Trench Warfare

I knew there was a holiday weekend coming up, and I'd picked up the impression that it was last weekend which was a holiday weekend in the UK. I took the whole long weekend off and was a bit surprised to see when I logged on yesterday night that it had been a trading day in the US. If I'd realised I would have done a post on Monday morning. Oops.

I was talking to a friend on Sunday about the market and told him that at the moment it is a bit like trench warfare in WWI. The market hasn't gone anywhere in a year or so now, with the main support being very close to the intraday high reached on Friday 28th August 2009 at 1039.47 SPX. I said that the bears would win a few yards and celebrate a big move towards victory, and then the bulls would win a few yards and celebrate a big move towards victory, but that it had been quite a while since a really significant level had been crossed, and SPX has been trading in the 1040 - 1130 range for almost eight weeks now.

At the time I was talking to him the bulls were celebrating a big victory on Friday, and there was serious talk of a move back towards new highs, fuelled by Bernanke's comments that if necessary there would be a major new round of quantitative easing. I remarked that if so then the market was being a very cheap date, and that a high that had required a huge stimulus and massive money printing to achieve in April, would now apparently be recaptured on no more than vague talk that Bernanke might show us some green if the economy took a real turn for the worse.

It seemed a somewhat unlikely scenario and having suggested in my Thursday post that ES would turn back down in the 1070 area, I see that it reversed at 1073. No technical damage has been done to the bear case as far as I can see, so we're back to business as usual unless declining overhead resistance can be broken.

On the SPX daily chart we can see that the wave down from the August high is forming a falling wedge, which is narrowing slowly so it could go a lot further before breaking. I've also marked up the main declining channel on SPX from the April high:

On the SPX 60min chart I've had a closer look at that falling wedge and we can see that the trendlines on the wedge are falling at about five SPX points per day. Overhead resistance today is at 1060, and the target lower wedge trendline would be in the 1020 area if hit today. I'm expecting the next significant reversal on a hit of that lower trendline:

We might not go straight there though. Two hits on the 1037 ES support level looked like it might be a double bottom. At three hits it is looking as though it could be the left shoulder and head of a continuation H&S pattern, and if so we could see a bounce today to form a right shoulder peaking in the 1060 area before dropping again. The positive divergence on both RSI and MACD on the SPX 60min chart suggest that we could see another bounce up before breaking that support level. Interestingly, though the lower trendlines on ES and SPX are the same, the top trendline on ES looks more like that of a declining channel:

The steep declining channel on EURUSD broke up last week and it looks as though EURUSD has formed another flatter declining channel. I'm not seeing anything to suggest a major break up on EURUSD either:

I was looking at some of my indicator charts over the weekend and we saw the bounce last week at the level I would have expected to see it on my SPX:Vix daily chart. It looks as though the broadening ascending wedge on this from the May low may be breaking down now, and for the bear case it does need to break, as it is a strong bullish signal that a major low may have been made until it does.

I read a year ago an analyst talking about the technical low in 2008/9 being made in November 2008 well before the SPX low in March 2009, and he was talking of course about the fact that a number of markets made their lows at the earlier low and then positively diverged from SPX. This wedge is a positive divergence similar to that, and needs to break down to eliminate that positive divergence. Once support at 1037 ES can be broken it seems clear that this wedge will break down too, and encouragingly support has already broken down on RSI on that chart, which is signalling that a break is likely very shortly:

My GOLD:SILVER chart was also interesting. Having shown a lot of bullish divergence last week it has turned back up at a level which suggests that a major high has been made on SPX. If my channel holds this should indicate that we will see a serious move down over the next two or three weeks, which would be very good to see, as we need a break of the July lows just over 1000 to clear the way to the main targets at 935 and 870 SPX which should ideally be reached before the end of October:

I have another day of big offline commitments today so I won't be around much. This should be my last such day this year apart from next Monday, which will be a relief as I've been finding my offline commitments very distracting over the summer.

Sideways Chop

Not an impressive day for the bulls on ES today. The IHS that I posted this morning was a bust and after hours ES came within five points of Wednesday's low. I have a possible shallow rising channel on ES but ....:

On the whole the indicators still remain bullish, copper was strong and USD was weak. EURUSD appears to be retracing some of the recent move down, but has struggled to get past the neckline of the big H&S pattern at 1.2735. It may not get past it as that is a strong resistance level.

I'm thinking that we touch the upper trendline of the SPX declining channel again before we turn down again but not all retracements are strong reversals. Some just chop sideways for a while until the other side of the channel reaches the trading range and that's what I'm now expecting to see. The bulls' best chance of a strong bounce was today IMO and their efforts weren't impressive.

There's no compelling reason to be long here before Friday's GDP results and after that, unless the GDP figures prompt a break with confidence of Wednesday's low, then I'm thinking we'll probably see the rangebound trading that often happens around holiday weekends.

I'm away all of Friday so everyone have a great weekend. :-)

Classic Reversal Setups

There was much discussion yesterday about whether yesterday's reversal would be a one day wonder or lead to a deeper reversal. I was already leaning towards a deeper reversal and after looking at the overnight action and I am leaning very strongly in favor of seeing a rally on ES into the 1070 area over the next two days.

We hit some key targets yesterday. Not only did we bounce at the key Feb low support level at 1037 ES, but we also hit the top of the rising channel on my 30 year treasuries chart and broke the short term EURUSD declining channel. I'm seeing a number of short term reversal setups and I'll go through the main ones.

On long treasuries I was wondering whether my steep rising channel was breaking, but they fell back after the morning and closed within the channel. I'm expecting a move back to the lower trendline of the channel, though it still looks a courageous short and it may trade sideways rather than down:

I posted my SPX:VIX indicator a couple of weeks ago showing the target I would expect to be hit on this downswing. We hit it yesterday, which is a signal that we are likely to get a respectable bounce here:

On the SPX 15min chart I'm showing the declining channel from the August high. We hit the lower trendline of that channel at the low yesterday and I would normally expect to see a return to the top of the channel. In that circumstance an H&S pattern will often form, and as you can see we have the left shoulder and head of a possible IHS formed now. I'm expecting us to make the right shoulder today before moving up towards the top of the channel:

I've gone into a bit more detail on the ES 60min chart. You can see that we reversed at the obvious level overnight and I've added a very possible short term rising channel to take us back to the top of the declining channel from the August high. If I'm right about that channel, then I'd expect a low in the 1046 to 1049 ES level this morning or early afternoon:

Looking over the USD currency pairs this morning I'm also seeing some classical reversal setups. EURUSD has broken the recent declining channel and is in a small ascending triangle from the recent low. I'm expecting a pullback to the lower trendline of that triangle in the 1.265 area before a break upwards to retest the recently broken broadening ascending wedge on the daily chart at the very important resistance level at 1.292. If I'm right about the initial retracement, or on a break with confidence of 1.2725, I'll be taking a spec long for that target:

GBPUSD has broken up from the falling wedge of recent days, and I'm expecting a retest today of the broken wedge upper trendline in the 1.548 area before a move towards 1.562, which is the target if the falling wedge is developing into a declining channel:

On AUDUSD the rising channel from June has held so far, and we have another potential little IHS forming. I'm expecting a reversal to the 88 level before the IHS plays out towards the target at 90.1:

It may go the other way today of course, but given the key levels hit yesterday, the odds have to favor a multi-day reversal here, and that's what I'm expecting. Equally we may move straight up towards the upside targets here, but given the potential IHSes forming, there is a good chance of a drop in the morning to set up some good short term long entries.

I have a bad cold today and in consequence I've had to change my travel plans this week and I won't be able to do a post tomorrow, though I might be able to put a couple of charts up after the close tonight. Everyone have a great holiday weekend! :-)

The economy is not the market

mmTesla said in response to a question at www.slopeofhope.com yesterday that 'the economy is not the market'. Very true. That doesn't mean that they're not intertwined in the longer term, but in the short term it does mean that the economy is of limited relevance to the market. I take an almost purely technical view of the markets, and try to put my personal (very bearish over the next five or six years) view of the economy aside, as I don't think it matters much in the short or even medium term, and I'm very keen to avoid the easy trap of looking for evidence to fit my view, rather than forming my view from objective assessment of the evidence.

That does mean that my strongest views on market probabilities are over a short timeframe, and I'll switch my medium term projections without hesitation or embarassment if circumstances change and major lines in the sand are crossed. That's as it should be in my view. Anyone looking for bold projections that never change much regardless of the evidence can always sign up at EWI, and the best of luck with that. Tim Knight's views are longer term I know, but there are very few chartists tracking a wider range of individual stocks than Tim, so his view is much broader than mine or indeed anyone who mainly specialises in the main indices.

In the short term I'm seeing intact declining channels on ES and EURUSD, and I'm expecting to see a short term low today on ES with the highest probability target area on ES in the 1033 - 1040 ES area. I'll be going long there, though with a degree of caution, as this looks like a counter-trend play to me, and it is possible that ES could go lower. I'm very aware that below my target area there is little support until we retest the July low, but I'm expecting both of my ES channels to provide protective support:

On EURUSD I have a declining channel as well, though the upper trendline was being tested hard overnight and on the 60min chart I am seeing strong positive divergence on RSI and MACD. EURUSD has fallen back somewhat since I did the chart, but I'll be happier when it falls back below 1.264, breaking very short term support:

Pug's primary count here is still the bullish count until 1037 SPX is broken, which may or may not happen on this short term swing down, and many would regard him as a bull here while I am a bear. The more complex reality is in the timeframe of course.

In truth Pug and I simply have different views over the depth of the retracement of the March 2009 to April 2010 advance, in that he thinks at the moment that it is more likely to have bottomed at a 38.2% retracement, and I think at the moment that it looks more likely to make a 61.8% retracement (878 SPX), which is also the maximum retracement that Tim was putting forward as likely in a post last night. All three of us and many others think that we are likely to see the market bounce afterwards to a level considerably higher than we are seeing today, and arguably that makes all of us bulls on that longer timeframe. :-)

In my view these labels are largely meaningless. Our only concern should be to stay on the right side of the market whichever side that might be. Anyone who thinks otherwise should probably avoid trading IMO.

Pug could yet be right. I switched my view back when EURUSD broke support, as that for me is a very key indicator. EURUSD tends to form wedges and they usually play out to target. The question here is which of the two wedges that formed on EURUSD since last November will fail? I'm leaning strongly towards the more recent bearish broadening ascending wedge playing out, because of the supportive H&S that formed at the recent top, and the increasing strength of the overall bearish technical picture. Here are both of those wedges on the EURUSD daily chart:

It could go the other way of course, my daily chart of SPX looks extremely bearish, but I'm sure everyone can see the huge potential IHS building on it with the neckline at the June and August highs. As far as I'm aware I'm the first one who pointed it out as a possibility in July and it is still a possibility. If we were to rise from here and break the upper trendline of the main SPX declining channel in the 1110 area, it would be a possibility to again consider very seriously.

Something else to note on this chart is the patterns that have formed on the daily RSI and MACD. I posted this chart the other day and you can see that we are coming close to reaching the support trendlines on those patterns. Those are likely to be hit today or tomorrow morning IMO, and when they are hit the short term low should be in:

One last chart to leave you with today. On the ES 15min chart we have a fairly good quality descending triangle. These break down 64% of the time and Bulkowski ranks them at 5 out of 23 as a pattern, though they perform best on on upward breakout. Bulkowski's page on it is here, and I'd recommend his site to anyone using patterns a lot. I refer to it often. The site is free and also has an excellent section on candlesticks:

Long Opportunity Coming Up

Well ES didn't even make a retest of 1084.5 ES yesterday before falling again and closing the day down. That clarifies my expectations for the next week, which are that we will fall into a short term low on Wednesday or Thursday that will lead to a relief rally lasting three or four days.

The key question is where we will make that low of course, and I still have the same two targets that I posted last week, though I'm leaning slightly more now towards the higher of my two targets as I'm not expecting big down moves today or tomorrow. Obviously I could be mistaken however.

The lower target is a hit of the very important support level at 1037 ES today or tomorrow. I have a fairly high quality declining channel from the July high with the lower trendline in the right area. If that target is hit then it may well be that the subsequent rally would be capped at the 1074.5 area, where the upper trendline of this short term declining channel will be by then:

I've switched to the SPX chart to show the higher of my two targets, and that target would be at 1055 SPX, at the neckline of a potential head and shoulder pattern where this low would be finishing the head, and the relief rally would be making the right shoulder. In this event I would expect a retest of the strong resistance level at 1085 for the right shoulder, and if broken, I would expect a test of 1100 SPX as that is the same level as the left shoulder, and that is a level I would be very surprised to see broken, so it should go no higher. It is worth noting that RSI, MACD and the 5,3,3 stochs are all showing positive divergence now, which is an indication that we may well be close to a short term swing low. You can see the RSI on this chart:

Looking at forex overnight EURUSD and GBPUSD have made new lows, and AUDUSD has broken the very important support level at 88.56, which it has been testing in recent days. I'm seeing the next target for AUDUSD in the 87.4 to 87.5 area.

The big forex news overnight though was on CADUSD, which broke a twenty month rising channel with a lot of conviction. I have two strong pattern targets for the short term downside and have marked them on the daily chart. I haven't marked it up yet, but I am considering the possibility that we have a very big H&S on CADUSD with the neckline in the 93 area and a target at 85.5. If so CADUSD may find some support at the neckline:

I haven't reviewed the flight to safety trades on gold, bonds and yen for a few days so I thought I'd review those quickly today. Gold, technically the strongest of the three in my view, is still rising within a two year old rising channel and may be falling in the very short term towards an internal support trendline in the 1205 - 1210 area. There is a possible head and shoulder pattern forming but it has too much sideways action on the head to make a good pattern really, and to finish the right shoulder it would have to break down through the lower trendline of the main rising channel in the 1180 area, at which point I would start to take it much more seriously. As gold is still close to the bottom of the rising channel the upside targets are the 1320 area for the significant interior trendline, and 1410 for the upper trendline of the rising channel :

Of these three flight to safety trades, gold is the only one that can't be printed in vast quantities by profligate central bankers, which gives it a distinct advantage over the other two IMO. The second, thirty year treasuries, seems undaunted however by the ever swelling supply, and has been in a strong uptrend for months now. I'm uncertain as to whether this is a rising wedge or a rising channel and I'm leaning towards the latter, If it is a rising wedge then we have been topping in the short term for the last few days, and if it is a rising channel then I have a target slightly under 136:

The flight to safety trade that I find hardest to understand however is the yen, as interest rates are slim even with deflation taken into account, and in solvency terms Japan looks like a dead man walking, with a public debt of almost 200% of GDP, disastrous demographics, a recession that has lasted on and off for twenty years, and one in three yen spent by the government being borrowed. Suspending my disbelief however I've charted this using USDJPY rather than JPYUSD as most people prefer the former, and it appears to be in a large falling wedge. I say appears as the criss-crossing between the trendlines is choppier than I would like.

The RSI on the JPYUSD hourly chart is in oversold territory and the RSI on the daily chart is developing clear positive divergence as well. On the 60min chart it has hit a significant support level overnight and there is a significant probability that it will reverse there. On the daily chart though, 82.9 still looks an attractive target and this still looks like a risky long. On a break of the upper trendline of the falling wedge this will look a very attractive long and I'll be watching for that in the coming weeks:

I've got a very busy week offline this week and won't be around much though I'll be doing my daily posts every day. I'll be away on Friday in a location with unreliable internet access, but I'll be doing the morning post unless it fails altogether.

Another bullish Monday?

Pug was asking on Friday why I had switched back to being strongly bearish from having switched to bullish a few weeks ago, and the reason for both changes was EURUSD. A few weeks ago EURUSD broke up from a broadening descending wedge and a rise to a target in the 1.46 to 1.50 looked likely. That was bullish for equities. On Friday EURUSD, having formed a new broadening ascending wedge, broke down from it, and is indicating towards a retest of the June lows. That is most definitely bearish for equities.

It isn't just me who thinks that about EURUSD, the positive correlation with equities is well established, though complex and obviously a proxy for the complex equities inverse correlation with USD. On the EURUSD direction, Arthur Hill wrote in his Friday night post that a retest of the EURUSD lows (at least) now looks likely, and technically that's obviously right.

Longer term I'm considering the possibility that the EURUSD broadening descending wedge that broke up was just the lower section of a much larger broadening descending wedge where we have just touched the top trendline at the recent high. If so the next EURUSD target is the strong declining support trendline currently below 1.10, and if so then we could see a very major fall in both EURUSD and equities. I'm short EURUSD from 1.2835 and I'll be holding on to that for a while in the expectation that I could well extract a 2000+ pip fall from this short. If EURUSD recovers to 1.28 I will be adding to that position.

I always liked the bear scenario here, we have multiple patterns pointing towards 870, and it has the force of economic logic behind it as well, given that the economy is quite obviously still in a mess, and that we have finished one major bout of stimulus and quantitative easing (shortly before the SPX peaked this year) and have not yet started another.

The short term bull case looks DOA to me here and now, and if it is to rise from the dead, we'll have to see a break of the SPX declining channel, currently at 1115, and a return to the June highs to complete the right shoulder on the possible IHS indicating towards the 1250 area. I don't suggest that anyone hold their breath waiting for that to happen but you never know. We are only ever dealing in probabilities of course .

I've marked the technically flawless SPX declining channel on the daily chart below, and marked in the potential IHS that could be forming. If the declining channel is to break though, I'd be very surprised to see that happen soon as I have a number of indicators suggesting that no major swing low has yet been made. Two of those indicators are the RSI and MACD on this daily chart, which form patterns sometimes with clear support and resistance levels. You can see that we are still well short of the obvious support levels. Even on a bull scenario, the right shoulder of the IHS bottomed twice in the 1040 SPX area, so the obvious target for the bottom of the right shoulder would be in the same area:

Short term though, we could well see some retracement. The nice little declining channel within which ES closed the week has broken, and an IHS formed with the neckline at 1074.5 and a target at 1087.5. As I've been writing the neckline has broken and we have risen as high as 1076 ES. I'm expecting at least one, and possibly several retests of the strong resistance level at 1084.5 ES. I'm doubtful about getting as high as 1090 ES but that can't be ruled out. I'll be regarding any moves higher primarily as an opportunity to add to longer term short positions, though I am scalping as well and went long at 1071 ES this morning after looking at the overnight action.

On EURUSD we could see a retest of the broken wedge trendline just over 1.28, but it is looking very weak this morning, and hasn't followed ES up overnight:

GBPUSD is looking slightly livelier than EURUSD today, and again, we could see a retest of the broken wedge trendline just over 1.57:

Oil has found support at an obvious rising support level, and I'm expecting a bounce here. That bounce could go as high as a retest of the broken channel trendline slightly above 76, but the obvious longer term target remains the May low just above 67:

I posted a chart on natural gas a few days ago suggesting that the obvious decline target was the strong support level at 3.8. Since then it has made some progress and has broken a minor declining support trendline, and I'm fairly confident we'll see 3.8. Technically the triangle target could be a retest of the 2009 low at 2.4 though, and while it looks worth a spec long at 3.8, if that strong support level breaks with any confidence, then gas could fall a long long way. Regardless of direction UNG looks a poor way to play gas as it has failed to track the gas price well over the last year:

Forever Blowing Bubbles

I've been promising a weekend post for a while setting out my thoughts on how the new few years might play out on the markets, and this seems a good weekend to do it, as EURUSD broke key support with conviction on Friday, and my bear scenario is back to being my primary scenario as a result, somewhat aided by important support breaks as well in ES, GBPUSD and Oil over the last few days.

My bear scenario has a downside target of 870 and I laid it out in the post below on 21st May:

http://slopeofhope.com/2010/05/occams-razor-and-a-road-to-870-spx-by-springheel-jack.html

Just as an aside, I see that I posted a rectangle target for 30 year treasuries at 134 in that post, and we reached it this week.
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ES and EURUSD Break Support

I was looking for confirmation that a major decline might be starting yesterday and I got it when ES broke the rising channel. Looking at SPX the channel was broken even more convincingly and just to underline the point the 13/34 daily EMAs recrossed bearishly, backing up the 13/34 weekly EMAs which recrossed bearishly last week:

EURUSD didn't break the broadening ascending wedge yesterday but has dropped well below it overnight, and has also dropped through the neckline of the big H&S pattern indicating to 1.214. Short of a really major recovery today I'm regarding the EURUSD wedge as broken, and that is confirmation once we see the close today that we are likely to see new 2010 lows on both ES and EURUSD:

Where we are on EURUSD is of enormous importance in my view as it is the key inverse proxy for USD. I've posted before on the complex relationship for the positive correlation between EURUSD and ES/SPX, and that the moves down on ES move furthest and fastest when both ES and EURUSD are both in powerful waves down, as they were between the SPX top in April and the early June, during which time ES fell just over 180 points on a peak to trough basis. I think it is now likely that we are in another such period now.

I have put a tentative EW labelling on the EURUSD moves down from the top so far. On my primary count wave 1 completed at the June low, and the recent high was the top of wave 2, putting us in wave (iii) of 3 now. On my alternate count we just completed wave (iv), which retraced almost exactly 50% of wave (iii), and have just started wave (v) of 1. EW pedants should forgive my not using the standard labelling, but I think the meaning is clear enough, and either way new 2010 lows from here now look likely:

Looking at the SPX daily chart I have also found a simply beautiful declining channel from the April high to support this overall picture. Looking at it now it is a perfect technical declining channel from the top, and should define the target for the current swing down, subject of course to the time taken to complete it:

On the basis of that channel and the current situation on EURUSD, and assuming that we don't see a major reversal on EURUSD taking it back into the broadening ascending wedge by the close today, I am therefore seeing the next major swing low in the 940 SPX area in mid-September. We shall see if I'm right over the next three weeks. :-)

In the shorter term I also have a smaller declining channel on ES for the current move, and also a largish potential H&S pattern indicating to the 975 area. These give us the two most likely bounce levels for the immediate move down, and they are the 1050 ES area to finish the head on the potential H&S pattern, and the powerful support level at 1037 ES, which would be the declining channel target and also the neckline for the big H&S pattern on ES / SPX that indicates to the 870 area. I'm favoring the lower target:

So there we are. I have put my bear suit back on and am once again targeting 870 SPX as the most likely main target for this move down, as it is the target for the big SPX H&S, the broadening formation, and also the bearish gartley pattern that I posted yesterday, as well as being the key support / resistance level for the October 2008 to July 2009 period. I am hoping that we will get a second Hindenburg omen in the next few days just to add the final touch to the overall technical picture here, which in my view hasn't looked as bearish since August 2008.

Still in No Man's Land

Bears were very excited about the pullback from the double-top yesterday. I've been considering this carefully this morning, and the evidence for an imminent pullback doesn't look overwhelming to me as yet. The bear case for the next few months is very compelling, is supported by numerous patterns, and it has economic logic behind it, but it still isn't necessarily going to happen.

One of the most compelling patterns for it is the possible bearish gartley pattern building on SPX. Here it is in its full glory:

This pattern came into focus when the move from March 2009 peaked at an almost perfect 61.8% retracement of the 2007-9 bear market. While most would doubt that we could move down to the 870 area and then move back up to challenge 1350 to complete the pattern, I think it looks very feasible as the first leg up would be QE1, and the second would be QE2, with the whole forming an ABC corrective move before another bigger move down. If SPX drops back below 900, I would expect that there would be another big stimulus package and the quantitative easing printing presses would be run round the clock to try to reinflate asset prices in the fond hope that this would revive the economy. That would probably work, for a while at least.

After a year or so of QE2, and the unprecedented fiscal blowout that went with it, I'd expect a bond market revolt to rein in  government spending and to shut down the printing presses, and then we'd have the final bear market of this secular bear market cycle, uninterrupted by these tedious and counter-productive keynesian interventions.

I'm working on a full post fleshing out this scenario and will definitely have it posted this weekend.

Short term I'm seeing no technical damage as yet to the  multi-week uptrends in the two most important markets that I am watching, namely ES and EURUSD. ES is still in the rising channel that I proposed as a likely candidate at the beginning of last week. Support is at 1074.5 today, and only a close below it would unambiguously open the path to new lows. The increasingly impressive looking IHS that I suggested might form three weeks ago with a bounce off 1130 ES to make the right shoulder is now well advanced and looking increasingly scary from the bear perspective:

EURUSD is much closer to a breakdown, and tested support on the broadening ascending wedge again last night, but support held, and only a close below that lower wedge trendline, currently at 1.279, would open the path to new lows for 2010:

Short term on ES the double top that we have seen on ES the last two days, coupled with the three bounces off the strong resistance turned support level at 1084.5 since ES broke up through it, give the look of a (70%) bullish rectangle with a target at 1112.5. A break downwards with conviction through 1084.5 would open the way to a test of main rising support since the July low at 1074.5. A conviction break of 1074.5 and close below it would clear the technical path towards new lows for 2010 with a likely target IMO below 900 SPX, but I'm not going to get excited about that until I see it happen:

The copper chart still looks fairly bullish, as the broadening descending wedge defining the recent pullback broke upwards last night, and the action over the last few weeks has something of the look of a bullish pennant. We hit a major resistance area overnight though, and we could easily see a pullback here:

As I write I see that ES has plunged down to test 1084.5 again, but it is holding so far and EURUSD has been moving up while ES has fallen. We'll see how that develops today, but on a swing trader basis, there's nothing to see here yet.

All about EURUSD today

I've been surprised by the action overnight. I had a rough target of 1084.5 ES for today, with a fall on EURUSD to the 1.284 area by the end of the day, and both targets were hit overnight more or less. ES bounced there and EURUSD has bounced very hard there. It looks right now as though we could well see a positive close today rather than the negative close that I was expecting. If we see EURUSD break above 1.295 then that is what I will be expecting today.

Tim Knight posted an IHS yesterday on EURUSD and that IHS is forming, but wasn't yet fully formed, and it is that IHS that is likely to define the next few days IMO. Here's my take on it:

This is part of a much larger picture on EURUSD. There is a rising channel on it of course, that I have posted before and is still in play, but the pattern I am really looking at on it is the big H&S pattern forming indicating to the 1.214 area. Here's the bigger picture on the 60min chart:

This is a remarkable pattern. Note how this current IHS is the mirror of a previous IHS at the other side of the head that has the same neckline and where the head bottomed at exactly the same place.

If it plays out this would be very bearish for equities of course, but then many charts have been taking on an increasingly bearish look. GBPUSD has tested the support trendline of the broadening ascending wedge to the point where it now looks likely to break downwards soon, though short term it should bounce with EURUSD:

Oil is breaking down from the rising channel I posted at the beginning of last week, and while it may well bounce here, more downside looks increasingly likely to me after that:

The picture isn't all bearish of course, copper still looks divergently bullish and may well break up towards the recent high at 340:

My primary scenario for ES today is this. I'm expecting to close down with EURUSD weak all day while we make the RS on the EURUSD IHS. After that I'm expecting a three or four day rally while that IHS plays out, and before we start to decline again.

If we go down this road then I'm expecting that EURUSD won't decline much past 1.28 today, and ES should hold 1075. My ES target for the subsequent rally is in the 1110 - 1115 area. Here's the ES 60min charts with what I see as the important support levels shown:

Looking at the overnight action though, I'm thinking that we could see just the opposite, and if EURUSD breaks 1.295, then I'd expect to see the IHS play out to target today, with ES making my rally target today as well. I would then be expecting to see both fall from there over the next few days.

Either way I'm expecting to see ES go higher than it did yesterday over the next few days. Pussy Galore was saying at the start of last week that a spike up or down that pulls back sharply often precedes a bigger move in the same direction. That's right of course and in EW terms that is a starting 1&2 or A&B wave pattern. That is what we saw yesterday in my view and however it plays out I'm expecting to see a higher high on ES than the one we saw yesterday in the next three or four days.

ES Resistance 1092-4

I'm expecting a positive day today, though the gains may well be given back tomorrow. Looking at ES, I'm seeing resistance for today in the 1092-4 area:

dreadwin pointed out a bearish engulfing candle on $RVX, the volatility index for the Russell 2000. This adds to my feeling that we have seen a low now that will last at least until the end of the week:

On EURUSD we have a decent short term rising support trendline with current support near 1.284:

AUDUSD has broken up from the broadening descending wedge of recent days and looks like it may well reach 91 today:

The key resistance level to clear today is at 1084.5 ES. If ES can make it up past 1090, then 1084.5 may well turn into support for tomorrow.