A Modest Proposal

I'm on holiday still this week, and again next week, but I've been checking the markets every day and posting a couple of charts on twitter most mornings. If you want to see those then my twitter handle is shjack666. I'm doing a quick post for Friday morning as the markets are again at a very interesting level and I have a proposal for how the next few weeks may unfold that I'd like to share.

Looking at my last post on Thursday morning last week the last few days have played out much as I expected then. My first chart then was the rising channel on SPX, and the bounce on Tuesday was precisely at the lower trendline on that rising channel. I'm thinking that it seems very possible that we will now see a move to the top of that rising channel, and would be most likely to hit that trendline as it intersects with the daily 50 SMA just over 1240, which it should do on Tuesday or Wednesday next week. Here's that rising channel on the SPX 60min chart:

On the SPX daily chart you can see the full scenario that I'm looking at here, with the rising channel being a bear flag on the bigger picture. You can see I'm thinking that SPX may retest the daily 50 SMA just over 1240 and then fall as the bear flag plays out. If the next move down was roughly equal to the flagpole, then that would take SPX to the key support area around 1000 SPX, with the 50% fib retracement of the bull market at 1010. That next move down might also form the head on a large IHS with the neckline in the 1240-50 area:

My second chart last week was the EURUSD chart, and I was thinking that the support break there would target a test of the rising support trendline from the 2010 low. That trendline was tested and broken yesterday. That break is strong confirmation that the long-awaited USD rally is finally picking up some steam, and suggests that EURUSD is about to have a very bad few months. That won't be bullish for equities of course. Here it is on the EURUSD daily chart:

My third chart last week was the ZB (30yr treasury futures) chart with an upside target that was made the next day. Nothing much to report there since but there is room for some further retracement that would fit with my SPX daily 50 SMA test scenario detailed above. Short term I'll post the ES 60min chart showing support yesterday and overnight at the red declining support / resistance trendline. If ES loses 1180 this morning then I'll be looking for support at the rising blue support / resistance trendline in the 1166.5 area. Anything much below 1150 SPX of course and the bear flag on the daily chart will be breaking down:

So there we have it. Longs are still counter-trend at the moment in my view and it may be that this SPX bear flag breaks down before reaching my upside target, but from everything I'm seeing at the moment this looks a very credible scenario, and I'll be watching to see how this plays out. Last suggestion of the day is that it's worth checking out the bullish SPX stats for the anniversaries of 9/11 since 2001. Cobra has posted these here.