Negative Divergence at Resistance

One thing I don't like to see when I'm long is marginal new highs and significantly negative RSI divergence under strong resistance areas, and that's exactly what I'm seeing this morning. I have clear targets at 1433/4 on SPX from the falling wedge and IHS targets on the SPX 60min chart, but there is a real possibility of reversal and retracement right here.

On the SPX daily chart the primary target is the upper bollinger band in the 1437 area, but there is often failure or short term reversal at an intermediate major moving average, which in this case would be the 50 DMA at 1422. The high yesterday was at 1419.70 which was close enough to qualify as a test of that:

On the SPX 60min chart you can see the strong resistance zone 1420-30, and SPX tested that at the high yesterday:

On the SPX 15min chart the low yesterday was at 1409 at the retest of broken resistance there. That is short term support but but a break below it would trigger a double-top target at 1399. I have rising channel support at 1398 at the open so there should be decent support there:

Looking at ES the same bearish setup would trigger an M top target at 1394.5 on a break below 1407. Rising support from the low on ES is also at 1394.5 at the moment, intersecting with broken declining resistance from the high:

I was looking yesterday morning at a possible IHS forming on NDX. NDX touched the lower end of the ideal neckline range yesterday, again on strongly negative 60min RSI divergence. The ideal right shoulder low would be close to 2637:

Nothing of much interest on bonds, gold or oil this morning but EURUSD is showing the same reversal signals at strong 1.30 area resistance. The M top target there would be in the 1.2865 area with strong support in the 1.2875 area just above:

I'm still leaning bullish overall but we may well see some retracement today and that retracement could obviously test the support trendlines from the low on SPX and ES. First support on SPX is at 1409 and on a break below that the double-top target is at 1399. This bearish setup could be negated with a strong move up today but until we see that this setup looks short term bearish, supported by a similar setup on EURUSD. The longer term bull scenario should be unaffected as long as rising support on SPX and ES holds, so any reversal into that would look like a decent long entry.

Wild Card GDP Number

The retracement low yesterday ticked most of my boxes. On the ES 60min the M top target at 1383 was tested, but 1388 support held on an hourly close basis. On the SPX daily chart we then saw the close above the middle bollinger band at 1394 that I was looking for. The upside target on the SPX daily chart is the upper bollinger band at 1437 (still declining slightly), with some potential resistance on the way in the 1422/3 area at the March/April highs and the 50 DMA:

On the 60min chart SPX pinocchioed the IHS neckline but held it on an hourly basis before making a marginal new high. I'm definitely leaning bullish here but it's worth noting that there is a marginal new high here on arguably negative RSI divergence. I say arguably as I normally disregard these divergences once RSI has moved much below 50 and we saw that yesterday. Nonetheless some follow-through to the upside is needed soon to confirm the move towards the falling wedge and IHS targets in the 1433/4 area.

On the SPX 15min chart we now have a tentative rising channel established at the low yesterday. The upper trendline needs another touch and reversal to establish this channel firmly, but the upper trendline is in the right area for a target of 1433/4 if hit tomorrow. There is some resistance at 1433.38 at the early November high:

On ES, as I mentioned, the M top target was hit yesterday at 1383 and 1388 held on an hourly close basis. Overnight ES has broken above my resistance level at 1410.5 and I have the next decent resistance level at 1432.5. If we see a dip today I have support at 1410.5 and just above 1400 at the hourly 50 and 100 MAs:

I have a nice looking target on NDX in the 2700 area where I have a possible IHS neckline. If we see a reversal around there it might therefore be to form the right shoulder on an IHS indicating to new highs in 2012 or early 2013. That fits fairly well with the 1433/4 target on SPX and is worth watching here. Short term, and more so than on the SPX 60min chart, we have a marginal new high on negative RSI divergence and a more confident new high is needed shortly:

On other markets EURUSD bottomed yesterday at 1.2881, a whisker above the double-top target at 1.288, and has rebounded strongly. I have another tentative rising channel established there and on an hourly close above 1.30 area resistance I'll be looking for a test of the October high in the 1.314 area:

CL bottomed above 85 area support yesterday and is testing short term declining resistance. Overall this is still a nice looking bull setup and I'm looking for a move above 88.2 to kill off the possible declining channel that I've marked on the chart:

I mentioned yesterday that there was a rising wedge on the gold chart but GC broke down in the minutes before I posted that chart on twitter, which was irritating. GC made a low yesterday just above the previous low and a strong support level has been established in the 1703-5 area. It looks as though a broadening formation, right angled and ascending, may be forming on GC with the next upside target in the 1760-70 area. These patterns are 66% bearish but tend to be poor performers after breakout:

I've been leaning bullish on the bigger picture scenario all week, and I didn't see anything yesterday to change that view. There is a potential game-changer today though with the GDP number being announced an hour before the open. The consensus number is an ambitious looking 2.8% growth which doesn't leave a lot of room for a beat and leaves considerable room for disappointment. A bad number could obviously move the market considerably.

If we see a dip on ES today key support is in the 1386-8 area which needs to hold (for the bulls) on an hourly close basis. I have intermediate support at 1410.5 and just above 1400. If we are back on normal bull programming I'd be looking for an early dip followed by strength for the rest of the day.

Downside Targets

I was saying yesterday morning that the short term bear scenario seemed more likely to play out on balance, and it has been playing out since. I'm seeing some positive divergence on the ES 15min RSI and it's possible that a low is being made in the pre-market, but on balance it seems likely that we'll see lower today. On the daily chart I would ideally like to see SPX hold the middle bollinger band at 1394 on a closing basis for the bull case:

I've been considering the bull and bear cases here on the shorter timeframe SPX charts, and I'll lead with the bull case on the SPX 15min chart. I've been considering whether there is a technically valid IHS on the 15min chart, and I think there is, though I'd have liked the right shoulder to go deeper and last longer. The neckline is in the 1388-90 area and that area is the neckline retest target. The stumpy right shoulder bottomed at 1377.04 and if we see SPX go any lower than that on this retracement I would disregard this pattern. The IHS target is in the 1434 area at a major resistance level there:

I'm leaning strongly towards the bull case here, but there is still merit in the bear case, and the odds of that playing out increase between 1388 and 1377.04 SPX. Below 1377.04 it will become my preferred scenario. On the bear scenario the recent highs were a retest of the H&S neckline, which would now reverse downwards again with a target in the 1325 area. What I would say here is that a neckline retest after an H&S has played out 75% of the way to target is rare, and I'd normally be looking for failure on this pattern at this stage:

On the ES 60min chart I showed two patterns yesterday morning, and they were a possible double-top and a 70% bullish ascending triangle that I thought was nonetheless more likely to break downwards. Both patterns have since broken down,and if I'm sounding doubtful this morning about strong resistance turned support in the 1386-8 ES area holding, that's because the double-top target is 1383 and the triangle target is 1380.5 with a 68% chance of making target according to Bulkowski. That's two pattern targets both pointing to a break below 1386 and that is well worth thinking about here. There is decent support in the 1380 ES area and I'd be looking for reversal there. The prospects for the bull case look increasingly grim on any conviction break below that:

I was looking at a possible double or M top on EURUSD yesterday and that also broke down. it hasn't made the 1.288 target yet and there is strong support just below that in the 1.2875 area. If EURUSD breaks below that then we may well see a retest of broken broadening wedge resistance in the 1.288 area. Overall this is still very much a bullish pattern setup:

On CL there is still a strong bull scenario but short term the break of the rising support trendline is suggesting a test of strong support in the 85 area. I have found a possible declining channel on CL, so that 85 support area is very important. On a conviction break below 85 my channel support target would be in the 80 area:

As I said in the opening paragraph, there is some reason to think that ES might be making a premarket low, and when a double-top triggers and fails, that's generally close to the pattern valley low, which is close above. On balance though I'm expecting more downside, with a likely target in the 1380-8 area. That will be a buy opportunity in my view unless we see ES lose 1380 and then SPX trade below 1377.04. I'll be posting a gold chart on twitter after the open today as there is a rising wedge there from the last low, but I'm running low on time.

Mixed Signals

Yesterday was weak on SPX as expected, but the seasonality today doesn't give a clear direction and the signals are mixed. On the daily chart SPX held above the daily middle bollinger band and broken trendline resistance, but the daily candlestick was a hammer, which after an uptrend often signals retracement or consolidation. I've marked some examples on the chart below:

On the 15min chart SPX has not yet established an identifiable support trendline, which suggests that we may  see a retracement to establish one. I've marked in a possible rising channel support trendline that would fit with a test of 1390 area support on a retracement today:

The upside and downside scenarios today are best seen on the ES 60min chart, where on the bear side we have a possible double-top established on negative RSI divergence. The target would be in the 1383 area on a clear break below yesterday's low. On the bull side there is a clear ascending triangle that has formed over the same timeframe, and has an upside target at 1428.5 on a clear break over 1408. These patterns break up 70% of the time and on an upward breakout they make target 75% of the time. .

Resistance is clear on ES and a break over 1408 would look bullish. Triangle support is currently at 1401 and the 50 hour moving average is just below. On a break below 1400 I would therefore be leaning bearish and looking for the retest of broken resistance at 1387/8 that we didn't see yesterday:

EURUSD is leaning bearish here, as there was a marginal new high last night on negative RSI divergence. On an hourly close below 1.294 the double or M top target would be 1.288, just above the strong support level in the 1.2875 area that I mentioned yesterday morning:

Regardless of what happens short term I'm definitely favoring the bull scenario for the next few weeks as long as ES holds over the key 1387/8 support level, and the last two charts are oil and copper, both of which look supportive of that scenario. On CL we have a falling wedge that has broken up, and a nice looking double bottom formed that will target the 94.3 resistance area on a break over 90. Short term the decent support trendline from the last 85 area low is worth noting, and if we see a break below that we could see another test of the 85 support area:

On copper there is a nice looking symmetrical triangle that has been forming for almost 15 months now. I looked at this as a long trade setup in my weekend post a couple of weeks ago and it has been performing well. The next upside target within the triangle is in the 380 area of course and, to the extent that 'Dr Copper' is a lead indicator here, it is clearly pointing upwards:

Overall I'm leaning towards seeing some more retracement today, but I will be taking my lead from the ES 60min chart where a decent break over 1408 will look bullish and a decent break below triangle support and the 50 HMA in the 1401 area will look bearish. A word of caution on 1408 however, as false breaks are often seen on triangles and I have a strong resistance level on ES in the 1410.5 area. Until we see an hourly close over 1411 I'll be cautious about the triangle making the upside target.

Technicals vs News

We saw a very strong day for equities on Friday and, despite the short session and holiday volume, SPX broke a number of key technical resistance levels that I'm inclined to take seriously. It wasn't a proper trading day on SPX, but I haven't noticed that making a lot of difference in the past when key levels have broken, and the benefit of the doubt is now back with the bulls.

On the SPX weekly chart the middle bollinger band (BB) target was in the 1412 area. SPX closed at 1409 which counts as a hit, so that is no longer a target. There have been fourteen hits of the weekly middle BB on a move from the weekly lower BB in the last fourteen years and eleven of those broke back above it. Of those eleven nine went on to hit the weekly upper BB, now in the 1475 area. Of the three hits that reversed at the weekly middle BB back down to the weekly lower BB, two went one to make the major lows in 2009 and 2010, and the third made the right shoulder on the 2010 IHS:

I'll skip the daily SPX chart today other than to mention that the upper BB there is currently at 1439. On the 60min chart SPX broke back above the H&S neckline and declining resistance on Friday. The next important resistance is in the 1420-30 range, and there is no negative RSI divergence suggesting a sizable reversal here:

There is no negative divergence on the ES 60min RSI either, but the Monday after Thanksgiving is traditionally weak and I'm looking at an obvious retest target at 1387/8 broken resistance. I have some possible trendline support in the 1396.75 area on the way. This 1387/8 Es level is very important. The bulls had nothing until ES broke back above, and now that we have seen that bullish breakout the bears have nothing unless they can break back below it. That level is main support now and if we are to see a bullish run into Xmas, I'd be expecting it to hold:

I said a couple of weeks ago that there was a good resistance trendline on NDX that should signal that the downtrend had ended, or at least was ending, on a break back above it. NDX gapped above it on Friday and I would respect that break. We might yet see a retest of broken resistance in the 2610 area:

On other markets EURUSD broke up strongly on Friday. I've been looking for signs of retracement this morning but the overnight action looks like a bull flag, and the overnight low established a decent short term support trendline. I'll be looking for some retracement only if that trendline breaks. If it does break then the obvious retracement target is broken resistance in the 1.2875 area:

There is a possible setup on TLT that would fits with a weak start to this week on equities this week followed by more strength, as there is a possible H&S forming on the 60min chart. That's worth keeping an eye on and any break with confidence below 124 would look bearish and suggest a move back into the 119.75 to 121.25 support range:

My last chart of the day is one I first posted in 2010 as a possible upside target and at the very least it is a very thought-provoking chart. The chart is the SPX since 2050 in 2012 dollars, and you can see the very strong declining channel there from the bubble top on 2000. A bull move into 2013 from here could deliver a hit of declining channel resistance in early 2013 in the 1500-20 area, which would be within the normal range to see the second top of a double-top. If we see that bull move I'll be posting this chart regularly as we get close:

The technicals say that the bulls have better odds here but obviously there are some major issues that may derail any bull move here. The fiscal cliff has not been resolved, and may not be resolved. The economy is weak, earnings are also weak, and policy in the developed world is still being run by one-trick pony bureaucrats with a strong record of delivering failure. That said, the technicals have been a lot more reliable than fundamentals over the last decade, and they are now pointing up again. We'll see how that goes. Short term the bulls are back in charge as long as support at 1387/8 ES holds, and Any test of that level today will look like a nice long entry. If you want to see an oil chart I posted one on the weekend post at MarketShadows, and you can see that here.

Looks like the Guggenheim

SPX came within three points of the daily middle bollinger band on Wednesday so that is no longer a target. ES broke over the strong resistance area at 1386-8 after the close on Wednesday and consolidated above it for much of last night so that is now key support.As I've mentioned before there are some serious resistance levels just above and on the daily chart they are in the 1394 area at the middle bollinger band (often closing rather than intraday resistance) and the intersection around 1400 of declining resistance and broken rising wedge support from the October 2011 low:

On the SPX weekly chart there is a target above there at the weekly middle bollinger band at 1411. This is a high probability target unless we are in a new bear market, but this doesn't need to be hit now of course. This just requires SPX to stay ten points or so above the weekly lower bollinger band, now at 1347, before the next hit of the middle band:

On the SPX 60min chart I have three important levels not far above.The first is a decent support/resistance level in the 1396.5 area, the second is declining resistance (mentioned earlier) in the 1400 area, and the third is the neckline of the possibly failing H&S in the 1405 area. These are all decent resistance levels and make longs here look rather unappealing. SPX has broken over the obvious IHS neckline but could still form an upsloping IHS from a reversal at declining resistance. The seasonal stats for Wednesday and today are bullish but the stats for Monday are bearish of course:

I'll also post the NDX 60min chart today. I mentioned during the decline that there was a decent declining resistance trendline there and a break above would look bullish. That trendline is now very close and we may see a test today. That trendline also intersects a significant support/resistance level (and possible IHS neckline) today and I'll be watching that. As with SPX there is clear negative RSI divergence and we may well see reversal there:

On other markets EURUSD has broken up from the broadening descending wedge I was showing on Wednesday morning, and the alternate (much better) resistance trendline that I noted on that chart has been confirmed after the break, so the quality of that pattern is now much improved. This is unambiguously bullish, though 60min RSI divergence and the resistance trendline I have marked on the chart have me looking for short term reversal. I've marked in a possible target slightly above the key support level at 1.28:

CL has been limping along but the overall setup still looks cautiously bullish. If the short term support trendline I have marked in breaks however, I'll be thinking seriously about a retest of strong support at 85, which would be an attractive long entry if we see it. It's worth mentioning again that this falling wedge could still break downwards with a target in the 60-5 area, so if we saw a clear break below 85 that would be a warning signal to take seriously. On a break over 90 I would see a run to 94.3 as very high probability:

TLT has broken slightly below my target support trendline on the 60min chart so I've been having a careful look at the 15min chart. That looks cautiously bullish with an ok quality falling wedge that has broken up on positive RSI divergence. If we see more weakness I'd lie to point out the important support level at 123.43, and the open gap extending through that into the 121.78 area. A break below 123.43, particularly on a gap below it, would be a bearish signal that should be respected:

One of my favorite traders is Eubie (Stephen Eubanks) at Mr Topstep (MTS). He's the short term reversal specialist leading the ES trades in the MTS trading chatroom, of which I have been a member for over a year now. He has a number of catchphrases. One of those is 'It's not staying here long' which I used as a title on Wednesday, and another is 'This ain't the Guggenheim', meaning that rather than just watch at key levels, opportunities there should be taken. Usually that's right, but today is a Guggenheim day in my view unless we see a clear break below the key 1386-8 level on ES. At the time of writing ES has clearly broken above there, but there is so much resistance not far above, the trading day today is so short, and the stats for the Monday after Thanksgiving are so negative, that taking a long here looks unappealing, and taking short positions just above key support levels tends to be a bad idea. A hat tip to Eubie today for his hard work and many excellent calls, and I should mention that Eubie also has a twitter feed which you can follow here.

Not Staying Here Long

There was an encouraging break downwards yesterday afternoon on SPX and ES, but it didn't last, and it wasn't the right shoulder on the possible IHS forming on both charts. Will we form that right shoulder? I like the setup but the stats for today and Friday are strongly bullish, and strongly bearish for Monday. For this right shoulder to form would require almost exactly the opposite of that. We'll see. Here's the setup on ES, with negative 60min RSI divergence having reached such heroic proportions that I would no longer regard this as viable reversal signal:

As with ES, SPX is stalled at the potential IHS neckline, and as I mentioned yesterday, there is double trendline resistance in the 1405 area:

I've been looking at bollinger band stats again today, and I have thirteen decent bounces from the daily lower bollinger band since July 2011. Of those bounces, all but one hit the middle bollinger band before then moving to the upper or lower BB again, so that is very high probability. That doesn't look hard however as the lower BB closed at 1396.5 yesterday, and should be at least a couple of points lower today. I would regard a hit as being within 5 points and the high yesterday was a whisker under 1390 SPX. As long as SPX trades at resistance sometime today, and doesn't drop a long way before the close, that target should be hit today.

That is still worth noting however as SPX reversed strongly at four of those hits without closing above the middle bollinger band. On an intraday break above the middle BB today we could see a retest of broken rising wedge support in the 1400 area and that is also a serious resistance level:

On the weekly chart there have been nineteen decent bounces from the lower bollinger band in the last seven years, and of those nineteen, fourteen hit the middle bollinger band again without another hit of the lower bollinger band first, with two near misses. It's worth noting that all five misses were in bear markets with four of those in 2008. The middle bollinger band is currently at 1411 and that gives a close to 75% probability that SPX should reach at least 1406:

On other markets TLT almost reached my retracement target just above 124 yesterday. There is an obvious potential  reversal level there and the 60min RSI has reached oversold:

I've been having a very careful look at the EURUSD chart and the potential IHS there is just too ugly for me to consider seriously. What I do have is a rough bullish broadening descending wedge with wedge resistance currently at 1.2815. If we see a break over that though, I have an alternate (not rough) wedge resistance trendline at 1.284 and there might be resistance there to establish a better quality wedge trendline. On a clear break above both this would be a bullish looking setup, with a possible IHS neckline in the 1.2875 area:

CL was very interesting yesterday. I said in the morning that if the pattern there was a falling wedge, then I would expect a reversal to confirm that upper wedge trendline. That happened, but not in the way I expected as CL broke below it and confirmed it from underneath. Nonetheless this is a bullish confirmation and on a break over 90 CL has a very strong bullish setup to make it to the 94.3 resistance area. There is one caveat here though as 30% of falling wedges break downwards. Until we see that break over 90 I would bear in mind that this break up could still be a bearish overthrow, and the downside target would then be in the 60-65 area. Short term I'm bullish as long as the short term support trendline marked on the chart holds:

We're in a situation here where a weak day will look bullish,and a strong day will look bearish. There are a lot of strong resistance levels in the next 20 points up from resistance here, and there is no bull pattern currently to force SPX up over those. A break of resistance today and a move up into the 1395-1405 SPX area will have me looking for a top. On a break downwards today into the 1360s we would have a strongly bullish setup forming that could deliver a 70 point move up from there. Either way we are close to a significant inflection point, and we won't be staying near this level long. Everyone have a great Thanksgiving and I will be doing my next post on Friday morning.

Bull and Bear Options

SPX had a very strong day yesterday and closed slightly over the 200 DMA. There has been a remarkable change in sentiment and the intractable problems of last week all seem to be relatively small bumps in the road ahead this week. Have we really seen a major low that will trigger a big new bull run? Possibly, but I'll need to see some more evidence first.

I'll lead with the ES chart today, as that expresses best the main two technical paths for today. On the bear view, with this being a strong oversold bounce in a downtrend, the obvious upside target is rough declining channel resistance in the 1405-10 area. The overnight action looks like a bull flag so we could see a move directly to that channel resistance, with the big caveat that there is very strong resistance in the 1386-8 area.

On the bull view, if we have seen a major low, I would normally expect to see either a large double-bottom or an IHS form, and as I mentioned yesterday, the obvious place to see that IHS neckline is at that very strong resistance in the 1386-8 area. The next obvious move would be to retrace for the next day or two, with an ideal right shoulder low target in the 1365 area. On a break up over 1386-8 ES after that the declining channel should break on the way to that IHS target at strong resistance in the 1432 area. I've marked up these two options on the chart below:

The setup looks similar on the SPX 60min chart, with the caveat there that there is obvious trendline resistance at 1405 at both declining resistance from the 1464 high and the neckline for the H&S that has failed (so far) to reach the 1325 SPX area target. One thing to add here is that I've noticed in the past that when an H&S pattern in either direction fails, there is usually an H&S pattern that has subsequently formed in the opposite direction. If we see that right shoulder form today that would look potentially very bullish:

On the SPX daily chart the obvious target at the middle bollinger band is now within striking distance at 1398, and in the same area is broken rising (wedge) support from the October 2011 bear market low. Between these two SPX charts that gives a string of four strong resistance levels in the 1395-1405 range, and five with the 100 DMA now at 1405. I'd have more confidence of this resistance range being broken with a strong bull pattern which we don't have here yet, but may well have soon if SPX retraces today:

On other markets TLT is retracing as expected, though not as strongly as I expected so far. The obvious target is rising support just over 124:

Oil broke declining (possibly falling wedge) resistance yesterday and has hit the possible double-bottom trigger level. The overall setup looks cautiously bullish and on a break over 90 I'd be looking for a move to the double-bottom target and strong resistance level at 94.3. If this is a falling wedge though, given that the upper trendline only had two touches, I'd normally expect a retest of broken wedge resistance to confirm the trendline, so unless we see a break over 90 I'm leaning short on CL short term:

The last chart today is my updated longer term view of DX. As I've said before, I'm leaning bearish overall on DX until demonstrated otherwise, and have been seeing the bounce in recent weeks as the counter-trend formation of the right shoulder on an H&S. It's possible that right shoulder has now topped out, but I'd prefer to see a high closer to 82, and taking another month to top out. We shall see. Short term it's worth noting that the double-top target in the 81.8 area has not been made, though the high at 81.6 was close:

I'm leaning short on equities today unless we see a break over 1386-8 resistance on ES. If we do see that there are a string of strong resistance levels up to 1410 ES, and those may well be tough to get through. I was saying to a friend yesterday that the 20 points into 1385 were easy money, but that the next 20 points up looked like a technical mountain range. That's still true. Until those resistance levels are broken I'm still regarding this as being an oversold bounce, with a likely reversal back down from the 1395-1405 SPX area.    I'm considering the bullish alternative seriously though, and if we see a break up through the strong resistance levels above in the next few days I'll then be taking it very seriously.