Directional Lines in the Sand (by Springheel Jack)

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Intel beat earnings expectations massively last night, prompting some
flashbacks to the bear wipe-out last July and wails of how it is
happening all over again, and that may be right, but it isn't
demonstrated yet, and there are more earnings than Intel's to come in
the next few days. A quick look around us tells us that we are unlikely
to see record earnings all round this year.

The silliest comment that I saw was that technical analysis was no
longer relevant to this market, which is garbage. Even if the SPX rises
to new highs in the next two years, which seems unlikely, there will
still be important trendlines, channels, patterns and indicators to
light the way and supply good trading entries and exits. Only fools
would think otherwise.

Back on planet earth ES reached rising trendline resistance at 1098.75
after the Intel announcement, and has since fallen back to 1090.5. I
have an immediate target of the centre trendline in my ES rising channel
in the 1086 to 1089 area depending on when it is reached:

100714_ES_60min_Rising_Channel

On the bigger picture the best indication that this rally was the start
of a new bull move would be the main indices breaking above the June
highs, though most have now broken declining resistance from the April
top, including ES which broke it yesterday at 1094.5 ES, albeit that
hasn't been broken on a daily basis yet. There are some other indicators
to consider too though, and they are the reason that I was expecting
this rally, if it is a rally, to fail at yesterday's high. I have
serious doubts about that now as this move up has looked so impulsive,
but let's review them again.

The key one is USD. USD and the main component of the USD index, EURUSD
have been in mirror image wedges. Here's the broadening descending wedge
on EURUSD which has not quite reached target, just as the USD one has
equally fallen slightly short:

100714_EURUSD_Daily_BD_Wedge

EURUSD has a history of forming wedges on big moves, and when broken,
they generally play out to target. It is very important for the bear
case that these wedges don't break, as a bear move down against the tide
of a falling dollar would not be easy.

The second key indicator that I am watching is 30 year treasuries. There
we have a strong rising trendline since April that was tested yesterday
and is still intact and it will help the bear case if that remains the
case:

100714_T30Yr_Daily_Rising_Trendline

On oil I've been considering whether we have a rising channel or a
broken rising wedge. The broken lower trendline of the wedge has been
retested hard yesterday and has not broken, which supports the idea that
it is a wedge. If so, we can expect a move soon below $70:

100714_Oil_Futs_60min_Rising_Wedge_or_Channel

Of the USD currency pairs GBPUSD has now reached my target at the upper
trendline of a declining channel from last October. I am expecting it to
turn down here to a target under 1.40 but if it doesn't reverse, that
will be a major bullish breakout, strengthened by the fact that the
upper declining channel trendline goes back to July 2008:

100714_GBPUSD_Daily_Declining_Channel

I posted a possible IHS on AUDUSD yesterday and I am watching that
very carefully, as a serious break up over the June highs would suggest a
target of 92 to me, and most likely a return to the upper trendline of
the larger broadening formation at 94. I can't see that happening really
unless the recent equities low is to hold for several months at least.
The June high held as resistance yesterday and I'll be keeping an eye on
that today:

100714_AUDUSD_60min_IHS

I still think we may have seen a major interim high on ES yesterday,
though I am aware that is very much a minority view at the moment. If
so, we will most likely consolidate that top over the rest of the week
before the main bear event of the year begins.

If not, USD and bonds will break downwards and I'll outline my alternate
bull scenario with a target at 1400 SPX, but we're not yet at the point
where that needs to be seriously considered.

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