Breaks

I have almost entirely lost access to this internet at the moment, as I'm laid up in hospital with access via my iPhone. I broke my leg badly on Sunday and it's possible that I won't get home until the end of this week, in which case this will be my only post until then, as I cannot currently post any charts.

However I do have a couple of points to make from the limited access that I do have, and the first is that ES has broken up from the strong declining resistance trendline that held again on Friday. That trendline was the upper trendline of a falling wedge of course and I am expecting at least a retest of the 'Osama Top' on ES now.

The second point to make is that today is the last day of the month and tomorrow will therefore be the first day of the new trading month. That means that the trading stats since
March 2009 are moderately bearish for today, and strongly bullish for tomorrow. The best trade for tomorrow over this time has been to buy at the close of the last day of the month, and hold until the close of the first trading day of the month, unless there is a gap down on the first trading day in which case you should sell at the open.

I'm leaning strongly bullish for this week after the break up on ES, and I'll be looking for the same break at the open on SPX. I see that EURUSD has broken up through 1.434 as well and that also looks bullish.

Happy trading everyone. I'll be back as soon as I can.

Looking Fairly Bullish

Looking at the charts this morning they're looking fairly bullish to me. On ES a test of declining resistance from the high seems likely today.A break of declining resistance would be extremely bullish with the big falling wedge indicating back to the high. A small IHS and smaller falling wedge are targeting the 1340s and strong resistance, along with a larger potential IHS neckline, is at 1345:

Declining resistance on NQ is already being tested, with another small IHS targeting 2366. Strong resistance, and a potential larger IHS neckline is in the 2370 area.

Declining resistance was broken overnight on TF, though the trendline wasn't as strong as the ES equivalent. Another little IHS is targeting the 844 area, though there's a resistance area on the way at 839:

EURUSD broke up through the potential channel resistance trendline I posted yesterday morning and the obvious target is now 1.434 for another potential IHS neckline.

Copper has broken the resistance levels at 412 and 416 I posted the other day. there's some possible resistance at 419, but otherwise I'm seeing the next likely target at 426.8:

Bonds tend to move inversely to equities, so I thought I'd have a look at the TLT chart this morning. Sure enough, TLT is making a double top with negative RSI divergence at rising channel resistance. A fall to the 91-2 area looks likely next, which would be bullish for equities. It's worth noting on this chart that the last channel high on this TLT chart was just before the March low on equities:

Not much for the bears here so far but I do have one ray of hope for the bears to show this morning and that's a possible H&S pattern forming on SPX that vandalay pointed out to me the other day. I'm not sure what I'd give for its chances here but the neckline trendline is undoubtedly perfect:

I'm leaning bullish here but we could see some retracement today. If so, I have short term rising support on ES at 1318.5. Today will be a low volume pre-holiday day, which probably favors the bulls. Tuesday will be the last trading day of the month, which is distinctly bearish statistically. It might be that a bullish breakout might wait until Wednesday. 

Bull/Bear Lines

Mixed picture this morning and I'm very torn here about direction both today and for the next few weeks. We need to hit some confirmation levels either way. On the ES 60min chart the break down on Tuesday night could have been an overthrow. We need to see what happens at declining resistance, currently in the 1336 area, if that is reached, and that is my main bull/bear line in the sand here. Having said that, when a wedge breaks you often see a break back into the wedge, and that retracement will generally NOT reach the upper wedge trendline. If the ES falling wedge is breaking down therefore, there is no reason to expect that declining resistance would be tested again:

On the bull side I posted possible rising channel support trendlines for NDX and RUT yesterday, and here's how they look this morning. Here's the RUT daily chart:

On the RUT 60min chart the move up has reached a gap resistance zone and it could reverse here:

NDX hadn't quite reached my possible channel support trendline when I posted it yesterday, but it opened at the trendline and moved up from there, giving us exact hits on those previous theoretical trendlines on both RUT and NDX. That is something to think about and until we see those trendlines break that looks guardedly bullish:

On the NQ chart, which is still very weak and not leading any bounce here, we have reached a retest level for two trendlines and both have been touched yesterday and overnight. A break up through them would suggest more upside, but this is an obvious reversal level unless those are broken:

There are a number of reasons I've given above for thinking that this is an obvious reversal zone, if we are to see more downside. There are more though, and another comes from silver. I've marked the gap resistance zones on the SLV 60min chart and you can see that the last SLV bounce failed at a gap resistance zone. SI (silver futures) have hit the 38 target I gave the other day and reversed slightly above in a gap resistance zone created on the last move down. You can see that the combination of the two zones gives formidable resistance for silver here. The lower blue trendline on the chart is equally formidable support:

I posted a possible EURUSD declining channel last week showing an theoretical upper trendline that I was expecting to be resistance if we are to see more downside on EURUSD. The small rising wedge then broke down before we reached that trendline but EURUSD has rallied off the last low to reach it overnight. This is an important level, and if it is broken, then I would expect a move to the possible IHS trendline at 1.434, which has been the level for the last two highs. A reversal there would target the 1.414 area for a right shoulder to form. That would look ominously bullish and the best bear scenario sees a reversal on EURUSD here for obvious reasons. :

For my last chart today I thought I'd post the 60min chart for the Transports index, mainly because it's pleasing to the eye and there's a nicely formed declining channel on it. The obvious next channel touch would obviously be a touch of the lower channel trendline of course:

I'm waiting for direction here and we'll see what happens today. I'm very busy offline so apart from my morning posts I'll be occupied elsewhere most of the rest of the week & only taking trades if they look particularly inviting. 

The Osama Top

The title today is a little play on words that probably means more in the UK than the US, as in the UK 'top' is a slang word for kill. It now looks as though the SPX high that followed the Osama Bin Laden's long overdue promotion to martyrhood might last a while, as my support for my ES falling wedge failed overnight and a lot of technical damage had been done already yesterday during normal trading hours. Nowhere is that technical damage more evident than on EEM, where the rising support trendline from the bear market lows has now been broken:

SPX has now closed below the support trendline from the summer lows last year. That is serious technical damage and more downside looks very likely:

On the SPX 60min chart there is a strong support trendline that hasn't broken yet. I'll be watching that carefully today, and if it breaks down, then the obvious next target is at 1294.70, where there is a potential H&S neckline and the potential to make an intermediate lower low:

On the NDX daily chart support was also broken yesterday, though there is a possible alternate channel support trendline just below that hasn't broken yet:

On the NDX 60min chart there's a decent support trendline established and that hasn't broken yet either. If it breaks today then the obvious target is 2254.88 where there is a potential H&S neckline and the potential to make an intermediate lower low:

On the RUT daily chart support was broken a few days ago, and was retested late last week, though as with NDX there is a possible alternate channel support trendline just below that hasn't broken yet. As with NDX that's a long shot to hold here but it's in the mix:

On the RUT 60min chart there's another decent support trendline that also hasn't been broken yet.   If it breaks today then the obvious next target is 775.90, though unlike SPX and NDX RUT has already made an intermediate lower low and is therefore technically in an intermediate downtrend:

On copper I showed a little IHS yesterday morning that played out to the 409 target. Copper isn't looking bearish at all here in the short term as it broke my short term resistance trendline and I'm looking for a retest of the mushy resistance zone around 412 and a possible broken wedge support retest in the 415-6 area. That said the 60min RSI is now in the oversold area and a move up from here would kill off the possible H&S forming above the 395 neckline so we'll see:

My main bull scenario looks DOA this morning with the break down from the ES falling wedge overnight. That could technically be an overthrow, but I'm very doubtful about that. The key for today is whether we can repeat any of that overnight action during trading hours today and also break the short term support trendlines on SPX, NDX and RUT. If we can I'm seeing some trendline support on ES in the 1299 area that might prevent us reaching 1293 today, but we could hit it tomorrow within that trendline. There is something to also consider here though, and that is the SPX daily BB breaks chart that I posted yesterday. That likely strong rally dangled in front of the bulls like a promise yesterday, and it's hanging above the heads of the bears like a threat today. The ideal scenario here is that SPX moves down to hit 1294.70 or slightly below today or tomorrow, and then we see that strong bounce as the right shoulder forms on a large H&S at a 1294.70 neckline. If we can stay below yesterday's range today that's what I'll be looking for today or tomorrow. 

Fearful and Greedy

'We simply attempt to be fearful when others are greedy, and to be greedy only when others are fearful' - Warren Buffett

This is a very famous investing quote from Warren Buffett, and the gist is that you tend to get the best buying opportunities after a sharp fall, and the best selling opportunities after a sharp rise. This isn't a rule to be followed blindly of course, but my bullish friend Pug posted a chart yesterday that illustrated this very well and it is the chart of breaks below the SPX daily bollinger bands. I've extended this chart back into 2007 to show that these breaks down, in both bear and bull markets, tend to be a very strong buy signal, with the day of the break frequently marking the short term low. Here it is:

In the short term support held on my ES falling wedge, though it overshot by half a point on the strict thinnest pencil reading. As long as that support holds then the highest probability direction is up to wedge resistance that is currently at 1339.5. Given that the SPX BB chart shows that these breaks down out of the daily BBs are usually followed shortly afterwards by strong rallies, and that falling wedges break up 70% of the time, it would be folly to write off the long side here in my view:

That's not to say that no technical damage has been done by this latest decline though. I said last week that a close below last week's low would cause some technical damage, and I was thinking of the channel support trendline from the Summer 2010 lows on SPX. There was a pinocchio down through that trendline yesterday, though SPX recovered above it by the close. A close below it would be a very dangerous sign of weakness:

NQ blew through my support trendline for my possible broadening ascending wedge yesterday, so that pattern is trashed. It hasn't broken down of course, as the lower trendline needed a third touch to confirm it in any case. I'm just left with a strong resistance trendline on NQ & I'll have to give that some thought. The picture looks clearer on NDX, where the neckline of the sloping IHS there held at the lows, more or less, while NDX filled the open gap zone that has been acting as support. The SPX open gap in the 1313-1219 area was filled at the same time. Again with NDX, as long as that neckline holds, the default position looks bullish here:

I'm spoilt for choice with charts this morning, so I've bumped the TF chart, which held the support area I indicated yesterday and is still therefore possibly forming a large H&S with a possible RS target in the 845-860 area. You can look at yesterday's TF chart here if you want to refresh your memory of that setup. Copper has formed a little IHS overnight with a target at 409 and that has broken up. The picture is more complex than that though as copper bounced at the 395 support area I highlighted yesterday morning, and may therefore be forming a larger H&S with an RS upside target in the 404-5 area. So far copper has reversed at 405 so that is still very much in play. If 405 breaks then upside targets are 409 and a possible broken wedge support target in the 412-4 area. A break back into that wedge would be very bullish:

On oil a nice little triangle has formed as it has bounced around for the last few days. Support is at 96.75 today and resistance is at 100 with an upside touch more likely next:

Silver has broken up nicely from the little triangle I've been posting in recent days. It isn't a good quality triangle, as the lower trendline needed a third touch to confirm it, but more upside looks likely from here, and for what it's worth, I'd put the triangle target in the 38 area:

USD/DX hasn't reached the key declining resistance trendline I posted yesterday, and I thought I'd post the GBPUSD chart today to show that it has reached a very key support trendline overnight and bounced there so far. This is the key bull/bear line on GBPUSD in my view and if it breaks down then the obvious target would be the strong support (and possible H&S neckline) at 1.534. This doesn't matter as much for USD as EURUSD, but while USD might make it to declining resistance without GBPUSD breaking this main support, if it is to rise further then that trendline on GBPUSD would really have to be broken. GBPUSD is also in a small declining channel with resistance in the 1.625 area and I'll be watching that for a break up. One to watch:

I'm leaning towards a bounce today, and on the bigger picture I'm sticking with the bullish scenario until that falling wedge on ES breaks down. This isn't a conviction position, as I don't think convictions fit well with technical analysis, where the charts should lead and the analyst should follow. The charts are still telling me that the highest probability trade is up, so as long as that's the case that's good enough for me. 

ES and NQ Reach Support

I love it when a plan comes together. My call for 1313 ES and 2310 - 2315 on NQ looked pretty bold on Friday morning but we've made 1312.25 ES and 2316.50 NQ overnight. An exact support trendline hit on both would be slightly lower at 1311.75 ES and 2315 NQ, but it could be that we've seen the lows on both. On ES the support is the lower trendline of a big falling wedge, and it's very important to note that this is a bullish pattern that breaks up 70% of the time, and that the target is the last ES high:

The NQ chart is apparently in direct opposition to the ES chart, as there's a broadening ascending wedge on the chart and these break down 77% of the time. There's no reason for conflict here though, as the NQ pattern is a much larger pattern. The ES falling wedge could play out to new highs on ES (and NQ) while NQ makes another upside hit with a target in the 2500 area before breaking down. I don't know if it will happen that way but it would be a beautiful long setup here and short setup at new highs so I'm hoping it does:

The setup on TF is more speculative, but it looks as though a large H&S may be forming there. If the neckline can hold today, then I'd expect a bounce into the 850-60 area before turning down again. That's very speculative at this stage, but there's decent support in the 810-4 area, and if ES and NQ bounce at support today then that's the likely target area on TF:

EURUSD has moved down very sharply since I posted the broken rising wedge there on Friday morning, and is now well below the wedge target. I won't post that chart this morning, but I will post the DX chart, where there's a very interesting looking IHS that has now broken up with a target at 79.3. This is a potentially very important development, as the declining resistance trendline from the June 2010 high is currently at 77.25. If DX can break up through that trendline then it opens up more upside for USD:

Copper was bullishly divergent on Friday, but broke down from another perfect rising wedge there overnight. I'm a bit more doubtful about this one. The ES and EURUSD rising wedges have already played out to target and ES and NQ are now very close to main current support. As we saw on Friday though, ES and copper can trend in opposite directions short term and it may be that copper will make the 385.25 target. There's decent support at 395 on the way down though and that might hold:

I don't have a good short term read on silver at the moment, but I'm looking at a rising support trendline in the 33.8 area if it retraces further:

I'm not expecting silver to make a new low in the short term. It has hit a key support trendline that should hold for the moment, though we might well see further downside in the next few months:

I'm looking at the current area as a long setup for what could well be a major rally over the next few weeks to new highs on ES and NQ, followed by a possibly amazing short setup at those new highs for a summer pullback. I'm watching those support trendlines on ES and NQ carefully though. If they break then we might well see a retest of the March lows on both.

Big Reversal Likely

I've been banging the bull drum hard this week, but looking at the charts this morning it seems that we are likely to see a big reversal today. Hopefully this post will be up before my charts are overtaken by events too much. First ES where the main picture is a rising wedge within a larger falling wedge. The smaller rising wedge is breaking down and the next obvious target is the lower falling wedge trendline in the 1313 area:

Looking closer at the chart you can see that the rising wedge has broken down, and has broken down further since:

On the NQ chart there's a nice looking IHS but you can see we never made the downside target on the big broadening ascending wedge. It seems we may be returning to hit it in the 2310-2315 area:

Looking more closely at the short term setup on NQ you can say that the IHS is fully formed and looks pretty good, but the support trendline was breaking at the time I did the chart and has since broken with confidence:

On TF there's a lower quality IHS, and another decent support trendline that has now also broken:

There are a lot of wedges in play today and here is another on the EURUSD 6omin chart. Since I capped this chart this has also broken down with confidence:

Copper is standing out from the crowd this morning. There's a rising wedge there too, but it hasn't broken support yet. If it reaches 405 then that will be the break down:

Silver's a trickier play here, but if we see breaks down everywhere else then I'd expect silver to fall in sympathy. There is a possible triangle forming on the silver chart and support would be in the 33.6 area:

Eight charts this morning which is a lot, but hard to capture the picture with less this morning. This is a very bearish looking setup and we could fall hard today and extend into (the now generally bearish) Monday. I would caution longs to be careful unless main declining resistance on ES can be broken, which looks a long shot in the short term. Opex Friday today so the road could get bumpy. Happy hunting everybody :-)

Cameco - Major Support Bounce

Cameco broke down hard in March, and I remarked to someone then that it might well not find much support until it reached the 26 area. Here's the chart I was looking at and here's how that looks today:

Cameco's something of a problem child company, and the nuclear problems in Japan have taken the shine off uranium and nuclear power for a while, but as a long here downside looks minimal and the upside target would be in the 46-50 area.

I'm a uranium bull over the longer term so this looks a very compelling long here.

Testing Resistance Again

That was a nice move up yesterday, but before the bulls can break out the champagne there's still the matter of declining resistance from the highs that needs to be broken. On the ES 60min chart that's the upper trendline of a bullish falling wedge, and we've already hit resistance. The oversold 60min RSI with some negative divergence suggest that may hold today. There's a possible upsloping IHS forming on the chart where making the right shoulder would involve a retracement to the 1326-1332 area:

There's another falling wedge, somewhat sloppier, on the TF chart, and there's another possible IHS forming there with a possible retracement to the 830 area to make the right shoulder:

There were a couple of big gaps up on NDX recently, and the gap zones have been the key support areas for the subsequent move down. The lower gap zone held the last move down and the NDX high yesterday was back in the upper gap zone. This is logical area to see some retracement:

I've been asked a few times this week whether the USD rally impacts my view on equities and it does, but only marginally. The last five months of the equities wave up into April 2010 were in the face of a rallying dollar, and while a falling dollar helps equities rise, a rising dollar won't make equities fall. I'm expecting more upside on USD. Short term though, EURUSD looks likely to rally a bit more:

The risk with these falling wedges on ES and TF is that we see a move to test wedge support which would necessarily make new lows for the week. That would cause significant technical damage and I think that's unlikely but it's something to bear in mind. There were some good reasons to see a solid low at the bottom this week and one of the most compelling charts to see that is the Nasdaq Composite ($COMPQ), which I don't usually follow much as I prefer NDX. On COMPQ the low was a perfect bounce at channel support from the summer lows last year:

I was looking at the FTSE this morning. Stockcharts has just added support for a lot of UK and european equities and I'll be watching those markets more in the future as a result. The FTSE looks interesting at the moment, with a possible continuation IHS forming on the daily chart that could take FTSE back close to the 2007 highs:

One difficulty with continuation IHSes though is that there's often little to distinguish them from double or triple tops. Looking at the broader view on the 5 year weekly chart, the similarity between the current setup and the FTSE top in 2007 is very striking. Not a long trade to to taken before there is a new high with some confidence really:

I'm leaning towards seeing some retracement today on balance, though a break up with confidence through declining resistance on TF and ES might change that. I'm expecting those trendlines to be broken in the next few days, and that would be the signal to expect new highs, but I'd be surprised to see that today.