One Step Beyond

I'm on vacation in very rural southern England this week. The weather is pretty good (for the UK) and the scenery is lovely. The internet connection is rather slow and strongly reminiscent of the mid-90s, but I have enough connectivity to do a short post today.

Obviously there hasn't been much progress to the downside in the last few days, but there are still some very promising short term topping patterns on multiple US equity indices and SPX has not yet reached the obvious retracement targets after the recent rising wedge break. Those targets from the daily chart are the daily middle bollinger band at 1667 or the 50 DMA at 1645. Having moved as far from the daily upper bollinger band as SPX has, I would normally expect a hit of one or the other. SPX daily chart:

On the SPX 60min chart there is a decent looking H&S forming after the rising wedge break. If it breaks down the target would be in the 1650 area, which would be a good fit with the 38.2% fib retracement target at 1646. SPX 60min chart:

I've mentioned before that I'm working up the stats on a new trendline reversal setup called the DTR or double-tap trendline reversal. That's where a trendline runs from a high through the most important rally high and the last touch is a retest of the trendline after breaking up.So far this seems to be a very reliable signal for trend reversal and I have one of these on silver at the last low. I'm watching for a break above current declining channel resistance to confirm, but there is now a very good chance in my view that a major low is in on silver, and by extension on all of the precious metals. I am still a longer term bull on precious metals so this is a very attractive looking buying opportunity to my eyes:

I have another DTR on TLT on the last retracement, though not quite as perfect as the one on silver. I am still leaning strongly bullish on bonds over the next few months unless TLT breaks strong support in the 105/6 area:

It's easy for SPX to drift up in low volume conditions but much harder for SPX to fall. I'm still leaning short for the moment and if we are to see more downside I would expect the H&S on SPX to break down in the next day or two. Alternatively we might see the high tested to form the second high of a double-top. If we do that however there is an obvious danger that SPX will just keep on going upwards. The 50 hour MA on ES is at 1682 and held as support overnight. While ES holds above there the bulls have an edge.

Bear Goggles

I don't know whether there's an equivalent term in the US, but in the UK the term beer goggles describes the process whereby drinking a sufficiently large amount of alcohol can magically transform otherwise uninteresting members of the opposite sex into interesting and highly attractive people. The effect is temporary, but can be very strong.

Yesterday I suffered from a related condition called bear goggles. This is the process whereby a support break suggesting a seemingly imminent strong decline can transform otherwise uninteresting trade setups into compelling and highly lucrative investment opportunities. The effect is also temporary and sadly does not extend to these trades being profitable. I had a good day overall but it should have been a really very good day had I not fallen into the bear goggles trap of ignoring the well signaled intraday long setup on ES because the main decline must surely be imminent.That I consequently became irritated and went flat early to also miss the well signaled pre-close decline was a reminder that trading should always be done coolly and objectively.

In part this is because I have one day of trading left before I go on holiday and having been lovingly tracing the setups for a retracement from here for a couple of weeks now, it's increasingly likely both that this retracement may well  happen, and that when it does, it may well happen while I'm away in the land the internet forgot. That's life.

On to the markets where there were some very significant breaks down yesterday. NYA and INDU are still hanging tough, though also showing the very strong negative 60min RSI divergence that can be seen across all the main US equity indices. RUT, NDX, COMPQ and WLSH had already broken down from their patterns from the June low of course, and both TRAN and SPXEW also broke down from their rising wedges yesterday.

What of SPX? Well the low just before the close was an almost perfect touch of rising wedge support from the June low, and if we now see that rising wedge break, the retracement I've been looking for should be in progress. Short term however SPX could obviously bounce at wedge support and wedge resistance is now in the 1710-5 area. As I showed yesterday the ideal target on SPX would be somewhere in the 1645-55 area, and I mentioned a possible path via an H&S forming at a candidate neckline in the 1672 area. SPX 60min chart:

When we see that break on SPX, possibly the best looking short setup on the equity indices will be on TRAN, where the obvious target is at 61.8% fib retracement of the move up from the June low rather than the 38.2% fib retracement moves that seem likely on SPX and WLSH. TRAN 60min chart:

On other markets my GC (gold futures) short setup broke up yesterday, and that was bullish. This trade was a decent winner for me in any case as I shorted down to 1328.1, exited at the clear short term low there and then waited for another short entry that never came, but I was disappointed that a setup with a possible 180 handle drop melted away. I have one remaining short term bearish option on gold and that is the equivalent declining channel on the RTH (real trading hours) $GOLD chart. If that breaks up then the next obvious target would be the 150 DMA, currently in the 1500 area. I'm watching this carefully but in the meantime would note the increasing negative divergence on the GC 60min RSI. This could still break either way. Gold daily chart from 2008:

I've been watching the rallies on GBPUSD and EURUSD carefully and there is currently no real sign of those topping out. That being the case there is a possibility on the USD chart that I should raise, and that is the possibility that USD is forming a broadening formation on which the next trendline target would be below 80, with the strong support levels below at 81/2 and 78.6 to 80. I have current rising channel support in the 79.3 area, and if that was to break, then there is a possible double-top in play with a target in the 72.14 area on a conviction break below 78.60. I'm hoping that USD may hold the 81/2 level, but if not the uptrend from the 2011 low is in at least some doubt. USD daily chart:

I'm very keen on the long bonds swing trade here, but bonds have been meeting resistance and showing some weakness there. Rising support from the low on ZB broke overnight and I have a broadening ascending wedge from the low on TLT. That's a bearish pattern of course, and if we see it break down we could see the TLT lows retested. As long as 105/6 area support holds on TLT I would still lean bullish overall here, but if that should break I then have a pattern target in the 97 area. I don't often talk about fundamentals, but I should mention that there is a clear inverse correlation between QE and bond prices, so decreased talk of tapering is bearish for bonds. TLT 60min chart:

AAPL earnings were announced last night, and weren't good, but that was expected. AAPL rose in the after-market and as long as we don't see a sharp decline begin to take out the current lows, the bottoming setup on AAPL is still intact. On a clear break above 463 that has a target in the 540/50 area. AAPL 60min chart:

ES is trying to recover above the 50 hour MA as I write, and has closed an hour above it. If it can hold above the 50 hour MA then the short term initiative is back with the bulls, and I should mention the potential bounce targets from the SPX hit of wedge support yesterday afternoon. On the SPX 60min chart wedge resistance is now in the 1710-5 area as I mentioned, and the other key resistance level to consider is the weekly upper bollinger band, now at 1706 but possibly as high as 1711 by the close on Friday. Closes much above that are rare so that is a solid resistance level, albeit one that can rise at 10-15 points per week in a strong uptrend.

While I'm showing the SPX weekly chart I'd like to mention again that my lower target for the next major high, and potential bull market top, is now in the 1740-50 area at a possible channel trendline that will cross another major possible channel trendline in that area in a few weeks. There are also strong resistance levels on Dow and TRAN that should fit with that area so as and when we get close to there I will be watching for a possible major reversal. If we see that then I would expect that to be followed by the test of the SPX 200 DMA that we didn't see at the June low. SPX weekly chart:

I will be around some of the time today but after that I'll be on holiday until the end of next week. I will be posting some charts on twitter while I am away and a post or two if I can. Normal service will resume Monday 5th August.

Running Out Of Road

I was looking at the short setup on GC (gold futures) this morning and thinking how much better it was than the short setup on equities here. That's for a couple of reasons. Firstly Gold is still either in a downtrend or in a bottoming process, and a rallies in a downtrend delivers better short setups than waves up within a strong uptrend. The second is of course that the Fed aren't on constant watch to try and support the Gold market if it sniffles or soils a nappy. The short setup on GC today looks absolutely peachy, with a reversal so far at double-channel resistance on clear negative 60min RSI divergence. The obvious target is first a retest of the strong 1300 level, then on a break below I have rising channel support in the 1266-70 area, and on a break below the rising channel I'd be looking for a test of the lows within the overall declining channel. I shorted GC this morning at 1334.1 and there may well be another chance for a very nice short entry on GC later on today. GC 60min chart:

Back on equities, if we are to see a retracement soon, and this is a very nice looking setup to see that, then it will need to start shortly, and I have a provisional path for that to take. SPX has now fallen well away from the daily upper bollinger band, albeit only because the band has kept rising as SPX has stalled, and if SPX breaks below short term rising support the obvious target is the daily middle bollinger band, currently in the 1644 area. SPX daily chart:

That is a decent fit with what I am seeing on the SPX 60min chart, where there is limited room remaining within the current rising wedge. SPX could still test the 1700-5 area within the wedge but if we see a break below wedge support, currently in the 1685 area, then the obvious next target would be the candidate H&S neckline in the 1672 area. An M top or H&S forming there would target the 1645 area, which is also the 38.2% fib retracement area for the move from the June low. SPX 60min chart:

The question is of course whether we are going to see that reversal on equities. Other indices look promising. COMPQ (Nasdaq composite) has already broken the rising wedge there with some confidence, though there is obviously quite a bit of gap support below. COMPQ 60min chart:

WLSH (Wilshire 5000) has also broken down from and retested a good quality rising wedge on considerable negative 60min RSI divergence. As with SPX there is a clear candidate H&S neckline with a target at the 38.2% fib retracement level. WLSH 60min chart:

TRAN hasn't yet broken down but again there is a good rising wedge there as well and strong negative 60min RSI divergence. There is another clear candidate H&S neckline which would have a target near the 61.8% retracement area. TRAN 60min chart:

On SPXEW (equal weighted SPX) The rising wedge tested wedge support yesterday and there is now so little room left on the wedge that we must see a break one way or the other in the next couple of days. Again there is strongly negative 60min RSI divergence, a clear candidate H&S neckline, and an obvious path to the 38.2% fib retracement. SPXEW 60min chart:

On other markets I'm looking at CL this morning as it has now retraced all of the spike up from the bull pennant a few days ago. It is hitting serious support in the 106 area and if we see a break below 105 I'd be looking for a retest of 100. There isn't the negative RSI divergence on the daily chart that I have been looking for, but then there hasn't been an RSI high as high as the last one in the last year either. CL may well be now in a retracement with an obvious target in the 100 area. CL daily chart:

I won't post an ES chart today but I will mention that I have a weak downward bias because of the SPX 1min chart setup at the close yesterday. The ES 50 hour MA is now at 1689.50 and the first step in any decline is to see an hourly close significantly below that. If we should see that then there is a possible short term double-top in play with a trigger level at 1685.5 and a target in the 1675.50 area. ES rising support from the June low is now in the 1676 area (good fit) and if we reach that SPX rising support from the June low will already be broken. It would be very nice to see that retracement on equities start today but as with any reversal setup in a strong uptrend, it may not actually happen, and my two major targets for this move up are still well above in the mid to high 1700s.

It turns out that I'm not going away until Thursday so I'm planning a post tomorrow, though it may be short. While I'm away I may not be able to do more posts but I will be checking in every day and will at the least post some charts on twitter. This will be important as if we do see this retracement that I'm expecting, and if it is just a retracement, then we should see a decent pattern form to indicate when (or possibly whether) to buy back in.

Inflection Point Here

If we are to see a retracement shortly, or indeed if the bears are to get the double-top they are looking for, then this is the place to see it. At the least we should start seeing more two way action here now because SPX closed just under the weekly upper bollinger band on Friday. Weekly closes above this are rare, and even in a strong uptrend this can only rise 10-15 points per week, so more two way action now is likely. SPX weekly chart:

On the SPX 60 min chart I have trendline resistance in the 1697-1700 area, and a lot of negative 60min RSI divergence. SPX 60min chart:

On other US indices we are seeing the same negative RSI divergence and some signs of breakdown. NDX broke trendline support first but WLSH and RUT also both broke trendline support from the June low on Friday. Here is the break below the very tight rising channel on the RUT 60min chart:

ES was strong overnight, peaking at 1694.25 before some retracement. if we are to see a short term high today I'd be looking for marginal higher high today on negative 60min RSI divergence. If that is in trading hours that shouldn't go much above 1700 SPX and the retracement from there should at least hit rising support from the June low, now in the 1670 area. ES 60min chart:

Last chart of the day is the CRB commodities index, which is now testing declining resistance from the 2008 high. This is a major trendline and a break above might well be a major break up for commodities. One to watch. CRB daily chart:

I'm posting this very early because I'm going to be out until late in the day now. I'm expecting to see a short term high today, though this market is very strong and this might not happen. As I am expecting higher afterwards this might in any case be a better buying opportunity at the retracement low than a short opportunity from the high. As ever the bulls have the edge as long as the ES 50 hour MA holds, and that is now n the 1683 area.

Short Term High Looks Close

ES reached the 1688-90 target area I gave yesterday morning and reversed there. That could have been the short term high that I'm looking for, but if so then I would have expected the 50 hour MA to be tested overnight and break. As it is it was tested overnight and held, and ES has bounced back to 1680 at the time of writing. If that continues to be the case today then we may well make a new high not too far above and I am running two scenarios for that. The more bearish scenario has ES making a high in the 1693-6 area today and then dropping back below 1691 (weekly upper bollinger band SPX) by the close. This should signal a 30+ points retracement, and possibly as much as 50 points. The second scenario is that we make a high near yesterday's high for a short term double-top. This is less ambitious and would just target a move to rising support, currently in the 1666 area but rising about 6 points per day. ES 60min chart:

Which scenario do I favor? The more bearish option from the SPX and other equity index charts, and partly that is based on a very interesting trendline development yesterday on SPX, SPXEW and TRAN when these indices, which had all been missing strong resistance trendlines, all established strong rising wedge resistance trendlines at the high yesterday. This is a strong signal that a significant reversal is close, and that the high yesterday may have been the short term high. If so then confirmation will come with the break below SPX rising wedge support in the 1670-5 area. SPX 60min:

I have mentioned several times that I am not expecting this to be more than a short term reversal, and that is because we have not reached the obvious target area for the current move up. I posted one scenario for that last weekend and I have since identified an alternate to that scenario. Both are shown on the chart below and the higher target area is the 1770-1800 area (the chart I showed last weekend). The lower target is in the 1730-50 area and that scenario is a rising channel from the October 2011 bear market low. The higher target is more technically elegant but both are decent options from here. The target is most likely one or the other, though there may of course be a third option that I don't currently have the data points to identify. SPX daily chart:

On other markets the possible bull pennant I was looking at yesterday morning turned out to be ..... a bull pennant. :-) CL broke up hard and as I also mentioned yesterday morning, I have an open target in the 110.50 area. I can't see anything short term suggesting reversal and a small rising channel has formed from the break up. CL 60min chart:

GBPUSD is still grinding slowly upwards and I have drawn in a potential rising wedge resistance trendline that is just a possibility. A break of the rising support trendline would most likely mean that the rally has ended, as and when that happens. GBPUSD 60min chart:

Bonds declined sharply yesterday and that wasn't unexpected. The declining channel has broken up and TLT is now retesting the break. There is already a valid possible W bottom in place but it's possible TLT could retest the lows to establish a better one. If so that would be a strong buy area. TLT 60min chart:

A short term high looks close and may have been made yesterday. If we see a clear break and hourly close well below the ES 50 hour MA (currently at 1677.25) early today then that high should be in. If so then I have marked possible H&S necklines on the ES and SPX charts. If we see early strength then I'll be looking for a high either close to yesterday's high or higher under 1696. The close shouldn't be significantly higher than 1691 as we shouldn't see a close above the weekly upper bollinger band. Let the OPEX shenanigans begin and everyone have a great weekend. :-)

Moving Sideways

We've seen some really boring days on ES recently and yesterday was another of those, with ES spending the entire day testing the 50 hour MA from above. There was a slight break below that overnight but it didn't hold. Here's the ES 60min chart I posted on twitter last night after the close showing the narcolepsy -inducing action for the day. ES 60min chart:

So what are we seeing there? That might have been a bull flag, but if so it would have needed to break up overnight. Equally there is a nice looking possible double-top there as well, but that's starting to look rather stretched and with no sign of real selling pressure so far. On the rising wedge from the June low the next obvious target is the wedge support trendline, currently in the 1660 area, but there's no reason to think that ES and SPX couldn't push up to more definitive new highs before that trendline is hit. ES 60min chart:

If we do see another push up is there an obvious target for that? Yes there is. At the close yesterday the weekly upper bollinger band was at 1693 and the daily upper bollinger band was at 1699. Both are attractive targets for a further push up, and if those were hit then we would most likely see a larger retracement start from there. SPX daily chart:

Rising support on SPX is in the 1655 area, very close to ES rising support, which isn't always the case. There is a possible double-top forming there too and the RSI and trendline setup is arguing strongly for a more definite retracement soon, but we could see a push up to the 1690-1700 area without compromising that setup. SPX 60min chart:

On other markets GBPUSD is settling into a slow rally. The next reversal downwards may well be the start of a very big move, so I'll be watching for signs that the rally is topping out. GBPUSD 60min chart:

There is still a possible double-top forming on CL, but so far it has more of the look of a bull pennant. I am reminded that the next obvious upside target is in the 110.50 area, and that this target has not been tested yet. We'll see how this developed but we are waiting for a break in either direction to help define direction. CL 60min chart:

I've been posting bonds charts every day for the last couple of weeks, and at the risk of boring everyone who doesn't trade bonds, I'll be posting two more today, as I think that this is perhaps the most interesting of all the trade setups that I am watching at the moment. On the 10yr weekly chart TNX hit and very slightly overshot resistance on the broadening descending wedge from 2003, which is often an indication that the wedge will break upwards on the next hit. I gave the target range on 26th June at 27 to 27.25 and the current high is 27.25. There is no negative divergence on the daily RSI, but at the high RSI was over 70 for the first time since 2006. TNX weekly chart:

Will TNX reverse at wedge resistance? I think so yes. The setups on ZB and TLT are supportive, and on the TNX 60min chart we can see a nice looking M top forming on negative RSI divergence. TNX hasn't yet broken below broadening ascending wedge support and the double-top trigger level, but once it does the M top target and the 50% fib retracement level are both in the 21.7 area. TNX 60min chart:

As I've been writing ES has been testing strong resistance in the 1680 area. If that breaks up I'd be seeing the ideal target in the 1688-90 area, and that would be a nice looking swing short entry for the deeper retracement that I'm expecting to start soon.

I'm going to be on holiday from Wednesday next week through to the end of the following week. Normally I would still do short posts every day or two while I'm away, and possibly for that reason my wife has chosen a destination with very limited internet access. I will assess my options when I get there. It may be however that I'm not able to post any charts from Wednesday 24th July through to Friday 2nd August.

First Spike Down

When a high of whatever degree is being reached there is very often a first spike downwards that signals that the push is coming to an end. SPX (or whatever) often recovers back to make a new high, but the seed has been sown and a larger retracement arrives shortly thereafter. I think that's what we saw yesterday in all likelihood.

What makes things a bit less comfortable now is that in May at the high then, I could state with real confidence that we were not looking at a possible bull market top because there was no negative divergence on the weekly RSI. Now that those highs have been tested, and until this bull market ends as and when, that will no longer be the case, and any interim top will need to be considered as a potential bull market top. I don't think that bull market top is close, but that's something to bear in mind. SPX weekly chart:

SPX closed 16 points under the daily upper bollinger band yesterday, so SPX is no longer riding the band upwards. For reasons I'll explain below a deeper retracement starting very soon looks likely so the first support level and target is rising support from the June low in the 1660-5 area and if that is broken, then the next support levels and targets are the 50 DMA, currently in the 1635 area, and the daily middle bollinger band in the 1630 area. SPX daily chart:

On the SPX 60min the rising wedge from 1604 broke down yesterday and, after assessing the setups on my spread of 8 US equity indices, I think it is clear that SPX is forming a rising wedge rather than the rising channel that had looked promising. Main rising wedge support is the next obvious target and that is in the 1660-5 area. SPX 60min chart:

I'm running late today which is a shame because there was a very nice looking W bottom setup when I capped the ES chart with a target at 1679.75, and I was going to highlight this nice looking long setup. As it happens that that target has now almost been made while I was writing though, on the plus side, I played it for a very nice start to my morning. I am looking for a hit of that target on ES today and ideally a new high on SPX over the current 1687.18 high. That would be an attractive looking short entry if we get it. ES 60min chart:

I posted the short term declining channel on 5th July with the comment that I wasn't expecting it to break up yet as there was no clear bottoming pattern. The updated version below shows that bottoming pattern which is now part-formed , and the TLT declining channel is now breaking up. As I have been saying every day, this is a nice long setup within a larger nice long setup. The W bottom target is the 115.40 area on a clear break over 110.80. TLT 60min chart:

I'm out of time so I won't post the GBPUSD chart today, though I'll note that the rally there is extending as expected, and I'm watching for signs of reversal. I'll close today with the CL chart, where I am looking for the second high of a double-top. Ideally that second top would be a marginal new high but we might not get that. CL 60min chart:

I would like to see a new high on SPX today. If so then that would most likely be the second high of a short term double-top, and I would be seeing that as an opportunity to short into strength. I don't think it is likely that this is a very significant high but we'll get a better idea about that from the form of retracement.

Low Volume Crawl Upwards

I understand that yesterday was the lowest volume day of the year on ES, and in these low volume doldrums ES tends to inch upwards as it has been doing since Thursday morning. SPX closed almost five points under the daily upper bollinger band yesterday, though it's still in the right area and I'm not seeing that as a significant sign of weakness yet. SPX daily chart:

On the SPX 60min chart rising support from the 1604 low is now in the 1678 area, and I'm expecting to see that tested today. Ideally that would hold and SPX would then hit rising channel resistance in the
1690-5 area before a decent retracement began. My target for that retracement would be rising channel support, currently just under 1655. The 60min RSI is very very overbought and could use a retracement soon. This is the most overbought the SPX 60min RSI has been in 2013 by quite a margin. SPX 60min chart:

Negative RSI divergence is continuing to build on the ES 60min chart and a rising support trendline has arguably broken, though it isn't a high quality trendline. As long as ES doesn't break below the 50 hour MA, currently in the 1684 area, there isn't a lot to see on the bear side here. ES 60min chart:

On other market I noted yesterday at the break of the rising wedge on CL that we might well see a test of the highs before any follow-through downside and well, here we are. We may well see a new high made on CL here and I'll be watching for signs of the next reversal forming as that could well be a significant decline. CL 60min chart:

On GBPUSD the retest of broken channel resistance has held and I'm expecting the rally from the current low to go higher. The setup since the current rally high is an encouraging looking bull flag. GBPUSD 60min chart:

I posted the GC chart on twitter yesterday and am posting the larger version here today. I know a lot of people have called a low on gold already but I'm not convinced. There's no daily RSI divergence at the current low and GC has not yet reached the obvious target at the 61.8% fib retrace of the 2008-11 wave up. I have GC in a short term declining channel and the next obvious move is a test of declining channel resistance (currently 1350 area) before a reversal downwards to make a marginal new low in the 1135 (GC chart) to 1155 ($Gold chart) area. If we are to see a low on gold anytime soon, that is my highest probability area to see that. GC daily chart:

There's been a decent move up overnight on ZB, and at minimum I'm expecting a test of wedge resistance, currently slightly over 136. RSI is strongly supportive of a break up from this wedge and on a further break over 137 I have the W bottom target just under 142. As I have been mentioning frequently, this could well be the start of a strong rally lasting months on bonds. ZB daily chart:

I'm expecting to see a 20-35 point retracement starting this week, though I think ES could rise another ten to fifteen points before we see that. If SPX reaches channel resistance in the 1690-5 area today or tomorrow I'll be seeing that as an good short entry, albeit I'm not expecting a major top there as I explained yesterday. That retracement would relieve the monotony of the last few days. A firm break below the ES 50 hour MA should confirm that retracement is then in progress.