Euro Saved! - Take #58

There was a very large move overnight as the EU eased repayment rules for EU banks, and announced a $149bn plan to promote regional growth at the EU summit. Much has been made of Merkel's isolation at the summit and I was reading this morning that French President Hollande won't be backing down on his demand that Germany back a Eurobonds plan, so it seems that risking future German bankruptcy is a risk that the (ahem) French are prepared to take. We'll see how that goes today, but given that unconditional agreement by Merkel looks like political suicide at home, that she stated earlier this week that no such agreement would be reached in her lifetime, and that it would most likely be ruled unconstitutional by German courts in any case, it seems unlikely that Hollande will get his way.

What we might see however is German agreement to a Eurobonds scheme conditional upon Euro members surrendering a lot of fiscal sovereignty to, in effect, Germany, and that might have the potential to kick any major crisis a few months down the road. We'll find out what has been agreed over the weekend.

Short term EURUSD has bounced strongly, and is testing resistance at broken support at the January low at 1.2625. There is a potential W bottom in play on a break over 1.275, and that would have a target just over 1.32 at almost a full retracement of the move down since the beginning of May. If some sort of Eurobonds agreement is hammered out today then that is a possibility, but declining channel resistance from 2011 is at just over 1.30 and I would be very surprised to see that broken:

Looking at the SPX daily chart the middle bollinger band was held again and on a break over 1335 resistance then the next obvious targets are the 100 DMA at 1359 and the upper bollinger band at 1365:

On the SPX 60min chart my possible rising wedge support was pinocchioed at the low yesterday but held. The key resistance level is at 1335, but with ES at 1342 as I write, we will most likely see a gap up over that at the open, at which stage it should become support. Declining resistance from the high is at 1352 SPX this morning and a break above that would look very bullish, and open up a test of the current rally high at 1363.46. On a move above 1335 the IHS target in the 1403-5 area is back in play:

There was a beautiful low on the SPX 15min chart yesterday on positive RSI divergence. Sadly I missed it as I was out watching my daughter in a musical version of A Midsummer Night's Dream. The bearish H&S on this chart is still potentially in play but becomes dramatically less likely to play out on a break over 1335 SPX, which looks almost certain at the moment:

I've been watching oil and silver very carefully over the last few days, and I want to explain why I think these are so important. On silver we are seeing a test of very strong support just over 26. I thought that rising support from the 2008 low had broken yesterday, but after a very close look at this again this morning, the test there was yesterday. This is very strong double support for silver and it may well hold. If it breaks however, it would be a massive support break and I would be looking for a test of the next strong support level at 19.5 - 20, and possibly lower:

On oil the setup is a very nice looking double-top on CL, with the neckline or valley low being tested at the moment. The target on a break below 77.5 would be 43.5, and I have the main bull market support trendline for WTIC, with three touches from 1998, 2001 and 2009, at just over 40, which gives that double-top target on CL some serious technical weight:

I'm seeing these tests on silver and oil as the key line in the sand for what happens across most of the commodity complex over the next few months. There's a good chance they find support here, but on a break below the outlook looks bleak.

I have an example to show illustrating what often happens after support breaks of this magnitude. I did a post in May last year on RIMM after RIMM broke key support from 2005. You can see that post here. I said that the break was a very bad sign and had a lot of comments that RIMM was a good dividend stock, with strong earnings and well established markets etc etc. Here is the chart I posted then:

Here's how the RIMM chart looked at the close yesterday, after a fall of some 80% from the date of that post:

What is the take-away from these RIMM charts? It is that regardless of what you think of the fundamentals, a major technical support break is a very strong signal to, at absolute minimum, exit immediately. We'll see whether silver and oil hold support or break here, but on a break, there is huge potential further downside that may well play out.

As I've been writing ES has climbed to 1347.75, and EURUSD has broken over 1.2625, and we may therefore see rising support in the 1352 SPX area broken at the open. That would be very bullish, I wouldn't expect to see a retracement below 1335 before at least a test of the current rally high over 1360, and on a break over the current rally high at 1363.46 SPX the IHS target at 1403-5 will be fully back in play. Be very careful shorting into this today.

This rally may however be short lived if there is no Eurobonds agreement at the EU summit today.

Other People's Money

Margaret Thatcher once famously said that 'the trouble with socialism is that eventually you run out of other people's money'. She was talking in a world much more centered around sovereign nations than the current one though, and there are therefore two modern solutions to this problem that she wouldn't have considered practical or even possible (or sane).

The first of those solutions is for governments to implement deficit spending and borrowing on a scale previously unknown except in wartime. At the same time central banks make this easy to finance by pushing interest rates down to almost zero, and cushion the market impact of this new sovereign debt reaching the bond markets by printing enough money to buy the new bonds themselves. In effect this is theft on a grand scale from anyone with savings in cash, pension funds or bonds, but it keeps the show on the road a while longer:

The second solution when a sovereign nation has exhausted the easy options for looting the assets of their own citizens, is to look to other still solvent sovereign nations to see whether they can now loot their assets instead. If this kind of thinking had been applied in the parable of the five wise and five foolish virgins, the five wise virgins who had prepared for the bridegroom's arrival would have shared their lamp oil with the five foolish virgins, in the hope that the lamp oil shortage would somehow sort itself out, and then all the lights would have then gone out halfway through the wedding.

This is the essence of the Eurobonds proposal that Merkel will be under intense pressure to accept this weekend, under which Germany will underwrite the majority of the outstanding debt of the other Euro states. It might work if there was a consensus in favor of austerity to pay down the excess debt over time, but there is just the opposite, with a growing consensus at the ECB and Germany's spendthrift neighbors that the breathing space secured by Germany's sacrifice should be used to implement stimulus plans and further easing to boost economic growth. Hard to see how this could end well for Germany but they might agree nonetheless. These excellent demotivational posters are courtesy of despair.com, and they hyperlink back to the posters on that site:

Eurobonds are electoral poison in Germany, and it seems unlikely that Merkel will agree to them. I hope she doesn't, as the healing process in Europe will begin, in my view at least, when the current slide towards group bankruptcy is stopped. One of the most astonishing things I saw in 2008/9 was when Lloyds TSB, a bank that was relatively unaffected by the subprime crisis, bowed to strong political pressure and took over the bankrupt Halifax Bank of Scotland in late 2008. Lloyds shares were at 279p on the date that was agreed and are trading at a touch over 30p this morning. Needless to say, in the modern way, the directors congratulated themselves on increasing their market share and gave themselves a large bonus, rather than being personally sued into bankruptcy by injured Lloyds shareholders, and investigated by the police for criminal breach of duty and possible fraud.  Germany is in effect being asked to do the same here and the only correct and honorable answer that they can give is a firm Nein!

On to the markets. I'm still leaning bearish this morning, but a little less so than yesterday morning. One reason for that is because SPX opened at the middle bollinger band and moved strongly away from it, closing slightly under key resistance at 1335. I am wondering whether I have mistakenly viewed the break below on Monday and Tuesday as a break rather than a test of the middle bollinger band. If so then this move looks bullish, with an upside target in the 1359-63 range on a break above 1335. Support today is at the middle bollinger band at 1320:

There are two other reasons to be leaning more bullish today. The first is that SPX is currently making higher lows and highs, and as long as that lasts that is bullish, and the second is that there is a decent looking rising wedge forming on SPX from the low that would fit well with the reversal IHS that was damaged but not killed off by the last swing down on Monday. The last short term high on SPX was at 1337.82. Below that level I'm leaning bearish. If SPX breaks over 1337.82 and then holds 1335 as support, then I will be increasingly be leaning bullish. Here's the pattern setup on the 60min chart, including the possible early stage rising wedge:

However I'm still leaning bearish overall. I wouldn't generally expect to see an H&S pattern which rebroke the neckline with as much vigor as the current IHS to make target, and I regularly see H&S patterns form in the opposite direction as those fail, and we are seeing that here. The high yesterday was at 1334.40, just under the ideal 1335 right shoulder high target I gave for the H&S yesterday morning, and SPX broke the rising trendline from Tuesday's low late yesterday on negative RSI divergence, which looks bearish. If we are gong to see a reversal downwards, yesterday's high was the obvious place, and that looks encouraging so far:

TLT is pinned in a range which gives little clue to direction. Back holding the old support trendline from the April low at the moment:

EURUSD continues to make new lows and as I said yesterday the obvious next move is to the 1.20 area. Positive divergence on the 60min chart is fading:

I posted the CL chart earlier this week showing the technically perfect double-top setup on oil there. On a break below support (holding so far), the downside target is in the early 40s where I have long term rising support. This may well break down and if it does, it will most likely fall a long way. This is linked to the silver test of rising support from the 2008 low as if one breaks down, then most likely they both do, and I would expect both to fall a long way from current levels. Worth keeping an eye on IMO as that would most likely be in the context of a bearish backdrop on equities:

The last chart for today is the ES 60min chart, where there are now three active possible H&S patterns in play, which is really not helping determine direction here. I've not shown the large reversal IHS, but I've shown the smaller bearish possible H&S, and an even smaller reversal IHS from the last high. This is mainly about key support and resistance in my view. A move below the Mon/Tues lows would be very bearish. a move above the 1335 SPX neckline would look pretty bullish. We'll have to see:

There is a lot of potentially market-moving news today. GDP, the healthcare ruling, Europe statements as always. The odds of a gap fill are decent. The direction is leaning bearish, but very hard to call here.

Schrodinger's Cat

One of my favorite scientific ideas is the Schrodinger's Cat theoretical experiment. This is an illustration of Erwin Schrodinger's 1935 proposition of the quantum (physics) theory of superposition. The way it works is that a living cat is placed into a closed steel chamber, along with a device containing a vial of a radioactive substance. If the radioactive substance decays during the test period, then a relay mechanism will trigger the device and kill the cat.

The observer cannot know whether this has happened, and whether the cat is dead or alive, until the container is opened. Since the fate of the cat is unknown, in quantum terms, the cat is neither dead nor alive, and is instead in a superposition of states, or alternatively a cloud of relative probabilities, until the box is opened, and the condition of the cat is observed, crystallizing one outcome or the other. Obviously the experiment sounds pretty tough on the cat, but it's well demonstrated that while things appear to work in a much more deterministic way in the world we see around us, this quantum uncertainty is the way a quantum particle behaves.

Why is this relevant to the markets? Well it sprang to mind looking at the SPX chart this morning, where I can see both a strong bull and strong bear setup, one of which will crystallize over the next couple of days. Hard to say which one yet, and I'm definitely leaning bearish, but I have a series of levels to watch on SPX and the way they perform should determine the outcome.

The bounce I was talking about yesterday morning obviously happened and no technical damage at all has yet been done to the bear case here, with the rally so far failing at Thursday's low, and the close at the middle bollinger band on the daily chart:

On the 60min chart I have shown that there are two H&S patterns now in play on SPX. You sometimes see this when an H&S pattern is failing, though I would stress that the IHS has not yet failed. The first H&S is the bullish IHS which has been damaged but is still in play as the move down did not go below the bottom of the right shoulder. The second is a bearish sloping H&S forming at a 1310ish neckline. On this scenario we are making the right shoulder now, and the ideal high would be at another retest of the IHS neckline at 1335.


In terms of support a move below 1310 with any conviction will trigger an H&S target at 1255. There are three key resistance levels to watch. The first was reached at yesterday's high, and we might see failure here, though the symmetry of the bearish H&S wouldn't be great. The second is at 1335 and failure there would deliver a very nice bearish H&S. A move over 1335 would start to look bullish but there would be a last main resistance level in the 1346 area, at the double-top valley low for the last high, and (depending when it was reached), at declining resistance from the 1415 high. A break over these would look unambiguously bullish and the reversal IHS would then be back fully in play:

You can see these resistance levels and the bearish H&S forming very clearly on the SPX 15min chart:

TLT is still in the consolidation range and EURUSD made fresh short term lows yesterday on increasing positive divergence. The longer this continues however the more this divergence will suggest consolidation (before continuation down) rather than reversal. I'm treating this as a broken bear flag at the moment and as long as EURUSD stays under broken flag support in the 1.255 area this looks cautiously bearish:

On the bigger picture I'm expecting EURUSD to reach 1.20 to complete a huge potential H&S pattern indicating to 0.77, but when that will happen exactly is harder to say. I would be very surprised to see the current declining channel break up before then however:

Last chart for today is NATGAS, where there is a very nice looking reversal setup. Declining resistance from the June 2011 broke up in May, a very nice looking IHS formed and that broke up through the neckline yesterday. The IHS target is in the 3.60 to 3.65 area, just below big resistance in the 3.70 area:

I'm leaning bearish overall here and am leaning towards seeing SPX fail at either the 1335 (preferred) or 1325 resistance levels. An hourly close over 1335 SPX would start to look bullish and a break over 1346 even more so. We need to be aware that there's a possibility that the Euro will be 'saved' again this weekend, with huge pressure being put on the germans to underwrite the debt of their spendthrift neighbours through Eurobonds. This looks like electoral suicide in Germany but it's possible that Merkel may agree nonetheless. I don't think that solution would last but it could trigger a strong rally on EURUSD and equities before it fails.

Possible Bounce Brewing

The first thing to say today is that there is a possible bounce brewing on both ES and EURUSD, though both are still close to yesterday's lows at the moment. On EURUSD there is clear positive divergence on the 60min RSI and what looks like an attempt to establish a new rising support trendline from the lows, though that might not last long:

I'm seeing similar but weaker positive divergence on the ES 60min RSI, and another possible attempt to establish a new support trendline from the low. The extremely steep declining resistance trendline from Wednesday's high has also been broken. On the bear side the bounce from the low yesterday looks a lot like a bear flag so far:

A bounce here would fit with a declining channel on the SPX 15min chart that I posted yesterday. A strong early bounce could retest broken support at 1324/5, though that channel resistance trendline is declining rapidly and will be under 1320 SPX by the end of today. As with ES the bounce from yesterday's low looks like a bear flag however:

On the SPX 60min chart the reversal IHS with the neckline at 1335 is badly wounded and will most likely fail. I'll only write this off altogether however on a move below 1306.62, and the low yesterday stopped a couple of points short of that so this is still potentially in play. As and when this fails then there would often be a very strong reaction in the direction of the (downward) trend after the failure:

Yesterday's close was at 1313.72 SPX, more than five points below the middle bollinger band on the daily chart at 1320.31. Of the nine previous breaches of the middle bollinger band since October, not one reversed back again strongly without at least at test of the far bollinger band, or either the 100 DMA or the 200 DMA. The 200 DMA is now at 1296.25 and I would count a test as being within five points of that, so we should reach at minimum 1301ish before any significant low can be made. That's very much a minimum target however, five out of nine of those breaks made it to the far bollinger band, currently at 1276:

I've been watching for a break up on TLT to confirm a break downwards on equities and I'm still waiting. TLT is trading in a range between 124 and 127.4. As long as 124 holds the overall lean has to be bullish for TLT (and bearish for equities) but that is weakened by the break of rising support from April, so the setup could still go either way:

On USD the big IHS has retested the neckline in a bull flag retracement and is breaking back up. This chart looks unambiguously bullish and is backed up both by the rotten fundamentals on EURUSD and the Fed's current reluctance to devalue USD with more QE. The IHS target is at 90.5, and on a break above declining resistance from 1985 at 93.5, I would have a double-bottom target at 105. You can see my big picture USD post from April here:

The last chart for today is the silver chart, where the rising support trendline from 2008 was touched at the low on Friday. If we aren't going to see serious further weakness on PMs over the summer this is the highest probability reversal level and silver is bouncing strongly from that so far. If silver can break above current declining channel resistance in the 28 area there would be a real possibility that silver has just made a major low:

ES and EURUSD have been weakening as I have been writing, and EURUSD has broken below the possible new support trendline I was looking at. There is still increasing positive divergence on the 60min RSI however so a bounce is still very much on the cards. If we're going to see a bounce, today would be a likely day, as Cobra has pointed out that the last five Tuesdays have closed higher, so it has been the most bullish day of the week recently.

Dark Stormclouds

Friday was always likely to be a retracement or consolidation day as I mentioned on Friday morning. SPX rallied to close at the IHS neckline and that was neither bullish nor bearish really. A strong Sunday night on ES to follow through would have been bullish, but ES has dropped to make marginal new lows at the moment. That delivers a potential W bottom on strongly positive 60min RSI divergence, but that's only IF we see a reversal back up here. If we see Thursday's low undercut by much during trading hours that will look bearish, and will become rapidly more so if we drop further as I was saying on Friday. Here's the setup on the SPX 60min:

Here's the potentially bullish setup on the ES 60min in the event that we see a reversal and get back over the Friday highs:

Other markets present a mixed picture here. I was saying on Friday that a retest of the lows on EURUSD looks likely and EURUSD is halfway there now which is cautiously bearish for equities. Against that I posted a Vix chart on twitter on Friday showing that the pattern setup there still looks bullish (for equities), though the second Vix Buy (equities) Signal last week failed to confirm again on Friday:

Friday's action on TLT was ambiguous. TLT closed back below the broken rising support trendline which looks possibly bearish, but the overall lean has to be bullish for bonds and bearish for equities as long as support in the 124 area holds:

Looking at the longer term charts silver hit rising support from the 2008 low on Friday, so we'll see what happens here. I've been reading a lot of talk about a target at 18-19 if we see a break down here, but there is a very strong support level in the 19.50 - 20 area that you can see on the chart so I'm doubtful about that. A break below 19.50 would open up a lot of potential further downside targets:

I've been posting my SPX daily charts with bollinger bands and the key DMAs a lot lately, so I thought I'd have a look at the weekly equivalent today. You can see that the bollinger bands are very good performers there too, with the middle bollinger band being important support in bull markets and resistance in bear markets. Worth noting therefore that the current rally high was at the middle bollinger band, which for other reasons previously given as well, was the obvious target. The MAs on the weekly chart are different, as I don't think that either the 50 WMA or the 200 WMA are important. The 100 WMA however is a key bull/bear dividing line and you can see that the two main lows in 2010 and the low so far in 2012 were at tests of the 100 WMA. The 13 and 34 weekly EMAs are also important and we have not yet seen those cross this year. A cross with a confidence is a historically reliable confirmation of a move between bull and bear markets, though that works best with a long topping process like the one in 2007/8:

On the bigger picture on equities there are a lot of analysts calling for lows slightly below the current 2012 lows, and that could fly if the lows are marginal and short-lived. If the new lows were made with any confidence however then the pattern setup suggests that we may well then see a VERY large further decline. There are valid potential double-top setups on SPX and Dow of course, which trigger much lower targets on a move below the June lows, but there are also a whole raft of huge reversal patterns on overseas equity indices (and copper and oil), which would by that stage be looking very bearish indeed. Here's the setup on MSWorld (main world equity indices excluding US) where you can see that there is a fully formed H&S pattern indicating to somewhat below the 2009 lows on a break below the neckline at the June low. A break below that neckline would be a really very bearish development:

ES is below Thursday's lows at 1315.25 as I write this and an open at this level would look bearish on SPX.  A gap fill would however set up a bullish looking reversal setup that would trigger on a break above the Friday high. A continuation down would seriously damage the already wounded reversal IHS setup and a move below 1306 SPX will kill this off altogether. If we see that then a test of the June lows would look likely in my view.

On other news I'm part of a small group that has launched a new weekly newsletter on the markets called MarketShadows. This is interesting for me as, though I use many longer timeframe charts, I'm generally writing from a daily viewpoint, and it's an interesting change to write from a longer term viewpoint. As part of this I've started doing a weekly post at the MarketShadows website with charts that will mostly be taken from the post I do the following Monday. You can see the one I wrote on Saturday here and that includes my two main USD charts that I haven't included in the current post. When the post is up each weekend I'll be posting a link to it on twitter.

Moments of Truth

As SPX was testing rising support from the low yesterday I did a chart on the SPX 15min showing the three important short term support levels on SPX to watch. I was going to post this on twitter but that was down for quite a while yesterday so I posted it on slope and BlueChipBullDog instead. The first level was that rising support from the low of course, the second level was at the IHS neckline in the 1335 area, and the third level was in the 1325 area, that I gave as a line in the sand yesterday morning on the basis mainly that none of the five reversal IHSes that made target since 2008 had retraced more than ten points below the neckline. Here is that chart:

By the end of the day SPX had fallen through the first two levels and closed at the third. Here's how that chart looked at the close yesterday:

The first thing to say therefore is that this reversal IHS setup is not dead yet, though it is damaged. Bulkowski  gives the odds of these making target at 74%.  After yesterday's meltdown, and in the overall context, I would scale that down to 50% now, declining rapidly on any move below yesterday's low, and I'd write it off altogether on a move below the right shoulder low at 1306.62. The failure of a high probability pattern like this is indicative of a strong trend in the other direction, and in that event we might well see a violent move in the direction of that downward trend.

There are three main reasons that I'm downgrading the odds on this H&S making target. The first reason is that SPX closed well below the neckline, which isn't great though it doesn't invalidate the pattern. The second reason is that, as I've been mentioning regularly over the last couple of weeks, the overall setup favors this move up from the low being a counter-trend rally in my view, which means both that bull patterns are more likely to fail, and that a high probability area for a rally high is at the test of the 100 DMA, which is where the rally has peaked so far.

The third reason is that the close was five points above the middle bollinger band on the daily chart, which qualifies as a test of that level. Since October we have seen fourteen tests of the middle bollinger band and it only held as support or resistance on five of those tests. On a close below that (currently at 1319) the odds of seeing at least a test of 1300 (a few points above the 200 DMA at 1295) would be high, and five out of seven of those breaks below hit the far bollinger band, currently at 1276. Here's how that looks on the daily chart:

I posted the TLT chart yesterday, noting the decent declining resistance trendline from the high. That broke up yesterday which is bullish, but we need to see a higher high over 127.34 next. That higher high would suggest a test of the high at 130.39 and possibly much higher looking at my longer term bonds charts. TLT looks cautiously bullish here, and therefore cautiously bearish for equities:

On EURUSD the bearish pennant I've been posting has broken down. There are a couple of ways to calculate the target for this. The full technical target is in the 1.175 area, but Bulkowski suggests adjusting this by the probability of reaching target, which is only 51% on a downward break, so that would be in the 1.225 area, just below the current lows. That would look cautiously bearish for equities here as well.

I posted the possible double-top on oil yesterday and oil is now testing that double-top neckline on the futures chart. The double-top target would be 43.5 on a conviction break below 77.55, and Bulkowski gives a 72% chance of these reaching target, weakened somewhat by this being a pattern with the peaks a year apart. Here's how that looks on the CL daily chart and it's worth noting the positive divergence on the daily RSI here which suggests that support may well hold this time. A break below this support would look distinctly bearish for equities, as they are positively correlated:

I posted charts on gold and silver on twitter yesterday that didn't make the cut for my morning post. We saw strong moves in both yesterday and are now reaching a very important test for precious metals. I posted my main silver chart a few weeks ago showing the key support levels at rising support from the 2008 low, and that's now in the 26.50 area, and strong level support at 26.15 - 26.30 just below. I have a large declining channel from the 2011 high and a smaller declining channel from the 2012 high. Either of those support levels above 26 may well hold, but if they don't the outlook becomes extremely bearish, and I'd be looking first at the smaller declining channel support in the 23.5 area, and then at the major level support in the 19.5 area:

Is there any support for the bear case on PMs here, apart obviously from the declining channels on silver? Yes, and that support is again from GDX, as it was when I was looking at this in late February. A lot of PM bulls are getting excited about the IHS on GDX, and there obviously is an IHS on GDX, but that IHS has formed at the neckline retest of the much larger H&S that I've been posting regularly since late 2011. This setup is an inverted version of the H&S that formed in summer 2009 at the retest of the neckline of the IHS that formed at the 2009 SPX low. I'm sure we all remember how that turned out, and if this setup on GDX goes the same way, then the next move is towards the H&S target in the 31-2 area on GDX. Just sayin'. If silver breaks support here then that is the outcome that I would be looking for:

The bulls need to perform here and quickly push back above the main support/resistance level on ES over the last few days which is at 1340. The overnight action on ES is ambiguous, as it has seen two tests of the low on positive 60min RSI divergence (bullish) that has overall taken the form of a bear flag (bearish). We'll have to see how that goes. After a trend day like yesterday the odds favor consolidation or retracement today.

Testing Resistance

I was asked yesterday whether we might see a gap and go day, and I replied that the chances of seeing a very strong up day here look limited, with SPX testing the upper bollinger band and in some need of retracement. That's still true today though somewhat less so. Until we see a break with real confidence over the 100 DMA at 1359.5, this remains an obvious area to see some retracement or at least consolidation:

NYMO has hit some very overbought levels this week and I was looking at this as a reversal signal since the start of 2009. At best this looks mixed. This level on NYMO has been hit five times previously in a downtrend or during the bottoming process, and it was a reasonable reversal signal then, albeit the hit of the 75 level did not usually mark the high, which followed higher and a few days later. There were three hits during an uptrend and these then signaled at best minor retracements. A higher high with negative divergence on NYMO is a better signal historically:

There are a lot of bloggers looking for a rally high here and I don't see that as likely. Taking short positions with an IHS setup like the current one has very grim results historically. That said it's still possible of course, and as none of the previous five successful reversal IHSes since the start of 2009 has seen a neckline retest that went more than ten points below the IHS neckline, I would put a line in the sand there at 1325. That fits well with the middle bollinger band on the daily chart just over 1320:

Looking at the Vix action yesterday, it closed lower, so the Vix Sell (equities) Signal did not confirm. Vix retested the H&S neckline and closed back below both the neckline and broken channel support, which still looks bullish for equities:

TLT broke below rising support from April briefly yesterday but is still holding the very important 124-5 support range. A break below there would look very bearish for bonds and bullish for equities. There is a decent declining resistance trendline from the highs at 126.5 today and a close above would look bullish for bonds:

Looking at Dr Copper today, it is unimpressed with this rally on equities so far and the giant H&S pattern that I've been posting periodically there is still forming. This looks weak and to the extent that this is an indicator for equities it still looks bearish. A rally to 1400 or so on SPX however would not change this picture on the weekly chart significantly so that's not immediately bearish:

Oil is also positively correlated with equities and also looks depressed here, with a huge potential double top that would trigger on a break below 75. Again, that's not immediately bearish though:

Overall I'm still leaning towards this being a strong rally rather than a new impulse up from a major low, and it has to be said that we are now testing the area that I identified as the key resistance level to watch a couple of weeks ago. The pattern setup here indicates higher however, and even if this is just a rally there is no real reason to think that SPX could not test 1400 within that. I'd like to see a decent support trendline established  with a retracement or consolidation here, and I have rising support currently on SPX in the 1340 area, the IHS neckline retest in the 1335 area, and the middle bollinger band slightly under 1325. Until we see a move below 1325 I'll be viewing this rally as ongoing. If we see a close over 1370 then resistance at the SPX 100 DMA may well become support.