in 1920s Germany ended in hyperinflation, collapse and played a significant role in Adolf Hitler's rise to power.  They haven't shown any enthusiasm so far to try that again, and there isn't anything to suggest that they are in the process of changing their minds about that. Without German approval there won't be any significant QE in Europe, and EURUSD may be a lot stronger over the next year or two than everyone currently expects. I'll be watching this support hit with great interest. EURUSD weekly chart:
Is there anything to support a big reversal on the USD chart? Not directly, but USD has broken slightly over double bottom resistance at 89, and I've mentioned many times that when these patterns fail, it tends to be at this point just after the break. If this USD uptrend is going to fail before 105, the obvious level to see that failure is therefore here. USD monthly chart:
I'll be watching the rising wedge on SPX today. I'm expecting that to break down in due course but we could see another new all time high or two before that happens. When the wedge does break down it may then retest the high in any case. A hit of wedge resistance, now in the 2081 area, should be a low risk short entry if seen.

Friday 5 December 2014

The Way Is (Probably) Shut

SPX made yet another marginal new high yesterday making a total of five new all time highs over the last two weeks, all in the 2070s within a total range of less than six points. That's a lot of effort from the bulls to fail to get get over what has so far been extremely stiff resistance. In the event that the bulls are unable to push through this resistance , or spike through but can't sustain trade over the 2070s, there is now a very nicely formed pair of nested double tops lighting a path down to a retest of broken resistance at the 2019 high. SPX 5min chart:
If we do see a break up it may be short lived. Resistance at the daily upper band closed yesterday at 2081, and the weekly upper band and strong trendline resistance are in the 2092-5 area. If we see a break up then it may well be rejected quickly. SPX daily chart:
My rising channel on USD that I have been posting for the last couple of months is holding well, with USD riding up the channel resistance trendline. The internal pattern is a rising wedge and when that break down we should see a move to test channel support, currently in the 85.50 area. USD daily chart:
EURUSD is a distorted reflection of USD as I would expect, with EURUSD being 57% of the USD index. There is a falling channel there and and internal falling wedge that should signal a move to test falling channel resistance on a break of that wedge. EURUSD daily chart:
I've gone back to the drawing board on oil after the epic drop last week. I think the current low may well have established the support trendline on a falling channel and if so, I'll be looking for a rally into channel resistance, currently in the 86 area. There is another intra-channel falling wedge on oil here as well, but in this case it broke down last week and is retesting wedge support. WTIC daily chart:
Are we seeing a significant low being made on gold and silver? Possibly, but the first real sign would be a break over falling megaphone resistance, and that''s holding so far. There is an almost identical setup on silver and if they break up that might well signal that the bear market on precious metals in ending. Gold daily chart:
Why is that? Well it's easiest to see on the main silver chart but it's very possible looking at the chart below that the bear market low on silver has already been made. I'm watching this setup very carefully. Silver weekly chart:
The NFP numbers were a monster beat this morning, and the reaction so far has mainly been negative on SPX and very negative on bonds. Why? Well the odds of seeing QE4 anytime soon are reducing rapidly and the odds of seeing rising interest rates over the next few months are increasing. With low interest rates making equity dividends relatively more attractive, a move to a normal interest rate environment could obviously be bearish. I'm not seeing any particular reason to expect a break up today. If we are to see a break down then the 50 hour MA is now at 2067 and bulls need to break back below it and then (unlike yesterday) sustain that break.