I was looking for confirmation that a major decline might be starting
yesterday and I got it when ES broke the rising channel. Looking at SPX
the channel was broken even more convincingly and just to underline the
point the 13/34 daily EMAs recrossed bearishly, backing up the 13/34
weekly EMAs which recrossed bearishly last week:
EURUSD didn't break the broadening ascending wedge yesterday but has
dropped well below it overnight, and has also dropped through the
neckline of the big H&S pattern indicating to 1.214. Short of a
really major recovery today I'm regarding the EURUSD wedge as broken,
and that is confirmation once we see the close today that we are likely
to see new 2010 lows on both ES and EURUSD:
Where we are on EURUSD is of enormous importance in my view as it is
the key inverse proxy for USD. I've posted before on the complex
relationship for the positive correlation between EURUSD and ES/SPX, and
that the moves down on ES move furthest and fastest when both ES and
EURUSD are both in powerful waves down, as they were between the SPX top
in April and the early June, during which time ES fell just over 180
points on a peak to trough basis. I think it is now likely that we are
in another such period now.
I have put a tentative EW labelling on the EURUSD moves down from the
top so far. On my primary count wave 1 completed at the June low, and
the recent high was the top of wave 2, putting us in wave (iii) of 3
now. On my alternate count we just completed wave (iv), which retraced
almost exactly 50% of wave (iii), and have just started wave (v) of 1.
EW pedants should forgive my not using the standard labelling, but I
think the meaning is clear enough, and either way new 2010 lows from
here now look likely:
Looking at the SPX daily chart I have also found a simply
beautiful declining channel from the April high to support this overall
picture. Looking at it now it is a perfect technical declining channel
from the top, and should define the target for the current swing down,
subject of course to the time taken to complete it:
On the basis of that channel and the current situation on EURUSD, and
assuming that we don't see a major reversal on EURUSD taking it back
into the broadening ascending wedge by the close today, I am therefore
seeing the next major swing low in the 940 SPX area in mid-September. We
shall see if I'm right over the next three weeks. 🙂
In the shorter term I also have a smaller declining channel on ES for
the current move, and also a largish potential H&S pattern
indicating to the 975 area. These give us the two most likely bounce
levels for the immediate move down, and they are the 1050 ES area to
finish the head on the potential H&S pattern, and the powerful
support level at 1037 ES, which would be the declining channel target
and also the neckline for the big H&S pattern on ES / SPX that
indicates to the 870 area. I'm favoring the lower target:
So there we are. I have put my bear suit back on and am once again
targeting 870 SPX as the most likely main target for this move down, as
it is the target for the big SPX H&S, the broadening formation,
and also the bearish gartley pattern that I posted yesterday, as well as
being the key support / resistance level for the October 2008 to July
2009 period. I am hoping that we will get a second Hindenburg omen in
the next few days just to add the final touch to the overall technical
picture here, which in my view hasn't looked as bearish since August
2008.
