Daily Archives: August 11, 2010

Don’t Play The Gap Fill Today (by Springheel Jack)

By -

SPX spiked up strongly after the FOMC announcement stated that the
economy is so weak that the Fed is going to be printing more money, but
even this good news wasn't enough to sustain the market long, and
overnight ES broke both yesterday's low and last Friday's low. In the
short term ES formed a small head and shoulders pattern yesterday with a
target of 1096 ES. That is also the level for the gap fill from last Monday's gap up and a strong candidate for a likely area to see a bounce today:

100811_ES_60min_HS_Pattern

On the bear side it is excellent news that the strong support level at
1104.5 ES broke on an hourly basis overnight, and even with a recovery
above it the path further down looks wide open now. While we haven't yet
seen a daily close below the ES / SPX rising wedge, it no longer seems
credible to think that the wedge has not broken downwards:

100811_ES_Daily_Rising_Wedge

I won't repost any of the updated forex or oil charts from yesterday.
They're all playing out as I suggested then, and Oil and AUDUSD are both
now testing the first weak level of support that I indicated. EURUSD
and GBPUSD are both halfway to the stronger targets that I indicated.

We therefore now have a confirmed wave up in USD at the same time as a
confirmed wave down in equities, and that, as I've mentioned before, is
when we see big moves down in equities. On that basis I'm somewhat
doubtful about either of my first ES support levels at 1084.5 or 1070
holding, and Pug's alternate
count target near the very important support level in the 1040 SPX area
looks the most likely to be reached. I'm expecting that we will see a
fast move downwards over the next week, with a bottom being made between
Monday and Wednesday next week in time for a bounce into opex on
Friday.

I have a couple of other charts to share today that look interesting.
The first is the CADUSD chart, where I posted a symmetrical triangle
that was breaking up last week and mentioned then that I hate trading
these triangles because they often break out one way before resolving in
the other. That appears to be happening on CADUSD now and it will be
interesting to see whether it will make the downside triangle target at
0.92:

100811_CADUSD_Daily_Triangle

Denizen mentioned yesterday that there is a huge head and shoulders
pattern on copper, so I had another look at the chart on a longer term
basis, and he's absolutely right. I've redone the copper chart showing
the bigger picture:

100811_Copper_Daily_Targets

The copper chart is one to watch carefully. For the bull case, the first
rising channel target near 310 should hold, but if it doesn't the next
obvious strong (declining) support level is near 260, which would be a
new low for 2010. If that breaks and then confirms by breaking 252 (3%),
then the H&S target is 180, which would have far-reaching
implications.

Copper is one of the more important indicators to watch for the medium
term bull case and I'll be watching the rising support trendline at 310
very carefully. If it breaks then the bull case may be in trouble, and
if copper should reach declining support at 260 then it will be in very
serious trouble.

Another indicator that I'll be watching is EURUSD. My view is that
EURUSD is just retracing during a bull move towards a wedge target in
the 1.46 to 1.50 area. If I'm right, then I'm expecting rising support
for EURUSD in the 1.275 area to hold. If it doesn't then the bear
scenario over the next few months will look a great deal stronger.

Uptrend Clearly Broken

By -

Well, I was watching with great interest last night as the /ES kept inching down. I woke up at 4 this morning and was delighted to see things were much lower, with the /ES presently down about 16 and the Euro getting hammered. This is a morning when it's nice not to have so-called "insurance." I am 170% short.

So the crucial support level of 1103.50 is being banged against, now that the ascending trendline is shattered. It'll be interesting to see what the International Trade figure does at 8:30 EST.

0811-es