Daily Archives: August 16, 2010

Starting to Bounce Perhaps (by Springheel Jack)

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I'm expecting the week, broadly speaking, to play out as follows. Today
I'm expecting to close up, though that definitely doesn't preclude a
heavy fall in early trading, we may see a retracement downwards
tomorrow, and then I'm expecting to rally from Wednesday into opex. The
strength of that rally will tell us a lot about what comes afterwards,
but increasingly I'm leaning towards seeing a strong fall below last
week's lows next week.

EURUSD held wedge support and may well bounce here to form the right
shoulder on a big H&S pattern indicating to the 1.213 area. If
so, I'd expect a bounce into the 1.30 area to make the shoulder:

100816_EURUSD_Daily_BA_Wedge_and_Potential_HS_Pattern

AUDUSD bounced at the important 88.5 support level overnight and I'm expecting a bounce back up into the 90 area:

100816_AUDUSD_Daily_Rising_Channel

GBPUSD pinocchioed through the wedge support trendline overnight, which
was a signal that the wedge may well break soon, but has regained 1.56
since then and looks likely to bounce here:

100816_GBPUSD_Daily_BA_Wedge

Oil reached the lower trendline of the rising channel and has bounced at support there:

100816_Oil_Daily_Rising_Channel_and_BGP

So the USD currency pairs and oil are looking cautiously bullish for the
start of the week, which fits in with my expectations so far.

I'm not at all convinced that ES has found a bottom overnight however,
and even though I'm expecting a fairly high degree of inverse
correlation between USD and ES over the next few weeks, that won't
necessarily be the case every day. A number of EWers were looking at a
bounce level at 1069 SPX. We may see that level near the start of
trading today and if it is broken with much confidence then we may fall
to test the next key support level on ES at 1050. This support level
looks very attractive because it marks the neckline on a potential
H&S pattern that would indicate to 970, and in the cold light of
day it looks the obvious target for ES from here unless we see a strong
bounce on ES / SPX from near the open today:

100816_ES_60min_Possible_HS_Pattern_Forming

Something that backs that target up is the chart for 30 year treasuries,
which I've been looking at again this morning. These have been flying
up over the last few days, and have made a lot of progress overnight. On
the daily chart I've marked in a rectangle which I posted in mid-May,
and that has a target at 134. In the shorter term I have a rising
channel with a target at 1.35. This move up doesn't look complete to me,
and if it continues to rise strongly towards 135 today, then I could
definitely see equities falling in response, and as I said, 1050 ES
looks like a very strong target if that is the case:

100816_T30Y_Rectangle_and_Rising_Channel

Overall the charts are starting to look very bearish, and we're close to
the point where I may upgrade the bear scenario for the rest of the
summer to being my primary scenario. In the interim buying the dips is
looking increasingly dangerous.

Fickle Futures

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It's still pitch-dark here in Palo Alto, but I'm eager about the week ahead. As I went through all my charts (which I actually did twice this weekend, just to smoke out all possibilities), I was amazed to see how many bearish setups have formed, even with the recent selloff. The market looks exceptionally vulnerable.

Although Mondays have acquired a reputation for Always Being Up, that truism is – as Bernanke might say – unusually uncertain today. Futures have bobbed between being up 6 points to down 6 points since /ES trading opened late Sunday. As I sit here, it certainly doesn't look like the bulls will be off to the races at the opening bell.

0816-es
 

I've highlighted the long series of black candles from late in June to illustrate how we seem to have clicked into the same mode again. I'm pretty sure we're going to get close to 1,000 again. The real question is whether we will break it and get to my long-hoped-for 925 level. It's going to take some new news to get us there, and nobody knows what that could be.