Looking for Bounce Here

What do the dates 1826, 1843, 1860, 1894 and 1932 have in common? They're all years when the Greeks defaulted on their debts in the last two centuries. Greece has been in default for approximately 50% of the time since it gained independence. The Greeks aren't even particularly remarkable with this track record. Over the same period Venezuela and Ecuador have each defaulted ten times.

Governments defaulting on their debts used to be a common occurrence and it's a useful safety valve for profligate governments that won't balance budgets, and don't mind wiping out a large proportion of the nation's savings regularly. Spendthrift small countries used to default regularly and still do in South America particularly. Sometimes they make a fresh start and behave better thereafter, and sometimes they just do it all over again.

There's little appetite for austerity or reform in Greece, a country where civil servants can retire at 49, and so reluctant to modernize that on the deaths of those civil servants, their pension can be left to any unmarried daughters. It's obviously mad to put serious money from still relatively solvent countries behind a rescue plan that would require greek cooperation. The Euro area may well be dodging a bullet with this referendum, which is apparently unlikely to be held much before Christmas, so the period of uncertainty about this is likely to last a while.

In the short term there are some strong indications that a short term low was put in yesterday. The strongest sign was from EURUSD, which broke and retested the declining channel and I'm looking for a retracement into the 1.39-1.40 area:

30yr Treasury futures broke up through 142 resistance, but not with any confidence yet and a retracement here looks likely. I've put the main targets on the chart:

On the SPX daily chart a bounce here would be at the middle bollinger band, which is an obvious support level. I've marked in a tentative large scale falling wedge but the main trendline on that is the upper trendline at the moment, which would need to hold on any bounce:

On the SPY 15min chart we have a possible sloping H&S forming. The ideal target for a right shoulder would be the 125.80 area, which would also fill the open gap from yesterday morning. The neckline is an important trendline here as a break below it today would suggest a test of main support just above 119:

If we are going to see a bounce today then the key declining trendline to watch is the declining resistance trendline on ES that was tested at the overnight high. That's currently at 1234 and a break above would strongly support that the short term low is in:

SPX obviously made a lower low yesterday and Vix rose an impressive 50%+ from the low to make a higher high. I don't think a significant low is in yet on SPX and we should see at least a lower low on SPX in the next couple of weeks. Meanwhile Vix looks ready to retrace a bit here and the obvious target for that retracement would be a retest of the 30 support level, which is also a gap fill target:

Oil broke the declining channel I posted last week, and has since bounced strongly. After the bounce I'm expecting a stronger move downwards:

Lots of news today which may move the markets including FOMC. The Gap Guy is doubtful about a gap fill on a gap up today historically. I don't think we've seen a significant low yet and expect the real test to come in the 1185 ES, 119.1 SPY, 1190 SPX area. However a short term bounce here is looking good and once declining resistance on ES broken, which it hasn't yet, then I'm looking for a two to four day retracement. After two trend days down the odds for a green close today are pretty good and Cobra's writeup on that last night is well worth reading. You can see that here.

Greek Referendum Plunge

There's little appetite for austerity in Greece, as we've all been seeing from the intermittent riots over the last few months. The Greeks announced yesterday that they would be putting the latest Euro bailout and greek partial default plan to a referendum and obviously the plan may get rejected. I have found no date for this proposed referendum looking round this morning, so this bump on the road may affect markets for quite a while yet.

Kudos to my friend Alphahorn for calling the high and going in heavily short there. He's given me permission to post his current primary count after yesterday's bearish break and he is expecting new lows from here on that count:

He also suggested I post his NDX chart where there's a very nice looking bearish gartley pattern that has now also topped out:

I'm not entirely convinced about the greater bear case here, and I won't be until we see ES break down through major support at 1185 with conviction. In the short term I'm seeing strong support at the potential H&S necklines at 1216.5 and 1185. ES has already made a lower low below 1216.5 since I capped this chart, but 1216.5 hasn't yet broken with conviction. Until it does we may well see a strong bounce here, albeit that bounce may just be to form a right shoulder:

EURUSD has broken support at 1.39, then broken rising support below there. Since I capped this chart it has reached the strong support level at 1.365 and is bouncing there so far. That is also a potential H&S neckline of course:

How seriously am I taking the bear case here? Very seriously. This rally has mainly been about an expectation that a bailout deal would be agreed in Europe, and that deal may now unravel entirely. The support breaks yesterday were serious and there are a number of very large H&S patterns forming. I posted the EEM chart last week pointing out the potential H&S there. Here's the updated chart after a move to where I suggested would be the ideal right shoulder top:

I posted the TF daily chart last week before the last spike up suggesting that we might see a move higher to double resistance in the 770 area. TF reversed there after testing the H&S neckline and broken bull market rising support, and if it moves back to the neckline then that is in the 600 area:

I've posted the big H&S that may be forming on GBPUSD a few times, and while it hasn't reached the ideal level for the right shoulder, the broken rising wedge on the hourly chart is suggesting that it has topped out:

The bulls aren't out of the game yet though. ES is still well over 1185 support and I'm still watching the possible H&S forming on 30yr Treasury futures (ZB). When I capped this chart a couple of hours ago I suggested on the chart that the right shoulder shouldn't really go over strong resistance at 142. That's being tested now and a break with confidence over that would be a major bullish break on ZB that would look very bearish for equities:

ES has now broken below the strong support level at 1216.50. We may see a bounce here but I'm expecting to see main support at 1185 tested during the next few days. The key support levels that I was going to mention today were 1216.50 on ES, 1.365 on EURUSD and 142 resistance on ZB. As I write they are ALL breaking and if that persists into the open then we might well be looking at a test of 1185 on ES before any significant bounce.