Bears were very excited about the pullback from the double-top
yesterday. I've been considering this carefully this morning, and the
evidence for an imminent pullback doesn't look overwhelming to me as
yet. The bear case for the next few months is very compelling, is
supported by numerous patterns, and it has economic logic behind it, but
it still isn't necessarily going to happen.

One of the most compelling patterns for it is the possible bearish
gartley pattern building on SPX. Here it is in its full glory:

This pattern came into focus when the move from March 2009 peaked at
an almost perfect 61.8% retracement of the 2007-9 bear market. While
most would doubt that we could move down to the 870 area and then move
back up to challenge 1350 to complete the pattern, I think it looks very
feasible as the first leg up would be QE1, and the second would be QE2,
with the whole forming an ABC corrective move before another bigger
move down. If SPX drops back below 900, I would expect that there would
be another big stimulus package and the quantitative easing printing
presses would be run round the clock to try to reinflate asset prices in
the fond hope that this would revive the economy. That would probably
work, for a while at least.

After a year or so of QE2, and the unprecedented fiscal blowout that
went with it, I'd expect a bond market revolt to rein in  government
spending and to shut down the printing presses, and then we'd have the
final bear market of this secular bear market cycle, uninterrupted by
these tedious and counter-productive keynesian interventions.

I'm working on a full post fleshing out this scenario and will definitely have it posted this weekend.

Short term I'm seeing no technical damage as yet to the  multi-week
uptrends in the two most important markets that I am watching, namely ES
and EURUSD. ES is still in the rising channel that I proposed as a
likely candidate at the beginning of last week. Support is at 1074.5
today, and only a close below it would unambiguously open the path to
new lows. The increasingly impressive looking IHS that I suggested might
form three weeks ago with a bounce off 1130 ES to make the right
shoulder is now well advanced and looking increasingly scary from the
bear perspective:

EURUSD is much closer to a breakdown, and tested support on the
broadening ascending wedge again last night, but support held, and only a
close below that lower wedge trendline, currently at 1.279, would open
the path to new lows for 2010:

Short term on ES the double top that we have seen on ES the last two
days, coupled with the three bounces off the strong resistance turned
support level at 1084.5 since ES broke up through it, give the look of a
(70%) bullish rectangle with a target at 1112.5. A break downwards with
conviction through 1084.5 would open the way to a test of main rising
support since the July low at 1074.5. A conviction break of 1074.5 and
close below it would clear the technical path towards new lows for 2010
with a likely target IMO below 900 SPX, but I'm not going to get excited
about that until I see it happen:

The copper chart still looks fairly bullish, as the broadening
descending wedge defining the recent pullback broke upwards last night,
and the action over the last few weeks has something of the look of a
bullish pennant. We hit a major resistance area overnight though, and we
could easily see a pullback here:

As I write I see that ES has plunged down to test 1084.5 again, but it
is holding so far and EURUSD has been moving up while ES has fallen.
We'll see how that develops today, but on a swing trader basis, there's
nothing to see here yet.