What If ......

The triangles on ES and SPX have continued to develop since yesterday and are now very clear, though both a little rough. ES has retraced to test triangle support again overnight and that is now a very well established support trendline. Here's the triangle on the ES 60min chart:

Now it was mentioned yesterday that triangles like these are bullish and that's right, marginally. Bulkowski has these breaking up 54% of the time, so perhaps it would be more accurate to say that it's on the bullish side of random in terms of direction. Regardless of that a clear and sustained break in either direction should be respected. I say sustained because as I mentioned yesterday, triangles have a nasty tendency to make a false break in one direction before playing out in the other direction, so it's best to trade these cautiously. Regardless of that, any move below 1635 SPX should deliver a move to test the 1580-1600 area. Here's the triangle on the SPX 60min chart:

I've talked about downside targets a lot over the last few days so I want to look at upside targets today. If we are seeing a break up from a triangle then it may well not be a simple retest of the highs, so I want to look at the trendline targets that I have beyond that. The first of course is the broadening ascending wedge resistance trendline, and that's now in the 1695-1700 area:

The second trendline is the currently entirely theoretical potential channel resistance for the bull market since October 2011. I've mentioned resistance in the 1700-20 area a few times and this is one of those two resistance trendlines. Generally I would expect a bull market on SPX to form a rising wedge, a channel, or a broadening wedge, and the rising wedge option was killed last year. This possible channel trendline is a contender and here it is on the SPX daily chart. Also worth noting on this chart is the way that the daily middle bollinger band (also the 20 DMA) has clearly acted as support in recent days:

The third resistance trendline to watch is shown on the SPX weekly chart below. This is currently just above 1700 by the look of it and as I have drawn all three on this chart you can see that these trendlines will all intersect in two to four weeks, which makes for a compelling target. Worth mentioning as well on this chart is that the weekly upper bollinger band will most likely close in the 1670-5 area today, and as this can only rise at 10-15 or so points per week, then it would take two to three weeks to get into the right area to hit those trendlines. We have seen a break over the weekly upper bollinger band recently, but these are rare and we may not see another for a year or two:

The GBPUSD W bottom I've been following still hasn't made the 1.53 target area, but most likely it will soon:

I've been giving some thought to the setups on the CL and USD charts this morning, and will close with a couple of fairly blue sky charts on those. First the CL chart, where CL is trying to break down from a double-top, though not with much conviction so far. I've been looking at the long term WTIC chart this morning, and considering the merits of a triangle there that has been forming since the 2010 low on oil. The triangle is a bit rough, though I'd mention that the only break of triangle resistance on the weekly chart is just a pinocchio on the monthly chart. The next target within the triangle would be triangle support in the 86/7 area, and on a break down from the triangle we might well see a drop to test the long term support trendline from the 1998 low through the 2001 and 2009 lows. The trendline setup is a series of breaks and retests which has a bearish cast to my eye:

The last chart is a bearish take on the USD chart here. I'm bullish on USD still, but I have to say that the significant reversal just above the 2012/3 double-bottom target at 84.5 is concerning me. At the moment that looks as though it might be a rising wedge overthrow and, if so, the next target would be a test of rising wedge support in the 82.1 area. If that broke the overall bullish scenario would be in question and the next support trendline would be rising channel support from the 2011 lows, now in the 80 area. If USD broke below 80 then we would most likely have a major trend change, and the next big support level would be at 78.6. On a conviction break below 78.6 we would have a double-top target below the 2011 lows. I'm not saying this is likely but I am just pointing out the levels and path if this current reversal develops into something more, and noting that marginal new highs or lows can often be the end of a trend. A break with confidence over the current high should kill off this USD bear scenario:

Support and resistance on ES and SPX is clear, though I would give the SPX chart priority in the event of a difference between them. A clear (and sustained) break in either direction should be respected. Everyone have a great weekend :-)

Not Wild About Triangles

Looking at ES this morning there is an ambiguous looking triangle forming there. A little W bottom has formed at yesterday's lows, and the target for that pattern, and triangle resistance, are in the 1665 area, so we may well see that level hit today:

That triangle can also clearly be seen on the SPX 60min chart. I'm not keen on triangles as the first break out of the triangle is often in the wrong direction, but if we see a conviction break below last weeks low at 1636.88 that should still be a reliable signal for a move to test the 1600 area:

Overall I'm still leaning short on equities here, and the main pattern I'm watching is the broadening ascending wedge on SPX from last November. Before we see the move to test wedge support though, there is still a chance that we will see the current highs tested, and this ES/SPX triangle may be setting up that retest. Here's the wedge from November and that wedge support trendline is now slightly over 1580:

Looking at other indices from November there is a nice looking double-top setup on RUT here:

Another nice little double-top setup on Dow here:

There's also a nice looking H&S setup on TRAN. None of these individually give us the direction over the next week, but together they do suggest that the current highs on SPX most likely won't be retested before these patterns play out, and also if these all break down that will be a strong signal that we should then expect to see wedge support on SPX tested soon afterwards:

The W bottom on GBPUSD that I've been watching form broke up overnight but has been failing at 1.52 so far. The target is the 1.53 area. That should be a decent re-shorting entry I think, though there are quite a few analysts looking for a larger USD reversal than that here:

I posted a CL chart on twitter a couple of days ago showing the bull flag and bear double top options there, and CL is testing support again overnight. Trend continuation would be a break downwards here, as CL has been in an overall downtrend over the last few months, but on the other hand CL has been forming a triangle since mid-2010 and the next triangle target is in the 102.5 area. I'm leaning short but this could very much go either way:

The two significant moving averages to watch on ES in recent days have been the 50 hour MA, currently at 1650, and the 200 hour MA, currently at 1655. If ES breaks over 1655 I'll be looking for a move to triangle resistance in the 1665 area.

Possible Double-Top Formed

Sometimes it just isn't your day. I just spent an hour writing a post and selected it to copy it over to Slope of Hope when I hit the wrong key and deleted almost the whole thing irrecoverably. Unusually I have to leave soon and will be out much of the day so I am going to rewrite this as a shorter post as quickly as possible. Excuse the very brief comments.

I gave the double-bottom target last Friday at 1675, and the high yesterday was 1674.21. That may well be it for the rally:

There is a decent resistance level near the high yesterday and that is the weekly upper bollinger band, now in the 1672.50 area:

If we have seen the rally high then there is now a candidate double-top in play on SPX. On a break below last week's lows the obvious target area is the 1580-1600 area, depending on the time taken to reach the wedge support trendline:

ES has traded as low at 1642.75 overnight. If it breaks below last week's lows the double-top target is in the 1580 area:

GBPUSD fell yesterday but strengthened the scenario for a bounce into the 1.53 area in the process. there is now a better entry and a candidate double-bottom there:

I sketched out a possible path for TLT for the year or two forward from March, and that is still looking good here. The next move on the chart would be to the possible H&S neckline in the 106.5 area:

I posted a CL chart on twitter yesterday showing bull and bear scenarios and you can see that here. I'll be back near the end of the trading session today.

Shanghai Rising

I posted a possible double-bottom on SPX on twitter intraday on Friday, and that double or W bottom is mirrored on ES. Since then the ES version has broken up and unless we see a sharp retracement into the open, we'll see a break up on the SPX version at the open as well. Here's the setup targeting 1675 on ES and it's worth noting that 50 hour MA support is now in the 1651 area:

Here's the SPX version that I posted on Friday. The target for that is also 1675, but in practical terms, as with the ES version, it suggests a test of the current highs:

Now the SPX 60min chart I posted on Friday showed various options for retesting the highs, and the main reasons for thinking that's likely are that:

• We usually see a sharp spike down before an interim top is made
• A higher high within the broadening ascending wedge would set up the daily negative RSI divergence that we would usually see here
• An interim top would usually be made with an H&S or double-top forming with the initial spike down as part of that topping pattern. 

Due to the space constraints within the very clear broadening ascending wedge on the 60min chart I'm favoring the double-top option here, but if the next move up from here is slow, it might be that we could see the head on an H&S form next. We shall see how it looks at the retest of the highs. Here's the updated broadening ascending wedge on the SPX 60min chart:

On the SPX daily chart support at the middle bollinger band has been holding and that was decent area to see the lows last week:

I won't post the CL chart today as I'm leaving some space to look at Shanghai, but that is bouncing with equities so far and may well run further. what I will look at today is GBPUSD, which I have been using as a proxy for the anti-USD trade generally, and GBPUSD broke up from declining resistance late last week and has now retested the break. More than likely we will now see a strong bounce and I'm looking at resistance in the 1.53 area as an important target:

Back on 29th November last year I uploaded a chart showing the SSEC (Shanghai) Daily to Screencast. I think I did this for a weekend article where it got cut from the final version (!!!!!). Otherwise I think I just posted it on twitter where it had an unremarkable 48 views. That was a shame as I nailed the low on Shanghai perfectly then and from 2027 when I posted the chart it made the 2280 target I gave then, and then then went beyond almost to the 2450 area resistance area I had marked on that chart. Here is that SSEC Daily chart that I posted on 26th November:

What's my point? Well firstly that I was struggling to interest anyone in my SSEC chart then, Shanghai having been written off by most as a lost cause after a very extended decline, and that's sometimes when charts can become most interesting. Secondly though the February high on SSEC was near established resistance that was also a candidate IHS neckline, and the right shoulder from there has now reached the right area for an ideal right shoulder low. If SSEC breaks up through the IHS neckline I have the IHS target in the 2925 area, some 27% above Friday's close. As with the measured move at the start of the year, SSEC may well not stop there of course:

SSEC is a tricky one though, as foreigners cannot invest directly in the market. There is a decent futures proxy which is CN for the FTSE Xinhua 50 index, and I've found a reasonable ETF proxy in PEK, though that ETF has significant issues that I mention on the latter chart. I'm calling for suggestions on better ways to play Shanghai here as I think it looks like a very decent play here, with most of the gains from last November's major low still to come. Suggestions invited. 

As for ES I'm obviously leaning bullish looking for a test of the highs, though that test might not necessarily make a new high. Important support at the 560 hour MA in the 1651 area. 

QE Synaesthesia

I've drawn in the three main topping options from here as I see them on the 60min SPX chart and they are:

• Fall from here to test wedge support, and then break the wedge to trigger the main summer retracement
• Test or slightly exceed the highs to form a double-top targeting the 1580 area
• Retrace to wedge support, then test or slightly exceed the highs to form a double-top targeting the 1500 area

I'm favoring seeing a test of the current highs before a more serious retracement and that's for three main reasons

• There is generally a test spike down before the main retracement. 
• SPX daily RSI negative divergence is currently small. A test of the highs would deliver divergence on a more usual scale. 
• The next main time area to see significant interim highs made is from late June through July. 

Here's how that looks on the SPX 60min chart:

Looking more closely at the SPX 60min chart you can see that SPX gapped down through trendline support on the rising channel from 1536. This is generally a sign of a solid break and I'd expect some follow-through from here. If SPX can close an hour back over this broken support trendline, that would clear the path for a test of the highs:

On balance I'm leaning towards yesterday being an oversold bounce and more downside coming shortly. In part that's because on the last four occasions including the November low where the 30 level has been penetrated on the SPX 60min RSI, there has been positive RSI divergence before the reversal back up. There is no positive 60min RSI divergence evident on SPX at the moment. On the ES 60min chart much of yesterday's bounce has since been given back overnight, and on a conviction break of yesterday's lows I would be looking for the next support in the 1600-10 area:

CL is still flirting with breaking down from the possible double-top there. As this would be a continuation of the greater trend down I think that's likely to happen:

A retracement may well be starting on USD as well as SPX, and they are positively correlated these days of course. I'm watching the falling wedge below on GBPUSD for a signal whether this will run much further:

In other news Fed officials dismissed suggestions that QE might be triggering irrational rises in asset markets:

Everyone have a great holiday weekend and I will be doing a post on secular bear markets over the weekend. :-)

The SPX Broadening Ascending Wedge

Most days recently I've been posting a rising channel from the 1536 low, and I posted on twitter yesterday that channel resistance was hit at 1684.6 and there was leeway for a push through to 1685/6. I was frankly irritated when SPX then reached 1687.18, which was a clear breach of my channel resistance trendline. 

I have commented before though that sometimes we see a pinocchio through a smaller pattern or channel trendline to reach a target trendline on a larger pattern, and with that high yesterday the pattern from the November low has finally been clarified. That pattern is a perfect broadening ascending wedge, and you can see that on the SPX 60min chart below:

That being the case, the obvious target for a retracement here is the wedge support trendline in the 1580 area. I would also note that the SPX 50 DMA is now at 1588, the daily lower bollinger band is now at 1569, and there are major broken resistance levels at 1576 (2007 intraday high) and 1597 (rising resistance from 2000 high). There is therefore a major support cluster around the wedge support trendline, and we may well see a reversal there to test the highs and set up a larger double-top for a bigger retracement:

ES has broken back below yesterday's low overnight, and I'm running two main scenarios here. If SPX opens at or above yesterdays 1648/9 area low and can hold above it I'll be looking for a right shoulder to form on the SPX chart with a move to the 1660-5 area today. the ES 50 hour MA is now slightly above 1660 and I wouldn't like to see a break back above that with confidence. If SPX open much below the 1648/9 area then I have a possible though extremely ugly H&S already completely formed on ES and that would have a target in the 1605-10 area:

On CL I've been posting the candidate double-top there every day this week and that is reaching the point of decision. If CL breaks below it then I'll be expecting a move to under 86 after that break to maintain the lower highs and lows on the bigger picture charts:

I've been saying regularly that I think the greater trend on bonds is down, and that the bull market from 1980 on bonds may have ended, and I'll show another chart to support that this morning. That chart is the TNX (10yr Treasury Yield) monthly chart from 1980 and you can see the very strong support trendline that was hit for the fifth time in mid 2012 to start the current bounce. That may or may not be the end of the multi-decade bull market, but we'll have to see whether rates can get over 4% to confirm that. I've been reading quite a few comments that this multi-decade bull market ended on April 29th this year and I've no idea why that is. If that bull market has ended, it plainly ended last summer:

What I'm looking for on ES today is already stated above so I'll just repeat that here - ES has broken back below yesterday's low overnight, and I'm running two main scenarios here. If SPX opens at or above yesterdays 1648/9 area low and can hold above it I'll be looking for a right shoulder to form on the SPX chart with a move to the 1660-5 area today. the ES 50 hour MA is now slightly above 1660 and I wouldn't like to see a break back above that with confidence. If SPX open much below the 1648/9 area then I have a possible though extremely ugly H&S already completely formed on ES and that would have a target in the 1605-10 area:

No Shorts Tuesdays

Yesterday was up yet again and I have been reading that the last twenty five or so Tuesdays have all closed in the green. That's not true on SPX, as that dropped 4 points on Tuesday 19th March,  and another four points on Tuesday 12th March, but the run of positive Tuesdays has still been impressive.

There is still negative divergence on the 60min RSIs on ES and SPX, though it's hard to get excited about that while ES is holding above the 50 hour MA, now in the 1665 area. If that should break we may see a move to test rising support on ES from the 1531 low, and that's now in the 1650 area:

On SPX we saw a marginal higher high yesterday on increasingly negative RSI divergence. That looks promising for retracement and I have support on this perfect rising channel on SPX in the 1650 area:

Will we see some retracement here? A small one certainly looks promising from the COMPQ chart where a rising wedge is breaking down, again on increasing negative 60min RSI divergence:

Not much to add to that on equity indices today so I'll move on to other things. First up is the AAPL chart, which looks guardedly bullish here, with the bullish falling wedge broken up and retested, and now a very promising IHS forming at the low. If AAPL can make a higher high over 463 then we should see a bounce back into the 500s. The IHS target would be in the right area to test the 200 DMA, now at 527.71:

Next up is gold, where I have been looking at two trendlines on the weekly (LOG) chart. The first is being tested and could hold, though I'm not expecting that. The second runs from 2001 and is a better prospect, and that's now in the 1050 area. if the first trendline breaks I'll be expecting a move to the second over the next few months:

I'm posting the CL chart today mainly to show the possible double top there on the July futures. Not much has happened there since yesterday morning:

The last chart today is the EURUSD chart, where in addition to the large H&S almost formed there at the moment I would also point out the upsloping H&S that broke down in late 2011. The rally from last summer and failure at 137 could have been a retest of that H&S neckline. I have to say I don't like either H&S, as they both started earlier in the preceding trend than I like to see, but the support trendline on the overall falling wedge from 2007/8 is now in the 110 area, and if EURUSD can beat the 2012 low then I think that we may well see that hit over the next year or so:

ES is kicking around the 1670 area as I write, and has held the 50 hour MA on the last small retracement. I'm not holding my breath for a break below 1665, but if we see that the established support levels are in the 1660 area and at rising support in the 1650 area.

Weekly Upper Bollinger Band Punches

I was saying last week that punches well above the weekly upper bollinger band were a rare event, and I've been looking more at those this morning to see what happened after previous instances. Since the start of 2006 I have only found two instances of this and these were as follows:

• Q2 Start 2007 - Continued up 80 points into early Q3 first high 2007 bull market double top
• Q2 Start 2010 - Immediately preceded spring 2010 high made next two weeks

That's not hugely helpful in this instance so I have looked further back, but here is the SPX weekly 2006-13 chart showing those punches:

Looking at the the period from 1998 through 2005 I found five instances of similar punches and these were as follows:

• Q3 Start 1998 - At the 1998 interim top made over the next week
• Q3 Start 1999 - At the 1999 summer high made over the next week
• Q2 Start 2000 - At the 2000 bull market high
• Q1 Start 2004 - Rose another 40 points into the Q1 high over the next few weeks
• Q4 Start 2004 - Rose another 50 points into a resistance area not exceeded until Q3 2005

Now one thing you'll note about all of these is that significant interim tops came fairly soon after these punches, and that the only instance where SPX rose more than 50 points afterwards was to make the first high of the 2007 bull market double-top. To an extent this is just stating the obvious, in that a market that has made the powerful upward move required to punch through the weekly upper bollinger band is likely to be close to a significant high, but it's interesting regardless. 

What I would add to that however is to say that if you screen these to select only the examples where the punch occurred when the weekly RSI was over 70, the list shrinks to the following examples:

• Q3 Start 1998 - At the 1998 interim top made over the next week
• Q1 Start 2004 - Rose another 40 points into the Q1 high over the next few weeks
• Q2 Start 2010 - Immediately preceded spring 2010 high made next two weeks

Of these three remaining examples, none were followed by bull market highs, but all were followed by retracements that tested the weekly lower bollinger band, currently at 1450, and the daily 200 MA, currently at 1480, with the exception of the 1998 retracement that tested the weekly lower bollinger band when the 200 DMA was a further 175 points or so lower than that. 

In summary therefore, history suggests that we should see a significant interim top within the next 50 points or so, and may be making that top now. After the top is made the weekly lower bollinger band should be tested before the next leg up of this primary bull market from October 2011. Will this happen? I hope so, but it's also worth noting that the Fed wasn't pumping $85bn per month into assets on an indefinite basis in any of these previous examples. Here's the 1998 - 2005 chart:

What are the chances that this interim top is right here? There's not much to suggest it here on the daily chart, though there is a little negative daily RSI divergence. It's also worth noting that the obvious reversal level would be the two resistance trendlines I've been mentioning in the 1690-1720 area. The lower of those is marked on the daily chart below:

However, before any significant interim top there tends to be a practice spike down before the main high, and the prospects for that here are looking more promising. My rising channel on the SPX 60min 

chart is still holding, and there is now some decent looking negative 60min RSI divergence on this chart. I have a possible H&S neckline in the 1648.60 area, just above rising channel support:

There is also some negative RSI divergence on the ES 60min chart at the high yesterday. There I have rising support in the 1644 area and the possible H&S neckline in the 1646 area. The 50 hour MA in the 1662 area has been tested extensively this morning but is holding so far. The prospects for some downside here will improve considerably if we see ES close an hour below that:

CL is still in the key inflection point area but there is now a promising looking double-top that may deliver. If we see a move below 92.13 the double-top target would be in the 87 area and I'd be looking for a move below 86. NOTE: I've charted this on the June futures which expire today:

DX has been testing the area of the 2012 high, though that has already been repeatedly exceeded, and there is some vulnerability here. I would like DX to break this area with confidence soon and am expecting to see that happen:

This move up from November has been so strong that I am now considering seriously the possibility that we won't see a decent retracement (and buying opportunity) on equities until QE Infinity is scaled down. If that isn't the case then the historical case for a significant interim top soon is a strong one. We'll see how that goes. That case would be strengthened by a smaller reversal soon as we generally see one of those not far from a significant interim top.