The Case for an Interim Top Here (by Springheel Jack)

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The non-farm payroll numbers are out before the open this morning and
while yesterday's numbers suggest that they won't be good, we may see
the usual trick of announcing flat to weakly positive numbers, with a
revision down quietly a few weeks down the line.

It is anybody's guess what the market reaction today will be, but as we
move closer towards the tip of the rising wedge on ES, the range is
getting tight, and resistance at 1130, which has held all week, may
still hold for this interim top to be made here. It may also be
significant that the rising wedge on the daily ES RSI, which I have
marked on my ES chart, is breaking down out of the wedge already:

100806_ES_Daily_Rising_Wedge

I've been taken aback by the large number of analysts and traders that I
respect calling for a move to the 1150 to 1170 area before the next
interim top is made, and I have been giving my various charts a thorough
workout to see if I can see a good argument for that, but I can't. In
terms of the ES rising wedge particularly, a move to that level would
involve a break up from the wedge that would go beyond a credible
overthrow, and if that happens then I'm seeing a rapid move to new highs
on SPX over the next few weeks.

Now I don't see that rapid move to new highs as high probability for a
number of reasons, but the key reason is USD, which has been in a steep
swandive from the high eight weeks ago, losing 10% of its value, which
is a very big move for USD in a very short time. I simply don't find it
credible that this plunge can continue without any significant
corrective move, and when that move happens, given the matching rising
wedges on EURUSD and ES, I'm expecting a move down on ES as well. Here's
the USD falling wedge on the daily chart:

100806_USD_Daily_Falling_Wedge

EURUSD is in a mirror rising wedge of course, and is close to the rising
support trendline on that wedge. I've been watching for a support break
on it, and we're close, if EURUSD makes it down below 1.31, then the
wedge will look broken, though a daily close below it would be needed
for full confirmation. It needs to break down here, as a move to the top
wedge trendline at over 1.34 would seem likely to push ES up beyond the
top trendline of the ES rising wedge:

100806_EURUSD_Daily_Rising_Wedge

One thing I'm watching closely here as well is AUDUSD, as that is in a
much smaller rising wedge, within short term and longer term rising
channels, and a break of that wedge would be a significant topping
signal IMO. It is very close to a break at the moment and I am looking
for an hourly close below 0.913 to confirm a break:

100806_AUDUSD_60min_Rising_Wedge

Of other currency pairs that I watch, there's no rising wedge on GBPUSD,
but it looks very much as though it has topped for the moment within
the steep rising channel from the low just over 1.42:

100806_GBPUSD_Daily_Rising_Channel

On the commodities side, copper reached my IHS target at 337 on Monday,
and has since stalled just below resistance at 340. I don't have
anything to suggest that it will fall, but I no longer have anything
suggesting it will rise either.Oil on the other hand clearly looks to
have topped within the recent rising channel, though there is a little
play in the top trendline.

100806_Oil_Daily_Rising_Channel

All in all, I still think we are at or very close to an important
interim top, and I'm seeing a move back down towards a possible target
at 1070 ES, but very possibly declining no further than 1084.5 ES.

My alternate scenario is one where the ES rising wedge would break up,
and we would move to a target in the 1250 ES area over the next few
weeks. I'm very doubtful about that as it would imply a move directly
back to last year's USD lows without any significant retracements. I'd
be the first to concede that USD is a dog, and that the US government is
both willing and determined to debase it in pursuit of the doubtful
proposition that asset inflation will deliver prosperity, but EURUSD is
no oil painting either, and big moves down in USD historically don't
tend to come as near-vertical plunges.

In summary I'm leaning short today, and will be watching EURUSD and
AUDUSD particularly for early signals that the ES rising wedge will
break downwards.I have a short term rising resistance trendline at 1129
ES, and if we get there I will be trying a short from 1128.75 with a
stop at 1030.5, just above the June high. If that falls and we reach the
top of the ES rising wedge, then I'll be shorting from 1134.5 ES as a
swing trade. If we then reach 1140.5, or close an hour above the rising
wedge trendline currently at 1134.75, I'll cut my shorts and watch to
see whether the rising wedge is breaking up.

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