Unicorn Deathmatch

I posted a chart of the daily SPX vs NYMO since 2006 on twitter last night and I'll lead with that this morning. The charts show 22 hits or very near misses of -100 on NYMO and below since the start of 2006, of which 10 showed marked positive divergence at the low. All of these lows with markedly positive NYMO divergence delivered strong bounces, and the last three of those divergences were seen at the main lows on 2010, 2011 and 2012. This is therefore a strong signal that this retracement low is in, and significant further downside on SPX without a rally that at least reached 0 on the NYMO indicator beforehand would be a rarity that has not been seen since the start of 2006 at the least. SPX vs NYMO daily chart:

The possibility that NYMO divergence might not signify a significant low is the first rarity or 'unicorn' that I'm looking at today. The second I was talking about yesterday morning and will talk about further this morning. Since 1925 on SPX, there has been at least one retracement during any calendar year that has at least hit the weekly lower bollinger band over 80% of the time. Of the others most were near misses, and there are only four previous instances where SPX has not closed significantly below the weekly middle bollinger band during a full calendar year. Those previous instances were in 1927, 1928, 1954 and 1995. The last two of those both followed years where SPX closed down for the year so the last genuinely comparable instance if we see that again in 2013 was in 1928. Again a real rarity. As I'm expecting that this is most likely the only serious retracement we will see on SPX this year we are therefore likely to see one of these two historically very improbable outcomes here. SPX weekly chart:

The possibility that we are seeing a significant low form here was boosted yesterday by both SPX and Vix closing back with the daily bollinger bands. There is strong established resistance on SPX in the 1597/8 area of course but if SPX can break back above that then the obvious next targets are the 50 DMA, currently at 1618, and the daily middle bollinger band and broken wedge support, both currently in the 1625 area. SPX daily chart:

I mentioned yesterday that the 1597/8 resistance level on SPX is also a possible IHS neckline. If we see a reversal today to form an IHS right shoulder the ideal right shoulder low would be in the 1577 area, and the IHS target on a decent break over 1597/8 would be in the 1636 area. SPX 60min chart:

On ES broken triangle support in the 1591/2 area has been tested overnight and the 60min RSI is just edging into the RSI 70 area. No reversal signal but obvious resistance there. ES 60min chart:

On other markets gold and silver had a bad night and I was shocked to see silver break the major support level at 19.5. I'm expecting more downside on both and will post updated charts with the next targets tomorrow. USD is consolidating and there's not much to see there. On CL, having bounced on Monday at the 50% fib retracement of the move up from April, the next move was a test of the 23.6% fib and the overnight low was at the 38.2% fib. I'm assuming bullish on CL unless we see the last low taken out. CL 60min chart:

The last chart of the day is the ten year weekly TNX chart. Obvious I was looking at a possible IHS to form on that chart with the neckline in the 24 area, but TNX blew straight through that. The next target is wedge resistance on the falling wedge that has been forming on TNX since 2003, and I have that in the 27 to 27.25 area. If we see a reversal there that would obviously be a good fit with a possible TLT reversal at strong support in the 105/6 area, although on both I would be seeing that as a strong counter-trend reversal preceding another powerful move at least equal to the one we have been watching on TNX and TLT in recent weeks. TNX weekly chart:

I read a strange comment last week from Ben Bernanke, in which he had apparently said that he was perplexed by the move up on yields since the start of QE3. That was a really very odd comment. I think that an stated aim of QE is to deliver lower interest rates, but I have shown very clearly on the chart above that periods of QE have so far been very strongly correlated with rising interest rates, and assuming that the analysts at the Fed are sufficiently compos mentis to dress themselves without assistance in the mornings, they and Bernanke must know that too. Equally, with this period of QE being open ended, there's no particular reason to think that the current primary and possibly secular bear market on bonds will be ending anytime soon. Odd, though for some reason it seems to be widely believed by many that QE favors lower interest rates, despite the evidence clearly indicating the opposite.

Overall I think there is a very good chance that the retracement low is in, though it might still go the other way. Short term I'm watching to see whether an IHS will form on SPX with 1597/8 as the neckline. Normally, though not always, I would expect to see an IHS or double-bottom form on SPX at a significant low, and I don't see that on SPX yet. If that IHS does form on SPX, the target would be in the 1636 area.