August Closing Strong

We've had an impressive rally on equities since the low last Friday, but there's still every reason to think that this is just a rally before the downtrend resumes. Vix broke support nicely, but bonds and precious metals are still holding up well and at minimum bonds should break down if equities are to convincingly break up further. I don't have anything suggesting reversal in terms of short term patterns on equities, but what I'm watching on ES are two resistance trendlines that should meet tomorrow at slightly over 1230:

There's nothing much to show on bonds, other than that they are still holding up well, but the picture on silver is looking interesting here. The rising channel that I was posting last week is still holding well, and a shorter term rising channel from the lows last week has also formed.  Immediate rising channel resistance is in the 43.50 area with the main rising channel resistance trendline at slightly over 45:

It's the last trading day of the month today and the stats for these since the March 2009 low suggest weakness today and strength tomorrow. These stats have become much weaker on both the last and first trading days in the last few months though, so I wouldn't put much confidence in these at the moment.

Closed at Strong Resistance

Of all the things I expected to see on Friday, I'll confess a strong rally at Bernanke's failure to announce QE3 wasn't one of the them, but that's what we saw. The bullish engulfing candle on Friday was even more impressive than the (almost) bullish engulfing candle on Thursday. Will there be more? Maybe, but for a number of reasons the place where SPX closed on Friday was extremely significant, and it may be that that this rally will fail there.

The first thing to note was that both bonds and precious metals rose strongly on Friday, and this was odd as both have been moving inversely against equities in recent weeks on the flight to safety trade. Copper rise slightly and while EURUSD had a strong day, it didn't break triangle resistance. There's nothing from any of these to support Friday's rally or to suggest that there may be more coming.

SPX closed right at the top of the daily candle range of the last few days and also closed at the daily 20 SMA, which is also the middle bollinger band. A break of this level would look significant and an open above Friday's close would suggest at least a test of the top of the next range up at 1204.5. You can see from my daily chart how well SPX has been respecting the range support and resistance levels on an opening and closing basis:

On the Vix the recent support trendline was tested and pinocchioed on Friday, but Vix closed back well above it and on the middle bollinger band there. An open below the support trendline and the middle BB would suggest that this rally has more legs:

Just two charts today, as I'm writing this late on Saturday and I'm away until Monday's open, but I think they say it all. If SPX gaps up on Monday then I'd expect to see a further run up to 1204.5 with a high degree of probability. A Vix break with confidence of the support trendline and the middle BBs would suggest that this rally might even take us up into the next range up between 1204.5 and 1258. Equally if SPX doesn't gap up on Monday, then this rally might well fail right here, as bonds and PMs particularly are suggesting might be the case.

As I've mentioned before, I'm on holiday for the next three weeks and during that time I will be doing some posts on an ad hoc basis, but I won't be doing my daily posts. Everyone trade safe. :-)

Poised for GDP and Jackson Hole

The two big ticket news items today are obviously GDP at 8.30 and the text of the Jackson Hole speech by Bernanke that I understand is going to be released at 10am. Doubtless Bernanke has already seen the GDP figure and has adjusted his speech accordingly. The market is poised to break in either direction on the news this morning and my job today, as I see it, is mainly to highlight the key areas to watch to determine the direction of that break.

As I suggested they might, but after the irritating BAC news spike near the open, equities broke down from yesterday's consolidation rectangle. Hopefully that didn't chop out too many people. The depth of yesterday's retracement clarified where main support lay on equities, as SPX, NDX and RUT all bounced at the Aug 19th highs. All three also formed ominous looking H&S patterns on those support levels that may play out today if the news disappoints. Here's how that looks on SPX:

As with the SPX version, the H&S on NDX is a bit light on the right shoulder, but valid nonetheless:

On RUT the H&S is sloping down and therefore not quite complete as support will need to break  to complete it. I have marked the H&S targets on all three charts:

I've marked up yesterday's range and today's range on the ES 5min chart, giving 1153.22 and 1166.5 as the levels where a break with confidence should deliver a bear or bull breakout. This breakout should be very significant and deliver the main direction for the next few days at least. It's worth noting though that any break downwards particularly needs to be sustained into market hours to break support on the main index charts:

I'm watching Vix carefully today as on the 60min Vix chart there is a decent support trendline. If we see a bull breakout then that should break quickly to the downside and that would be a very bullish signal for the next few days:

I'm also watching ZB, 30yr treasury futures carefully here. ZB reversed back up before reaching my main  target at 135, as I suggested it might yesterday morning. On the bear (equities) scenario we may be seeing a consolidation rectangle form that would now take ZB back to the highs. On the bull (equities) scenario a break back below 136 should deliver the main 135 test that I've been looking for and a break of that level would look very bullish for equities:

I haven't posted the copper chart much for a couple of weeks because it hasn't been doing much. It has been showing some signs of life in the last two days and has recovered the 410 level. I'm not sure whether that can be regarded as a bullish indicator yet, but a break of the next big resistance level today at 422 certainly would be. Something to watch if we see a break up today:

I've been posting the silver chart every day for the last few days and so far (buffs fingernails modestly) have called the action very well within what is now a simply beautiful rising channel. I've marked the current upside and downside targets on the chart and would that expect silver will probably move inversely to the equities break today:

I'm thinking that a break downwards on equities looks more likely today, and am expecting that GDP will disappoint and that Bernanke won't deliver a new QE3, but  have no real idea what the news will be and today will be driven by the news. We'll see. I'll be doing Monday's post tomorrow as I'm away on Monday morning. Everyone trade safe today as this could be a wild one. :-)

Jackson Hole Week Day 4

Yesterday was one of those slightly spooky days when everything I post in the morning delivers. The ES IHS and the silver trendline break delivered so well I've saved both as textbook models of how these should look. Today is going to be tougher, and tomorrow morning of course we have the complete wild card of Bernanke's speech at Jackson Hole, which could spark off a big rally in the event that he announces QE3, or spark off a big decline in the event that he just waffles about the underlying strength of the economy. What do the charts say? Well it's a mixed bag this morning.

The first thing to note is that not far above there are some important unfilled gaps on SPX, NDX and RUT. Here's how that looks on SPX, with the gap at 1193.80 and important resistance at 1185:

 On NDX the gap is at 2181.62, and I have important resistance at 2160:

 On RUT the gap is at 704.03, and I have important resistance at 698:

Will the gaps fill? Perhaps, but the overnight action on ES doesn't look that promising and Steve Jobs' resignation as CEO of Apple last night might drag down NDX particularly. On ES I've been watching for a break of the very decent quality channel support trendline on ES and saw that overnight. The trendline was then briefly recovered to test yesterday's high and then lost again. ES is in a consolidation rectangle and that might still break up, but the trendline break still looks weak, and the bulls might well get a very nasty surprise today if ES breaks down from that rectangle:

Silver has been a top performer this week, from a technical standpoint, and after the break down from the support trendline I highlighted yesterday morning made it precisely to my target channel support trendline at 3876 (on SI) overnight. This is the likely reversal area if silver is going to reverse back up and it has bounced there so far. I posted a chart on gold last night that you can see here showing support at 1725 (on GC) and gold went through it overnight to 1705. That wasn't bullish and you can see that there is also an unfilled gap on GC now much further below. Here's how the silver chart (SI) looks now:

Bonds fell hard too but are still well short of my support area and possible H&S neckline at 135. 135 would also be almost exactly at the 38.2% fib retracement of this last powerful wave up from late July. I still like 135 as my main target here, but ZB has consolidated overnight and is showing some positive divergence on the 60min RSI. It could bounce here today:

I have very mixed feelings about direction today and am watching the consolidation rectangle on ES for immediate direction. If it breaks up then I'll be looking for the gap fills on SPX, NDX and RUT. Even if that happens though there are now some real signs of weakness appearing and I'll be watching for reversal. If ZB (30yr Treasury futures) makes it to 35 I'll be looking for a reversal there. That might well happen if the gaps on the equity indices are filled. If silver breaks channel support then I'll be looking for another leg down on PMs which would most likely be bullish for equities. Copper and USD aren't moving much and so are giving little clue as to direction.

Jackson Hole Week Day 3

I suspect this week would be playing out rather differently if a significant statement were not expected from Bernanke at Jackson Hole on Friday. A lot of people are looking for an announcement of QE3, and the expectation from the QE2 announcement from Jackson Hole last year that sparked off a big move up is considerable. I'm not expecting a QE3 announcement as US inflation has risen considerably in the last year and Bernanke's backing for further QE both on the Fed Board and in Congress is at best questionable. Nonetheless it is possible that some sort of extension of QE will be announced and that might spark off a rally. Equally if there's little or nothing to announce that might trigger a new move down. In the interim I'm not expecting any huge moves while we're waiting for Bernanke's statement.

In the very short term the setup looks promising for some more upside after yesterday's rally. ES has formed a rising channel from yesterday's low that looks solid and has a very well defined support trendline with multiple touches on the 5min chart particularly. A small IHS has formed at support on the 5min with a target at 1163 and I've inset that on the 60min chart. If the channel breaks down then we might see a significant move down, as the current very well defined support trendline would be broken:

It is possible of course that we have now made a significant low, and that we are beginning a major rally. I have a few things I'm watching for that, mainly on precious metals and bonds, and on silver we have seen some of the retracement that I was looking for from the charts I posted on Monday and Tuesday. However the silver chart is now more interesting than it was before, in that silver has now returned to the main support trendline for the last five weeks and hit it twice overnight. That is a very strong support trendline and a break below it would open up a move to the 38.5 to 39 area. A very nice looking potential short and a break further down would look bullish for equities:

Bonds have also been trading inversely to equities and are also showing signs of an interim top on the daily chart. If we see a retracement there I'm looking primarily at the 135 area as the best support area and target:

If we see further moves down on silver (as a general PM proxy) and bonds then we could well see a signficant rally develop on equities. Another thing I'm watching is the bollinger bands on the Vix daily where the Vix is approaching the middle bollinger band. Vix has stayed firmly in the upper half of the bollinger bands for a month now and a move with conviction into the lower half of the bands might well signal a larger rally than I'm currently expecting:

I haven't posted the EURUSD chart in a while, and that's mainly because it hasn't been doing much of interest, and is still stuck in the triangle on the daily chart. I am still watching it though as a break either way, particularly upwards, might signal a big move, and a break up would also be bullish for equities:

I'm leaning bullish for today and expecting a move into significant resistance in the 60s and 70s on ES. I'm watching silver and 30yr treasuries particularly for a signal that this rally might have legs beyond this week.

Decent Rally Setup

The ES IHS that I was speculating might form at the 1145 neckline yesterday morning has since formed, and has delivered a very nice looking short term bull reversal setup. It hasn't yet broken over the neckline, and bull setups are at much higher risk of failing in this strong bear trend, but it's looking pretty good, and if the neckline can be broken with conviction then the IHS target is 1177 ES:

I posted yesterday that silver had reached a natural reversal level and might well retrace. That's looking even better this morning and that would fit with an equities rally of course:

Bonds are very important at the moment, as they've been acting as a barometer of the level of risk aversion in the markets. When bonds rise then equities fall, and vice-versa. I was therefore very interested to see that an important support trendline on 30yr treasury futures (ZB) broke down overnight and is now retesting. ZB has been struggling in the 140 resistance area and we might well now see some retracement of the move up from 126:

I'm still skeptical. As I said, bull setups are at much higher risk of failing in a strong bull trend, and I was expecting to see a lower low on SPX before the next rally. If ES breaks up through 1145 and holds it though, then a rally should happen regardless. We'll have a decent idea at the open or shortly afterwards. On my SPX 15min chart the key resistance areas are at 1135 and at declining resistance from the recent high at 1143. Anything over is most likely a break up:

Last chart of the day is GDX, where I sold my longs yesterday. This is a complex picture with the backdrop being a large rising wedge from 2008 that broke down in February. Shorter term though a broadening formation, right-angled and descending, has formed since late last year with resistance just over 64. From here the pattern should either break up with a target at 77, though this is not a great performer for reaching upside targets, or reverse towards pattern support in the 50 area:

Overall the picture here looks guardedly bullish here, moving to strongly bullish (short term) on a conviction break above 1145 ES. If we see that then we should also see the retracements in silver and bonds that are suggested by the charts there.

I'm going on holiday in a week or so and will have to cut back my posting schedule while I'm away. I'm expecting to get a post out at the weekend for the next three weekends but any posting during the subsequent weeks is likely to be very thin. I'm already cutting back on the length of my posts this week as I have a lot of preparation work to do before I go.

Jackson Hole Week

A shorter post than usual today as I had a hospital appointment this morning and have started late. The appointment went very well and I'm cleared both to drive and to walk without a removable cast or crutches now, which is great.

Ben Bernanke will be making a statement at Jackson Hole on Friday and rumors of QE3 have lifted equities strongly overnight. We might well see a strong rally on expectations that the Fed will print more money to boost asset prices, though that wouldn't be easy given inflation levels in the US and implacable opposition in Congress. We'll see.

In the short term ES has broken up from the declining channel from the most recent high, and the prospects for more upside look ok here. ES is finding resistance in the 1145 area at the moment and an IHS may well be forming with a neckline there, though there is an alternative neckline somewhat higher at 1154. if this continues to form then I'd expect a retracement back into the 1120s to form the right shoulder and we might therefore see a gap fill if that happens:

Oil has made a higher low and may have formed a small rising channel that could deliver a bounce into declining wedge resistance in the 90s:

Silver's looking very interesting this morning as I now have what looks like a rising channel, at the top of which silver has made a double-top overnight on negative 60min RSI divergence. A retest of 40 looks very much on the cards here:

USD has been consolidating in a range between 73.5 and 76.5 for three months now. The obvious next move would seem to be back to the 76.5 area unless 73.5 support is going to break. If it does break then a new low for USD isn't far below:

Short term the overall picture for equities is looking more bullish this morning, and I'm expecting more upside this week. We might see a sharp retracement of some of the overnight gains before we see that though.

Opex Friday

Opex today so the day is less predictable than it would be otherwise. I have declining resistance and support trendlines on ES, and for what they are worth resistance is in the 1140 area and support is in the 1070-80 area:

I'm expecting to see at least a test of 1100 on SPX by the close on Monday and I'd be looking for some support in the 1085 area if SPX goes lower. What we are also going to see at the end of this week is a cross on the 13/34 weekly EMAs with some confidence, which is an indication that we aren't that close to a low here. It might yet reverse back up hard, but that seems very doubtful:

There's been a lot of speculation about where this (probable) bear market will bottom out and I'd like to add my own WAG to the pile. The 50% retracement of the bull market is at 1018 on SPX and there is strong support, and a potential H&S neckline, in the 1000 - 1020 area. I'm expecting that area to be tested by the time this bear market ends and I've prepared a wildly speculative chart of what might happen if we bounce there:

There's been a lot of brave talk about shorting gold, which has reached as high as 1881 overnight on the futures market. It's too early for than in my view, as we are not yet close enough to the next big resistance level, which should be in the 2000 area. Looking at the 30yr gold chart the two most significant resistance area in that period have been the 500 and 1000 levels. Silver found big resistance at 50 and the best odds for a reversal on gold have to be in the 2000 area. I have a resistance trendline on this log scale chart that should deliver some resistance slightly over 2000:

While I'm throwing round big targets this morning,. I should mention my 26 year channel on 30yr treasury yields (TYX). I've posted this a few times before, but if you look at the chart you can see that the next obvious target for TYX within this channel is under 20. Could it make it? Possibly, under a Japanese style scenario which I'm preparing a post to examine. Meantime it's hard to see a decent floor under bond yields regardless of deteriorating sovereign credit, as the main determinant of bond prices at the moment is fear of holding equities. Food for thought:

I'm leaning bearish today and probably Monday as well. Any bounces should be shortable. I might be late with my post on Monday as I have a hospital appointment in the morning. 

Breaking Down

I've been warning all week that the nice bullish setup into the 1240 SPX area might fail as the main trend is still down, and it looks as though it has broken down with conviction overnight. The technical position might be recovered with a very fast and strong recovery this morning, but failing that the advantage is back with the bears. NQ cracked first yesterday and broke rising wedge support:

TF held the support zone yesterday but fell through it overnight. After a bounce at rising support which confirmed the trendline and has given us a second rising wedge on an equity index, the wedge then broke downwards. I'm wondering about a retest of broken support in the 700 area in the morning session:

ES broke up yesterday morning but the breakout failed and fell back. 1180 support held during the day but was then lost in the overnight session. Rising support is in the 1156 area and a bounce there would deliver a third rising wedge. We might well see a bounce there, possibly to retest broken support in the 1180 area:

Bonds gave an early warning of trouble yesterday, with TLT having risen strongly for both of the last two days. TLT is within striking distance of new highs, which I'm expecting soon:

I was speculating yesterday morning that the break up from the EURUSD triangle might be a false break up before a real break down towards support in the 1.385 area. I'm still wondering about that today and if we are starting another move down on equities then I think that is more than likely:

The advantage is firmly with the bears today but we might yet see a strong bounce to test broken support in the 1178-80 area before dripping much further. The Gap Guy says that the odds for a gap fill today are good and while I think that's unlikely, we might well see a strong attempt to fill the gap. Kudos to Pug for calling the likely high in the 1200 area all week and he is targeting a retest of 1101 on his primary count.

NQ Wedge vs EUR Triangle

I'm still bullish this morning on the basis that we had a confirmed Vix Buy Signal for equities at the end of the last week, and that we haven't yet reached the 1243 SPX target on last week's diamond bottom. Having said that, the trend is down, and this rally is a counter-trend move, so any surprises are likely to come from the downside, and all bull setups have a higher chance of failing.

We didn't see any serious support levels broken yesterday on equities, but I'm more concerned than I was about the rising wedge on NQ, which is of reasonable quality. Rising support is at 2183 and an hourly close below that would look very bearish:

On ES we've been seeing a sort of topping rectangle, though the trendline hits aren't good enough for it to be a proper bullish rectangle pattern. Nonetheless an hourly close above 1202 would be bullish and an hourly close below 1178 would be bearish:

TF has been holding the support range that  was looking at yesterday. If that should break then rising support from the low is now at 688. If we see another day of trading sideways then TF might hit that rising support trendline without breaking the support range:

If we are to see this rally extend upwards then I have a support trendline on the Vix 15min chart that will need to break. I've drawn this up as a sort of falling wedge, but the upper trendline isn't strong enough for it to be one (yet).

Possibly the most interesting thing going on today however is the very nice looking triangle on the EURUSD daily chart. I saw this yesterday and posted it on twitter. The triangle is breaking up at the moment (since I capped this chart), though as I've mentioned before, triangles are well known for often breaking one way and then playing out in the other direction, as we saw with the NQ triangle at the beginning of last week. The obvious next target on EURUSD is rising support in the 1.386 area and EUR may reverse to hit that next. Short term however, this break up looks bullish for equities:

That just about wraps it up for equities today. I'm leaning bullish but waiting for a confirmation break to the upside, which I'm expecting today or tomorrow. I'm watching support on NQ particularly for a signal that the bulls might get a nasty surprise here. I have some more charts looking at bond yields and Japan that I was planning to add to this post but on reflection I'm going to write those up in a second post for later today.

Retracement Day

We're due some retracement in this equities rally and it looks like we'll get that today. This is a buyable dip in my view and I'll be looking for a likely low to go long. We're in an in-between area on SPX where I'd be surprised to see a high, and so I think we'll extend higher after this pullback. Cobra did an interesting post last night arguing for retracement and then a higher high on the basis on the NYADV 5 SMA, and that fits with my view. You can see that here. My view on the support / resistance zones on SPX can be seen on the daily chart, and you can see on there that SPX is in an in-between zone where we've traditionally not seen any highs or lows:

A key retracement target on SPX today would be the top of the last S/R zone around 1173, and that was also the top of the range on Monday to Thursday last week. That would fit with the hourly 200 SMA on ES in the 1170 area, though I've also added potential ES support at 1178.50 and mentioned that 1178.5 is also an H&S neckline. If we see a right shoulder form after a bounce near 1178.5, then the pattern target would be in the 1155 area:

On NQ the obvious retracement target today would be rising support from the low in the 2162 area:

On TF there's a strong support zone in the 698 - 704 area and that might well hold. It's worth mentioning that as with ES there is a potential H&S neckline at 698. If the 698 area is lost then rising support is in the 678 area, but that looks overambitious:

Oil is bouncing nicely within the broadening descending wedge that I've been posting. If it makes the upper trendline then it should hit somewhere between 95 and 96.5:

I'm slightly concerned about copper here, as it hasn't made much progress towards my retracement target at 422, and has fallen back below 400 at the moment. One thing that's worth noting is that copper futures are still holding the rising support trendline from December 2008. That is a very significant positive divergence from equities, and I'm watching to see whether that trendline will hold or fold as we see where this overall bear move on equities goes. In the meantime I have double support on HG at 388 and it is an attractive short term long as long as that support (and this equities rally) holds:

It's opex week this week, which is generally bullish. Max pain on SPY is at 128 which is also bullish, and for a number of other reasons I don't think this equities rally is out of steam yet. My WAG is that we retrace and close down today, and then rally for most of the rest of the week. As longs are counter-trend here now, buying this dip needs to be done with some caution, and any surprises are likely to be to the downside.