Mayday

Dark rumblings around the blogosphere this morning as many seem to think that we will see more weakness. That's possible of course, and is made more likely by the lack of a strong bounce either at the lows yesterday or overnight, but overall this is a strong bullish setup with very well defined support at yesterday's lows on SPX. I'll explain why.

Obviously on the SPX 60min chart I was talking about a possible retest of the double or W bottom neckline yesterday and we saw that at the lows. A break down with any conviction from those lows would seriously weaken this strong bull setup but until we see that, it remains a strong bull setup. If we do see that break then I am thinking we may have a broadening formation forming that would suggest a move back to test 1358 area support, so bulls would then have cause for alarm:

Looking more closely at the 15min chart the bull setup is reinforced. The low yesterday was a bounce at triple support, with the double or W bottom neckline, (slightly rough) rising channel support, and the previous rising  channel support all tested at once. At the same time there was also significant positive divergence on the 15min RSI so this is a very decent short term bull setup as well as a longer timeframe one. However this makes the break look even more serious if yesterday's lows are broken and that would be a serious warning signal that this bull setup is in trouble. Until then though ....... :

My Vix chart yesterday omitted to show the open gap above as well as the one below so here's the updated chart. The obvious next target is the lower bollinger band but we may see the overhead gap filled first. A close above the middle bollinger band today would look ominous and would require a close back below tomorrow to avoid looking bearish for equities:

I posted my USD chart yesterday and will follow up with a decent inverse chart to gauge the health of this USD retracement, and that is GBPUSD, EURUSD's relatively healthy cousin. Healthy is a very relative term here with the UK back in recession, running a budget deficit over 10% of GDP, and in effect printing that deficit with new digital monopoly money every year, but even so the UK is looking pretty good next to the Eurozone. On GBPUSD then the recent breakout over 1.6165 was bullish, but it is breaking down from a short term rising wedge, and we might see a retracement here. Resistance in the 1.6165 area is now the first level of support, and if that breaks we could see a fall to rising support from the January low in the 1.59 area:

Today is the first day of the month, which is bullish, and Stock Traders Almanac tell us that the Dow closed up 11 of the last 14 times, which is bullish. The setup on equities looks bullish on the SPX 15min chart unless we see a break below yesterday's lows, and on the 60min chart unless we see a break with conviction below yesterday's lows. I'm leaning bullish unless we see those breaks, but if we do see those breaks the technical picture here will deteriorate sharply and I would be cautious about buying that dip.