Relatively Bearish Friday

I was saying yesterday morning that the statistical odds were stacked against the bear side yesterday, and that the stats suggested that Wednesday's bearish engulfing candlestick on SPY was unlikely to confirm, which of course it didn't, in a day where most of the previous day's losses were regained. While Thursday has been the most bullish day of the week since the October low however, Friday has been the most bearish with, within a strong 300pt+ uptrend of course, 11 up closes and 9 down closes. I would note however that 5 of those up closes were in the 19-24 range, with a net 84 points made on all Fridays during this period, so overall gains on Fridays have been above the 60 point average for weekdays over this period.

Nonetheless, if bears are going to impress anyone this week, this is the most likely day, and there is a promising  double-top setup on ES that I'll be watching if there is any significant move to the downside:

On SPX we're still crawling up the resistance trendline of course, and I have resistance in the 1380/1 area today. That's a very strong resistance trendline, and when I've seen trendlines like this in the past they have tended to hold until the end of the uptrend:

I was looking at the RUT this morning and was interested to see that it has broken the support trendline from November. Against that the current consolidation zone has the look of a bull flag, and while RUT has been making lower highs, there have not been any significant lower lows yet:

On other markets EURUSD has now made the small double-top target at 1.3245 and I'm looking for a hit of the rising support trendline from the October low in the 1.3135 area. The positive divergence on the 60min RSI is something I've been watching for the last 100 pips of decline and is a possible signal that EURUSD may reverse back up without hitting my main target:

A bear flag is forming on gold and I'm optimistic about seeing gold hit my main target in the 1600 area. That would be a solid looking long entry into a bull market with great fundamentals as central banks round the world continue to work printing presses overtime. If gold breaks below 1600 that would suggest a move to new lows, and while that wouldn't change the fundamental case for gold at all, it would be strongly suggesting further weakness in the short term:

I was saying yesterday morning that that Wednesday's retrace on oil hadn't done any technical damage to the uptrend and we saw a wild spike up in the afternoon to a marginal new short term high. That has set up a potential double top and I'm watching short term rising support in the 105.85 area. A break of that would do significant technical damage to the current uptrend, and might trigger a retracement to rising support from October in the 100 area:

The last two charts today are bigger picture charts. The first is my Dow Theory divergence Dow vs TRAN chart, which is at an interesting stage as we have been seeing some convergence between the two in recent days. Short term the Dow is testing support on a five week rising wedge (bearish), and TRAN is testing resistance on a five week broadening descending wedge (bullish). I'll be watching for breakouts here but I need hardly say that a break up on TRAN or a break down on Dow here would be a strong signal for direction over the next few days:

The last chart is a superb chart from my twitter friend Gann360, who used to blog under the name Joe8888. The chart looks at the impulse waves up since 2009 and how long each one lasted without having at least a 3% correction. There have been four such big moves since the first spike from the July 2009 low and they lasted between 50 and 56 days without that correction. Joe did this chart yesterday and as of yesterday the current uptrend on SPX had gone 51 days without a 3% correction. If you use twitter and like interesting charts I'd strongly recommend following Gann360, and in fact I initially joined twitter to follow him.

I'm leaning short today, as EURUSD is still trending down hard and the immediate setup on ES looks weak. I'm doubtful about seeing that persist into next week as EURUSD is now not that far away from my target trendline, and if we see EURUSD bounce strongly there then any downtrend on SPX would be fighting against an uptrend on EURUSD. Looking at my longer term EURUSD and USD charts I'm doubtful about seeing a serious break down on EURUSD as yet.

A Promising Start

Yesterday's bearish engulfing candlestick was on SPY daily chart was a refreshing change of pace. SPY gives a much more accurate picture of opening and closing positions than SPX due to data feed issues at Stockcharts and most other places. No idea why that should be but I've corresponded with Stockcharts about it and they tell me there's nothing they can do to correct this.

As we saw with (cough) AAPL the other week, a bearish engulfing candlestick needs to be confirmed with a lower close the next day. The stats for this aren't encouraging from recent history. This is the sixth bearish engulfing candlestick on SPY in the last 18 month, and not one of the last five confirmed with a lower close the next day. Of those five only one (November 2010) was at the start of a significant retracement. These stats are from an excellent chart posted by my friend Cobra at his subscriber site.

In terms of other stats for today, Thursday has been the most bullish day of the week since the October low, and the first day of the month has been 60% bullish since the March 2009 low, though as I mentioned yesterday, seven of the last twelve of these have closed down, with two up and two down since the October low.

Nonetheless there was a lot of technical damage done yesterday, and I'm working on the assumption that we will finally see some retracement on SPX over the next few days unless we see a new high made. The Gap Guy likes the odds for the gap fill today.

If this is the start of a retracement then my preferred target would be a 38.2% fib retracement of the move since Dec 19th, which will intersect with the rising support trendline from the October low on SPX in a week or so in the 1311 area:

The H&S on the Transports index is still in play and that would target the 4900 area:

I did mention that gold was looking short term toppy yesterday morning but was surprised when the move down took both gold and silver through obvious and strong support. I'm leaning towards more downside on gold and the obvious target would be strong double support in the 1600 area:

The little double-top I mentioned on EURUSD as a possibility yesterday morning is playing out towards the 1.3245 target. I have trendline support from the low in the 1.315 area and I think that's the obvious overall target. Short term there is some positive divergence on the 60min RSI suggesting a bounce or the formation of a bear flag:

Vix is looking bearish (for equities) to my eye here. The big falling wedge is still in play of course but in the short term a little IHS is forming with a target in the 22 area if it completes and breaks up:

I mentioned yesterday morning that the short term uptrend on ZB was breaking down and we've seen a sharp drop since then. The obvious support and target is in the 139'15 to 140 area:

As with gold there was a sharp move down on oil futures yesterday. Unlike gold, the low was at obvious support and unless we see a break lower there's no immediate technical damage to the uptrend on CL to my eye:

Just to recap on the prospects for today, the odds for a gap fill are good, and while I'd very much like to see a lower close, the stats are suggesting that a higher close than yesterday's on SPX is more likely. We have been seeing a very strong pattern in recent weeks of a counter-trend move in the first hour followed by a move in the direction of the trend for the remainder of the day. Mostly this has involved early lows followed by a push to new highs. Yesterday was the reverse of that and the direction of the move in the first hour may therefore signal that the remainder of the day will go the other way.