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Wednesday, 7 January 2015

Suspended Sentence

Another day of selling yesterday, and SPX has lost over 2% over the first three trading days of 2015. This is fairly rare, having only happened eight times in the last 44 years, and it puts SPX on the clock for a possible rarer setup that would make the prospects for the remainder of the year look bleak.

Of those eight examples, three managed to close January above the close on that third day, which in this case would be 2002.61. Those three examples all put in excellent years, with the lowest rising 14.75% and the other two rising slightly over 26%. That is the SPX 'get out of jail free card' option.

Of the five others that closed January below the close on the third day, the best two full year performances were 1% and 3% gains, the next two lost 10% and 11% on the year, and the last lost an impressive 39% on the year (2008). If January closes below 2002.61, the historical stats would therefore suggest that the likely best case scenario would be a flat year.

The prospects for bulls over the rest of January weren't improved yesterday when the rising wedge from the 1820 low broke down. There was closing support at the 100 DMA but if that breaks on a daily close basis then the next obvious target will be a retest of the December low at 1972 and the daily lower band in the same area. That level is of course also double-top support on a pattern targeting the 1851 area on a break below 1972. SPX daily chart:
Looking at the 60min chart you can see that the afternoon bounce was a perfect retest of broken rising wedge support. If that holds as resistance again today then SPX shouldn't get back over 2020. SPX 60min chart:
Oil declined further yesterday and came very close to a test of major support at the rising support trendline from the 1998 low. My expectation is that this support trendline should hold, and if that's right CL is now very close to a major low. CL has shown some strength overnight and I'm expecting a rally here short term, though I'll be looking for the low to be retested soon. WTIC weekly chart:
EURUSD has reached my triangle support target, and has broken somewhat below, as I suggested was likely a few days ago. EURUSD is now at a major inflection point and my preferred scenario here has EURUSD rallying strongly for a few months. If EURUSD continues downward then the triangle target is in the 80 area. That looks absurdly low from here but then the oil target in the high $40s looked even more absurdly low when I posted it in July 2013 when oil was at $100 and well, here we are. I'm sure we'll all be watching the Greek election with interest. EURUSD weekly chart:
I haven't been posting many bonds charts recently but that's because bonds are in a big inflection point that could very much go either way. The bull case for bonds here is best shown in the TNX 10yr treasury yields chart, where you can see that if TNX resolves down from here then the first target would be a test of the 2012 low and on a sustained break below that then I have trendline support in the 8-9 area. All things considered I am leaning bearish on bond yields here, and therefore bullish on bonds. It could very much break the other way though. TNX monthly chart:
SPX is +17 overnight as I write this, and if we see a break over broken rising wedge support in the 2020 area today then we could see a very strong rally and possible trend up day. Unless we see SPX break back over the daily middle band at 2046 however, I'd be expecting more downside after the rally.

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