Three White Soldiers

The very strong advance so far this week has delivered a three white soldiers candlestick pattern, which should indicate further upside to come. I'm expecting this move to be into the SPX 1340 - 50 area to make the right shoulder on the large H&S pattern that is forming, but it could be the start of a new bull wave up. Hopefully we'll see a helpful shorter-term pattern develop to indicate which way this will go. As we stand now SPX has reached the top of the daily bollinger bands and I'm expecting to see consolidation or a modest reversal here, subject to the greek vote two hours before the open today:

On the 60min charts ES has kept on going after breaking 1300 yesterday, though it is trapped between two trendlines that would suggest an absolute maximum upside of 1309 before ES breaks up or down. I've marked in the significant resistance level at 1311.50:

Since yesterday morning's pre-market high NQ has been stalled below 2300. NQ and TF have been underperforming ES since then which suggests reversal or consolidation here. There is a nice short-term support trendline on NQ that is now at 2297, so very shortly NQ will either break that support trendline or break through 2300. If it breaks up then my next upside target on the resistance trendline would be in the 2325 area:

TF has also stalled below yesterday morning's pre-market highs. There's more elbow room within the TF trendlines however and my next upside trendline targets are currently in the 827 and 835 areas. Trendline support is at 817:

Oil is within the 94-6 resistance zone I mentioned yesterday and silver has now reached the broken support trendline and is stalled there. I haven't posted the copper chart much lately and that's because it hasn't been doing much. but after still not doing much while SPX moved up hard until the open yesterday, it has since broken up hard. It's looking short term overbought with some negative divergence on the 60min RSI, so I'm looking for some reversal / consolidation here. After that I have a tentative trendline target in the 440s:

EURUSD may be the big story of the day today with the greek vote, and it is now close to declining resistance in the 1.4535 area. I'm expecting a reversal there, though we may not get one of course. If it breaks up I'd be expecting a move to the 1.47 area and there's resistance there on EUR and also significant support in that area on DX. DX has now made the rising wedge target I have been watching this week:

As I said before, I'm looking for some reversal or consolidation at this level but this is a news-heavy close to the week and I may not get it. I'm watching the short term ES trendlines and resistance at 1311.50 for direction.

1300 Broken

I'm slightly shaken by the strength of this move up. I had a very nice setup for a reversal at 1300 ES which broke overnight and I wasn't expecting that:

I have another nice setup for NQ to make a short term high just under 2300 and I'm now wondering if that will hold:

TF made my 814.1 rectangle target and kept on going. I don't have any particularly obvious reversal levels I'm looking at there though like the other two it is looking very overbought on the 60min charts:

If SPX can hold 1300 today then the next obvious target on the daily chart is the daily 50 SMA at 1316.89, which is in the same area as the top of the bollinger band. Not that far away now:

In terms of USD, my target for the broken rising wedge is at 74.84, and DX is at 75.15 now. I'm thinking it may overshoot somewhat, as one EURUSD gets over the lat big high at 1.4445, then the obvious target in my view would be declining resistance in the 1.45 to 1.454 area, depending on the time taken to reach that target. That is a natural reversal level for what may well be a large symmetrical triangle. I'm also considering 1.45 as a possible IHS neckline. Regardless of the target EURUSD has formed a rising channel from the last low and I'd expect a hit of the lower channel trendline before the upside target is hit:

Silver has been recovering somewhat in the last day and I'm wondering about a retest of broken support in the 35.2 area. I do still have a smaller declining channel in play though, so we could see a move to the 36.25 to touch the upper trendline there:

Oil has recovered into the strong 94-96 resistance area. I'm not expecting to see a daily close over 96.25, but if we do see that it would look bullish. Neither technicals nor geopolitics favor a big move up on oil here though, so I'd be surprised to see that:

Overall I'm looking for some retracement soon, not least because without retracements I don't get a lot to work with in terms of  trendlines. Equities are looking very overbought and at the time of writing my resistance level on NQ is holding so that might well be here. If not I'm seeing a lot of resistance in the 1311 ES area, which is also the area for the daily 50 SMA on SPX and the top of the daily SPX bollinger band.

The US Dollar Retracement

Tim Knight was saying the other day that trading equities was all about the US Dollar at the moment. There's a lot of truth in that while the spectre of a large scale sovereign debt crisis haunts the markets, so let's consider where USD is likely to go from here. At centre stage is the year old falling wedge on UUP, the dollar bullish ETF, and looking at that it seems likely that USD has bottomed for the year, as the wedge is now fully formed and making exploratory breaks of the resistance trendline:

Short term though EURUSD is bouncing. The small falling wedge I posted on EURUSD yesterday broke up and made the 1.43 target I gave, but there may well be more upside coming looking at the DX chart, where a larger rising wedge broke down yesterday and has not yet reached the target just below 75. If that plays out to target or below then it might well help equities to make an impressive break up over the next few weeks:

Why's that important? Well I still have my eye on the large H&S patterns that may be forming on SPX, NDX and RUT. To form the right shoulder on SPX we'd need to see a move to at least the 1310-20 area and lasting most likely into the end of July. If the H&S forms that doesn't necessarily mean it will play out of course. As with the large H&S last year we might then see a bottom near or slightly below the neckline. I've added some moving averages to this chart showing that the daily 200 SMA is currently support and the daily 20 SMA (the mid point of the daily bollinger bands) is currently resistance:

Short term the 60min futures charts for ES, NQ and TF all reached interesting levels yesterday. On ES the rise topped at declining resistance from the previous two highs, though there were three pinocchios through the trendline overnight which suggests that it will break soon. Resistance there is currently at 1276.75:

NQ was the strongest of the three indices yesterday, and topped out at a very interesting level, which is an alternate slightly upsloping neckline for an IHS which is less pretty than last week's IHS. It still looks valid enough though and the target on a break up would be 2340, which would be in my target zone for the large H&S building on NDX:

TF topped out yesterday at the declining resistance level I gave yesterday morning, though as with ES there were some pinocchios through that suggest that the trendline will break soon. On a break up I'll be looking for the rectangle target at 814.1 to be made, though the upper trendline of the rectangle has been violated repeatedly in recent days which weakens it somewhat:

We might see some retracement today and I'm watching my declining resistance levels to see whether they can be broken. A break up through those levels would be bullish, though I'm not really expecting a decisive move up before the Greek vote on Thursday, which could well give EURUSD a strong boost for a few days.

Uncertain Bounce

I mentioned that the stats for last week on the Dow were really bad on Monday last week and sure enough the Dow closed down after that wild week of reversals. We may have seen a low now but my confidence in that is low as other equity-related markets are visibly crumbling. Oil had already broken support and silver broke support too on Friday. Here that is on the SLV daily chart:

UUP pinocchioed through falling wedge resistance again on Friday, adding to the impression that USD is about to break up seriously:

Short term though, EURUSD broke up from a falling wedge this morning with  target at 1.43.

So where now with equities? The situation is ambiguous here to say the least and that ambiguity is perhaps best expressed in my SPX 60min chart, where you can see a decent quality declining channel, the neckline of a possible large H&S, and a falling wedge (that may have developed into the declining channel) where the move down on Friday retested the broken wedge resistance trendline. The most obvious direction from here is still up I think, and a break above declining channel resistance in the 1290 SPX area would confirm that, but a break of support in the 1258 area would indicate down to the 1240s level for declining channel support:

There was some decent positive divergence on ES and NQ at the overnight lows. Together with the EURUSD bounce that might well deliver a decent bounce on equities today. I have a possible rising channel developing on NQ which I'll be watching with interest today. I've pretty much written off the IHS as the last low went lower than the right shoulder:

There was no positive divergence needed on TF as there was no test of the last low. NQ was weakest and went lower than the last low, ES tested it exactly and TF bottomed well above. The rectangle on TF could potentially still play out, though there's some declining resistance in the 804.2 area:

I don't think we're down with downside yet, and if we see a strong bounce here then I would see that as a counter-trend bounce. I'm losing conviction that we'll see that strong bounce and if UUP breaks up then I suspect that we won't. MasterTheGap are suggesting that there are good odds to closing any opening gap today.

Mixed Signals

The action on equities looked pretty bullish to me yesterday, with the SPX falling from a higher high, and bouncing at a higher low from the daily 200 SMA, which was hit for the second time in recent days. SPX then recovered much of the losses from the morning and the previous day. Here's the daily SPX chart with bollinger bands to show those bounces, and the failure so far to get past the middle of the bollinger bands at the daily 20 SMA:

On NQ the IHS that we have been watching form this week is now complete, waiting only for NQ to break resistance at 2250 with confidence. That hasn't happened yet and might not happen today:

On the shorter term SPX chart a wide and shallow rising channel may be forming (thanks to Nugie for pointing these out on SPX and RUT yesterday afternoon):

A similar rising channel has formed on RUT:

On equities this is all therefore looking fairly bullish, but it's when I look at other markets that I'm seeing a few flies in the bulls' soup today. EURUSD obviously had a big fall and less big recovery yesterday. It's fallen back somewhat overnight, but the chart that drew my attention today was the UUP daily chart with the huge year old fully formed falling wedge. The EURUSD move down yesterday poked through the upper wedge trendline which is often a sign that the wedge is about to break. If EURUSD closes a day near yesterday's lows at 1.414, then that wedge will break:

The key trendline on silver at the moment is the rising trendline from last August which was hit for the fourth time yesterday and held. Overnight though silver has tested it again and has penetrated the trendline on an intraday basis. If that trendline breaks on a daily closing basis then the way is open for silver to fall to test support levels lower down. July is a weak month for silver generally and the average summer silver retracement bottoms at the end of July. If the trendline breaks we could well see a sharp downward move.

Oil fell yesterday as it was announced that strategic reserves equivalent to 17 hours of world consumption will be released over the next month. That pushed /cl through 92.5 support and that broken support held as resistance overnight. The technical picture on oil already looked precarious and I'm expecting to see oil back in the 80s very soon. I have a variety of targets for the move down ranging from the early 70s to the mid 80s, but there's decent support in the mid-80s, so that's the first target:

I've been writing about a possible interim top in treasuries for a few weeks now, and I'd expect them to fall if equities rally strongly. I was a bit surprised therefore to find a 69% bullish rectangle on the futures yesterday. The target on a break up would be in the 128'05 area and these tend to be solid performers on breaks up, with Bulkowski giving 80% odds of the upside target then being reached. Definitely something to watch:

On these last four charts it's important to note that support on silver, and resistance on UUP and ZB, are still holding so far, even though it seems they may not hold much longer. If these trendlines break though then four separate markets that are all correlated with equities will be breaking in directions that suggest weakness on equities. I'll be keeping a close eye on all of these.

Short term the equity bulls are holding their ground, but need to break overhead resistance to deliver the multi-week rally that I've been expecting. The key levels in my view are that NQ must get above 2260 and hold above it, and ES must do the same with 1293 and then 1300. Fridays and Mondays have been fairly bearish lately, so that might have to wait until Tuesday.

Testing Support and USD

That was a beautiful high yesterday. We spent all day bumping up against resistance and making marginally higher highs on sharply negative divergence on the 60min RSIs, then fell hard at the close and have fallen further overnight. The main index I'm watching today is NQ, as that is the index with the very nice looking IHS forming at the moment. As I said yesterday I'm expecting the ideal low for the right shoulder on NQ in the 2210-20 area, and the overnight low is 2216.25 so far. I'm expecting a little lower but that could be it. Any lower than 2200 today and the IHS is in trouble, with a strong possibility of a break further downwards:

On ES the first support level at 1276 I gave yesterday didn't hold overnight, but we're still above the second at 1270. Rising support is at 1265 and a break there would strongly suggest a retest of the lows:

On TF, the rectangle upper trendline at 793 didn't hold overnight. I'm seeing some support at 789 and 790. Much lower and a retest of the lows near 772 would look likely:

Just as an aside before I start talking about USD, GDX broke up through the potential IHS neckline at 54 yesterday and I'm seeing likely support on a retracement today in the 53.5 to 54 area:

USD is looking interesting today, though I was going to talk about it in detail even before EURUSD broke support overnight.The rising wedge on EURUSD has broken down and has also broken the potential rising wedge upper trendline from the top of the rising wedge. There's some support in the 1.42 area but beyond that a move to retest the lows looks very likely:

I've been having a careful look at USD and the main USD currency pairs yesterday and thought I'd post a couple of the most interesting charts. The most interesting chart is on UUP, where there is a very high quality falling wedge from the June 2010 highs. What this chart says to me is that any new lows on USD, if we see those at all, are likely to be marginal, and when the falling wedge breaks up it may break up hard and run a long way. If there's to be no QE3, that seems very credible:

The other interesting USD-related chart is for CADUSD, where a decent quality rising wedge from the 2009 lows has broken down and is now retesting the broken lower trendline. CAD just recover that trendline back intro the wedge, but new highs looks ambitious from here and overall upside looks very limited:

Altogether it looks to me as though USD has bottomed already, or is likely to bottom soon at a marginal new low. That's worth watching, as it may have big implications for bonds and equities over the next few months.

For today we are at or near my target lows on ES, NQ and TF. I'm expecting these to hold and not drop much further. If we do see a sharp move down from here then I'd expect a retest of the lows, though I'm not expecting that at the moment. If the NQ IHS continues to form then we may see equities stay near the overnight lows much or all of the day, and the IHS target would then be at 2325, which is a 5% move up from here.

Overbought Retracement

Too many interesting charts today, so I'll post a couple as links. The first link is to the SPX daily chart showing the possible H&S forming and a significant daily resistance level reached at the high yesterday and you can see that here. The second link is to the GDX 60min chart where the falling wedge I posted yesterday morning broke up beautifully and topped at a potential IHS neckline where a right shoulder retracement may now form. You can see that GDX chart here.

On the ES 60min chart the wedge resistance trendline at 1284.5 was broken yesterday and the wedge played out to slightly above the 1290 target. All the equity indices were heavily overbought on the 60min RSIs by then and have retraced somewhat overnight. I was watching to see whether the broken ES trendline held overnight and it hasn't, so I'm favoring a deeper retracement into the 1276 or 1270 areas:

It's the NQ and TF charts that leading me to think that we might see some deeper retracements today though. On NQ my first resistance level at 2215 was broken easily yesterday morning and NQ rose directly to my next resistance level at 2250. That level is a potential IHS neckline of course, and if we see a right shoulder form that shoulder would ideally bottom at a 2215 retest before playing out to the IHS target at 2315:

The TF rectangle I posted yesterday broke up nicely and is retracing at the time of writing. The obvious retracement target would be a retest of the rectangle top at 793:

On EURUSD the short term rising wedge I posted yesterday is still developing nicely. the next obvious move would be a retracement to wedge support in the 1.434 area. The greeks won their confidence vote yesterday, so the greek solvency issues may be kicked down the road a couple more months, though as the ECB are now discussing a technical default for private investors as part of the next bailout, we could see major issues for EURUSD return at any time:

Moving onto commodities I'm not at all certain that a significant low has been made. There's been no break up on copper and I'm still thinking that a test of big support at 395 is on the cards there:

On oil support at 92.5 has held so far on a daily basis, but it will be hard to be bullish on oil unless the H&S neckline at 96 can be recaptured with confidence. Until that happens the downside risk on oil looks extremely high here:

I posted a declining channel on SI (silver) last week and suggested that the obvious next move was to channel resistance on that channel. Silver has since been moving towards that trendline slowly within a smaller rising channel. This move on silver looks corrective and I'm expecting more downside after it completes. The seasonals on gold and silver favor a summer low near the end of August I think:

I'm treating any shorts on equities as counter-trend now and my retracement targets are therefore mainly decent entry levels to JBTFD. It is still worth bearing in mind though that the stats for this week are strongly bearish, as I posted on Monday, so there there is still a chance that this week could close down, though I'm not expecting that. I am expecting some choppy action though, which should deliver some good dip-buying opportunities. I'm not expecting yesterday's equity highs to be broken for a couple of days, but if we see them broken with confidence today then I'll be looking for 1311 on ES as the next major resistance area.

If the post looks slightly different today that's because blogger is having some issues this morning. I've had to write the post in typepad and copy it over, which has been interesting. 

Vix Buy Signal

Vix closed down yesterday, and that has delivered a confirmed Vix buy signal. The performance on these has been impressive since the bear market low in March 2009, and my bias has shifted towards buying the dip on the strength of that, and the other indications that we have seen at least an interim low, if not necessarily a very major low:

As for what sort of a low we have actually seen, it looks ominous to me, suggesting that we'll revisit these levels to make better quality lows or break down later in the summer. Meanwhile though, SPX and RUT have bounced almost precisely at the 200 day SMAs, though NDX went a little below. The broadest measure of US equities is the Wilshire 5000, and that has also made a nice looking low at the daily 200 SMA, and as with all three of the others seems to be bouncing to form the right shoulder on a large H&S pattern:

In the very short term however ES and TF are hitting overbought levels on the hourly RSI, and all three of ES, NQ, and TF are approaching important resistance levels that might well deliver significant dips in the next couple of days. First on ES I posted a broadening descending wedge last week that is still very much in play. I've altered the low trendline since somewhat, but the upper trendline with four touches is very significant resistance, and is at 1284.5. If we are to see a pullback today, it will most likely be from there and a break up through it would look very bullish, albeit that the pattern target is only to 1290:

On NQ the declining channel for the wave down to the low has most definitely broken up. NQ isn't yet overbought on the 60min RSI, but it is approaching a very significant resistance level at 2215. A break up through would clear the path to the next significant resistance level in the 2250 area:

Of the three, it's TF that looks the most interesting to me this morning, as the possible rectangle that I posted last week on TF has continued to develop very nicely and has a very nice target at 815.1 on a break up. I like rectangles as I've found these to be reliable performers on the indices in the past so I'm watching this rectangle very carefully:

I was talking about the need for declining resistance on EURUSD to be confirmed and it was confirmed yesterday, with EURUSD crawling down the trendline for several hours. That's a characteristic of an imminent breakout generally, and sure enough EURUSD broke up through it overnight. The target of the broken broadening descending wedge is 1.465. The immediate target that springs immediately to the eye however is the strong resistance level and potential IHS neckline at 1.45. There is a bearish aspect to this breakout however and it is that EURUSD is forming a sloppy rising wedge with next resistance in the 1.44 area and with strong support now in the 1.43 area. I'll be watching both levels with interest for direction:

The last chart of the day is GDX, which has received an impressive battering recently. However a bullish falling wedge has formed and GDX is trying to break up from it. If it breaks up then the pattern target is 58.50, which is also a potential IHS neckline:

All in all I'm now leaning bullish on the view that we have now seen at least a multi-week low. As I mentioned though, short term the indices are looking overbought and are approaching some key resistance levels where we may well see a reversal today and tomorrow. I'll be buying that dip if we see it.