Last Trading Day

I wrote a post on the last day of March noting that the last trading day of the month has been a one-day bear market since March 2009, with a cumulative loss of 72 points since then. Here are the stats:

The short side is looking promising today, as the lower trendline of the rising wedge from the 1290s has broken down overnight. That's a pointer to what might be a significantly bearish day, as if the wedge turns into a channel then we could see a move down to 1330, though a retest of the big IHS neckline in the 1336-8 area looks more realistic:

I'm not getting excited yet though. The pinocchio down through the rising wedge lower trendline yesterday has set up a shorter term support trendline on ES. When that breaks the short side today will look a lot more interesting:

Copper is still testing support and failing to bounce there. Support's still holding though and even if copper resolves down here there are good odds for a spike back up to test triangle resistance first:

I don't know whether anyone shorted sugar on the basis of the chart I posted yesterday, but if anyone did they should be happy this morning. Sugar is nearing the key test to see whether it is in a falling wedge or declining channel. If that test is today then potential support is in the 22.6 area. If sugar breaks below there then the declining channel support trendline should be hit in the 19 - 19.3 area. That target could get a lot lower if that move down takes a few days as the trendline is declining very steeply:

My palladium trade is close to reaching the key initial target in the 791-3 area and I'll be cashing up there as we'll more than likely see some pullback from there. If it breaks the two trendlines there and clears 800 that would be extremely bullish and I'd be looking for a retest of the Feb highs in the 864 area. My ultimate target from the monthly chart is in the 900-950 area:

I haven't done a CADUSD chart in a while so I thought I'd post the CAD chart today. It has been lagging AUD lately but the weekly chart looks pretty bullish:

What I'm hoping to see today is a gap up, which the Gap Guy gives an 82% probability of closing, followed by a break of short term support on ES and then a decent retracement that retested the IHS neckline in the 1336-8 area. The stats for the first trading day of the month on Tuesday are very bullish (up 184 since April 2009) and the stats for the the second trading day of the month fairly bullish (up 72 since April 2009), so I'm leaning long for the first two days next week and the most likely day to see a neckline retest is definitely today. Looking at the stats for the first two trading days of the month, I see that if you'd gone long at the close of the previous day and then sold at the open on a gap down, and held until the end of each day on a flat or positive open, then you'd be up a cumulative 358 SPX points since April 2009. That's slightly more than half of all gains in this bull market on SPX which is frankly amazing. Helicopter Ben's speaking at 12.30 so we might see a spike up in precious metals and all non-US currencies then. :-)

Fed vs US Dollar

The Fed's not a guardian of the US Dollar that inspires much confidence, but even by the Fed's low standards, the mad rush to escape USD that followed the FOMC meeting and statement yesterday was one to remember, and was somewhat reminiscent of watching a crowd trying to escape from a burning theater. There were big spikes in equities, precious metals and in currencies not controlled by the Fed, and there's more coming I'm sure.

EURUSD  has risen about 180 pips from when I was writing yesterday and is well on the way to the next target, which is the upper channel trendline currently at 1.506. I'm expecting the current rise to test the 2009 high at 1.5144, but that can't happen for about three weeks within the current channel:

 AUDUSD moved up strongly too and the next rising channel target there is currently in the 1.115 area:

On ES the upper trendline of the rising wedge I posted yesterday was broken but an alternative rising wedge upper trendline was established at the high, so there are still two alternate resistance trendlines in play. The support trendline is unambiguous and support is at 1347.5 at the time of writing. A break down from that trendline will signal a retracement, though that retracement may well be modest and just test the big IHS neckline in the 1336-8 area. The rising wedge upper trendline is currently at 1357.5 and the rising channel upper trendline is currently at 1371.5:

Precious metals did very well and palladium, which I'm currently long on from 752 yesterday, had a very nice day. I did a writeup on the long setup on palladium yesterday at SharePlanner and you can see that here. Elsewhere though there are some odd aspects to this move up on equities. Bonds are divergently strong and copper is divergently weak. I've been having a careful look at the copper chart this morning, and after breaking down from the broadening ascending wedge from the June 2010 low, copper has now clearly formed a triangle. We need another upside hit to tell us whether this triangle is ascending or symmetrical, but I'm leaning towards a symmetrical triangle. On a break of the lower trendline I'd expect to see support at 408 tested, and if that breaks the obvious target would be the support level at 365. On the longer term charts there is a strong rising support trendline in the 365 area, and that both strengthens 365 as a target and makes it unlikely that copper would go lower. That doesn't fit that well with a strong equities move up here, but this wave up from July is in the final months and you'd expect some divergences here. Here's the setup on the copper daily chart:

I posted a chart showing the potential double-top on oil yesterday morning and that looks even stronger this morning. If CL can't break up through 113.5 then I'd be looking for a move back to gap support in the 95-6 area:

I don't usually post charts on soft commodities but a couple of them, notably cotton and sugar have been falling hard in recent weeks. I'm not getting much from the cotton chart but there's a very nice setup on sugar with decent possibilities both long and short. I've written the setup up on the daily chart:

I'm leaning long on equities and forex today, but 'll switch to short on equities on a break of the ES support trendline.

I've started to do a post or two a day at SharePlanner on individual stock and commodity charts. Ryan Mallory's invited me to do some of these writeups there and it works well for me as I can (shamelessly) select from a picked group of stocks there that have not been selected primarily on the basis of trendline setups and then write up and trade the ones that I like best. I'm planning to do more individual stock plays in future and this is a good way for me to build a large library of these. You can see my posts there in the featured bloggers section or at my blog. I'll be doing my more general market posts here every morning as normal.

Palladium - Nice Long Setup

I was reviewing the precious metals longer term charts last weekend to see whether I could identify a top coming after this amazing move up on silver. I have nothing usable on silver as it is in uncharted territory on my ten year chart, but the gold and palladium charts both look as though they have more upside coming, with palladium being the more interesting of the two.

On the monthly chart the obvious target for palladium is in the 900 - 950 area, depending when it is reached as the resistance trendline is rising. There's some significant resistance in the 857-9 area near the last high as there have been two previous monthly peaks in the same area:

The short term setup looks very encouraging on the 60min chart. Palladium has made a decent low with positive RSI divergence, and the most recent declining resistance trendline has been broken and retested as support, but more importantly a small IHS is forming with the next neckline touch in the 776 area. If it plays out the IHS target is in the 838 area which would suggest at least a retest of the 857-9 resistance level. On the bigger picture that IHS is the right shoulder on a much larger IHS that would indicate to the 948 area, which fits well with the target range on my monthly chart:

I think Palladium may well now be starting a big move to the 900 level and above. I went long at an average price of 752 yesterday and this morning, and I'll exit if it drops below rising support at 736.

GOOG - Descending Wedge

GOOG is one of my picks. I'm not trading this yet but I'm watching to see the next good long or short entry come up. Here it is one the one year 60min chart:

GOOG broke down from the very large rising channel recently, and I drew in the broadening descending wedge when it broke support, though sadly I didn't short it at the time. As you can see it fell to the lower trendline perfectly and reversed there. Targets for this counter-trend bounce are at the strong resistance level in the 551-4 area, and if that is cleared then the upper trendline would be in the 565 - 570 area depending on the time taken to reach it. If the upper trendline breaks then the pattern target would be at the 630 resistance level.

One thing to note on the chart is that the overall setup looks pretty bearish. The 551-4 resistance level could be the neckline for an incredibly ugly H&S pattern indicating to the 460 area. That may well not play out, but I'd be surprised if GOOG was done with downside here. If GOOG can make it back up to the upper wedge trendline at (say) 570, then there could well then be a move down to the wedge support trendline in the high 400s which would be a very nice move indeed. Definitely one to watch.

MSFT - Dangerous Long Here

This is my first post at SharePlanner. What I'm planning to focus on here is mainly individual stocks with some commodities. For the stocks Ryan and I think it might be interesting if I chart up some of the picks here to see what I see on the chart. I'm going to aim to do one or two of these a day & will be trading the charts I like best.

My first pick is one that Ryan mentioned on twitter this morning and that's MSFT. That has made an encouraging double bottom with positive RSI divergence as Ryan mentioned. Looking longer term at the chart though there are a couple of worrying aspects to it:

Firstly, after breaking down from a rising channel the broken lower channel trendline is now acting as resistance. That may hold as resistance. Secondly the recent double-bottom was at an H&S neckline. That H&S may fail but a move to test the resistance level in the 27 area would be normal enough with that having been the height of the left shoulder on the pattern.

If MSFT manages to break up through double resistance in the 27 area,  then it would look more interesting, but there's also declining resistance from the 2007 high at slightly over 29, so upside may in any case be limited.

Overall this looks best avoided, though it could be an interesting spec short in the 27 area with a tight stop if the 60min RSI looks encouraging there.

New Three Year Highs

There were many new three year highs on equities yesterday, and even the recently lagging transports index caught up to make one too. With the new high on the Dow yesterday that gives us another Dow Theory Buy Signal. It would be hard not to regard this as very bullish, and I won't be trying to put a bearish interpretation on it. Here's yesterday's impressive move on the Transports index on the daily chart:

Something that does look somewhat bearish though is the reversal yesterday on NQ at the upper trendline of the rising channel I posted. I suspect that NQ will soon break that resistance trendline but until it does there is the possibility of a significant reversal here:

I'll start taking that channel more seriously on NQ if ES breaks down from the short term support trendline. That trendline is the support trendline for what could either be a rising channel or a rising wedge. If it's a rising channel then the next ES target is in the mid-1360s, but possible wedge resistance in the 1348 area will need to be broken first. The rising support trendline is in the 1338 area:

On the bigger ES picture, the neckline on the big continuation IHS broke yesterday. There's some negative divergence on the 60min RSI but if ES can hold above the IHS neckline for a day or two then it should become effective support. A return to test 1319 already looks much less likely:

Everyone's looking at the Fed meeting today wondering whether the Fed will offer some support to the stricken US dollar. If it doesn't then a continuation down looks very likely. EURUSD has now broken up from the resistance turned support upper wedge trendline that it has been hugging recently and the next obvious target is the 2009 high at 151.44:

There has been much speculation in recent days about whether equities can continue rising without a pullback on oil. Looking at the oil futures daily chart that pullback on oil may well be building now, as oil has reversed at a rising resistance trendline, and has then double-topped with sharp negative divergence on RSI. Unless oil can break through to new highs with confidence, the obvious next target is the gap support (and possible H&S neckline) in the 96 area:

The big wild card today is the Fed meeting and press conference. I'm doubtful that the Fed will pay much more than lip service to a stronger US dollar, but lip service might be good for a short-term bounce on USD so I'll be watching it carefully. Meantime the short term picture looks fairly bullish and I'm be watching resistance on NQ to see whether NQ can break that and the Feb high at 2404 with conviction.

There's been a lot of talk about how the US Dollar is indispensable as a reserve currency, and that foreign holders of US treasuries will therefore continue to build holdings indefinitely regardless of a disintegrating USD and the obvious fiscal incontinence of the US government. It was Charles De Gaulle though who famously remarked that the graveyards are full of indispensable men, and while the reserve currency graveyard is somewhat smaller, the same is doubtless true of reserve currencies as well. If nothing is done to support the US Dollar here then a rebalancing away from USD towards a basket of reserve currencies wouldn't actually have a big impact on anyone other than the US. It will be interesting to see whether the Fed takes any steps to support USD here, though their track record for forward thinking over the last fifteen years would suggest that they won't.

Run to Resistance

I'm not feeling at all well today, after a meal of possibly dodgy shellfish on Sunday, but I've dragged myself out of bed to do a very quick post. The overnight action is bullish, and suggests a run to test the Feb 2404 highs on NQ and through the Feb highs to 1342 on ES. What happens at those resistance levels should define the next few days. Looking at the ES 60min chart resistance at 1342 is significant, and a break up would open up a lot more upside. A failure there would suggest a retest of 1319, and if 1319 doesn't hold, then a potential move well below 1300. I'm leaning bullish but the potential for failure is definitely there:

On NQ the resistance from the last three days has broken overnight, and a move to resistance at the 2404 Feb high looks likely. NQ has formed a bull flag, and if resistance at the Feb high is broken then a move to 2450 looks likely:

Copper made a nice looking low with positive divergence on the 60min yesterday and more upside looks likely. That's supportive of equities today:

The Gap Guy says that fading up gaps are higher risk today, so if we see a large gap up it may just run.

Pullback Monday

It used to be that you could count on Monday to be a bullish day. No longer, as seven out of the last nine, and all of the last four Mondays have closed down on SPX. There's a good chance that today will be the same as SPX and NDX look overextended short term. Here the picture on the SPX 15min where some retracement looks likely, though it might be limited by the support trendline:

NDX is in a sort of channel, though with the two big gaps it's a strange looking chart:

Copper's made a short term high on the 60min chart and is retracing. The obvious first target is at 432 though it might well go further. Copper's hard to call at the moment and I'm going to run some fib calculations today to see if copper might be in a bullish gartley pattern. if so we'll see more downside here:

Some mixed looking charts this morning. Vix has decisively broken support at 15 on the daily chart, and I'm expecting it to drop quite a bit further. That wouldn't necessarily mean that equities rise a lot, though it's bullish for sure:

XLF is still stalled under declining resistance on the daily chart. If that were to break up it would look very bullish, but for the moment XLF is sitting on support:

EURUSD is still hugging the broken rising wedge upper trendline as support. Some negative divergence is developing on RSI and if EURUSD can't break up soon that will start to look increasingly bearish:

The star of the show today is silver however, which took out the 1980 high at 49.45 overnight. Silver's now up almost 150% since it broke the 2008 highs in September and I'm sure everyone's wondering whether this is a blow-off top. If they aren't then they should be:

I'm leaning short on equities today. The stats are good for a gapfill on a gap up, Monday's have been bearish lately and ES looks as though it should retest broken resistance at 1319. We'll see.

ES Tests February High

At the time of writing ESM1 has reached the February high to the tick at 1337.75 and is testing it. We may well see a new high today. After having a careful look at the continuation IHS that has formed I've redrawn the neckline sloping upwards slightly, so that's slightly higher at 1339.5. The 60min RSI is overbought and showing negative divergence so we may well see some retracement today or Monday and the obvious target for that retracement would be broken resistance at 1319. Pug's called this move very well and is expecting a wave peak in the 1340 - 1344 area, followed by a retracement into 1324 SPX, so that would fit my expectation very well:

NQ has led the rally from the Monday lows and has risen an amazing 130 points since then. I have a possible rising channel with resistance in the 2395 area, which is slightly below the February high which was at 2402.5:

The dollar is crumbling badly as various currencies have broken up against it. That supports the bull case here which looks very powerful. EURUSD has now broken up through resistance with confidence and my next target is slightly over 1.50:

AUDUSD has also broken rising wedge resistance and my next target is in the 1.11 area. The target for the broadening formation that broke up in September last year has now been met, but there's no sign of a top for AUDUSD here:

Vix broke below the 15 support level that has held since mid-2007 and may drop quite a bit further if the break holds:

So all is well with the world. Equities and commodities are set to make strong new highs while the US dollar is being beaten to death with the Fed's printing press. There's something missing from the picture though, and that's a falling bond market and rising bond yields. Bond yields have been highly correlated with equities in this bull market and the consolation prize for bears from a big new wave up was always going to be a rise in bond yields that broke the 26 year declining channel on TYX. The top of that declining channel was tested in February, and bond yields then reversed with equities. So far though, the bond market is holding up and yields are still well below those February highs. I'm expecting that to change, and if it doesn't then a strong move up in equities here would diverge markedly from bonds. That channel resistance is solid however so we'll have to see how that goes:

There are a couple of odd things about this rally up from the Monday lows so far. Bonds are holding up as I said, and the Russell 2000, the Transports index and Financials look weak. The bull case looks strong however after this amazing move up since Monday and I'm expecting that we'll just be buying the dip as usual once new highs on ES and NQ are made and confirmed. A couple of things to mention are the Easter holiday trading stats from the Stock Trader's Almanac, which are well worth noting. The trading day before Good Friday has been up on Nasdaq 14 of the last 16 times, and ten straight times since 2001. The post-holiday Monday however has worse stats, down 16 of the 20 between 1984 and 2003, though it has been up 6 of the last 7 since then. Thanks to Cobra for those stats on the Monday after Good Friday.

The move down on Monday with the confirming equity bearish trendline breaks on EURUSD, copper and bonds was just a particularly impressive bear trap it seems.  Many were fooled by it, including me, and there was a heartfelt post about it by a futures trader called Chris Johnston that echoed what many of us have been thinking since this week. Definitely worth a read and thanks to my friend bullethead for posting the link for me.

Wild Reversal

What a wild week. The bearish push down on Monday accompanied by a series of bearish trendline breaks has been followed by an even stronger push up, and as I write ES has peaked almost ten points above the 1319 level that held as resistance on Friday. The short side isn't quite dead in the water yet, but they're in serious trouble, and ES is now close to a new high that should signal that we are in a new wave up. On NQ resistance on the possible diamond top is now being tested and if NQ can retake 2350 and stay above it then I'd be inclined to write this pattern off:

On ES the only remaining H&S pattern in play is the continuation IHS that will indicate to the 1446 area if ES can make a new high. A couple of points worth noting as well on this chart are the broadening formation that has broken up with a target at 1348, though this isn't a pattern with a strong track record, and the resistance level and trendline at 1329, which is where ES is stalling at the time of writing. We could see a reversal from this level this morning, as the ES 60min RSI is very overbought:

Copper has also reversed back up, though not as strongly, and I'm looking for a short term high in the 431.5 area, which is also a potential IHS neckline. A rising wedge has formed from Monday's low which supports a retracement here and the obvious target for that retracement would be the 423.5 area. A break back below 420 would look bearish and would kill off the potential IHS, though I'd be watching for a double bottom with positive divergence there:

EURUSD gapped below the rising wedge trendline and then gapped back above it leaving a little island bottom on the trading hours daily chart (XEU). EURUSD is now back at 1.45 resistance and has made a marginal new high, which is very bullish. AUDUSD is also breaking up, so the outlook for USD is deteriorating very fast:

TLT consolidated above broken declining resistance yesterday, and the obvious next resistance level is 93.7. If we are seeing a major break up on equities however, then bonds are likely to struggle at best and I'd expect TLT to reverse back down. Bonds are strongly inversely correlated with equities, so I'm treating this break up with extreme caution until we see where equities are going:

I was looking through some precious metals charts yesterday, just to see how the other precious metals were doing. Platinum was interesting, as it hasn't participated in the latest stage of the PMs rally so far, though it rose very strongly from the late 2008 lows into early 2010, and is still up a lot more than gold over the same period. It looks rangebound at the moment on the weekly chart:

The really interesting chart was the weekly chart for palladium though, which has even outperformed silver from the late 2008 lows. The chart looks particularly appealing as there is a tight rising channel and a very obvious target in the 925 area. Of all the PM charts palladium looks the most compelling long at this level:

Overall on equities this reversal looks very bullish, but they're short term overbought and at serious resistance, so I'm expecting some retracement from here today. A gap fill looks very ambitious and I'd be surprised to see that. The obvious target for a retracement on ES within this bullish context would be broken resistance in the 1319 area.

Major Trendline Breaks

I posted charts on TLT, copper, and EURUSD yesterday, pointing out that they were all testing important trendlines that, if broken, should indicate major trend changes. They all broke yesterday. I thought that TLT might be saved by the S&P announcement yesterday, but having pulled back below the trendline by the open, it broke up through it in the afternoon:

This should be followed by a big bond rally. It makes sense that we would see that here as the recent highs on 30 year treasuries tested the 26 year old declining channel and the trendline was rejected. That's a shame for the longer term bear case, as there could be no better way of bringing current US policies to a close than seeing interest rates set firmly on an upward path, but it is what it is:

Copper broke down yesterday, and here's the daily chart showing what a significant break down this is. I have some support in the 410 and 400 areas but my main target is the 365 support level, which is also a potential H&S neckline if it's going to retrace further:

The trio of major breaks yesterday was completed by EURUSD, which gapped below the support trendline on the rising wedge that has formed since the last low at 1.29 in early January. Harder to put a target on the EURUSD retracement, but the technical target is back to that January low, and as the wedge overthrew, this wedge is unlikely to turn into a rising channel:

Taken together all of these breaks on bonds, copper and EURUSD augur badly for equities, with copper and bond yields particularly tending to track equities closely. My primary scenario is now that the February top on SPX was a major top and that it is now unlikely to be broken for a few months. We're also now coming into the seasonally weak May to November period of the year and this is a logical point to see a retracement on equities. Shorter term we still have two valid H&S patterns of the three that I posted yesterday morning, and they are the large IHS with the neckline at 1337, and the smaller H&S with the neckline at 1300. I'm taking the smaller H&S less seriously now as ES has broken back up over the neckline, though I'd only discount it altogether if ES gets back over 1315:

Equities are bouncing today and the logical targets on SPX are the 50 and 20 DMAs at 1315.25 and 1319.30 respectively. A break back above these with confidence would be bullish but until then they are the key resistance levels here:

I posted my daily gold chart a couple of weeks ago showing the very strong resistance trendline at 1450 and saying that a break above it would be very bullish. Since then gold has broken that trendline, retested it and is now testing the 1500 level. I wouldn't put any money on 1500 holding:

The bulls are on the back foot now and the technical picture favors the bears. The bulls still have the potential  IHS, but the odds on it playing out have worsened considerably.  The bears need a close below 1300 SPX and the bulls need to close back above 1320 SPX. I'm leaning towards seeing a bounce today but it may not get far.