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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.

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