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Whipsaw Market (by Springheel Jack)

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Well volatility is back and this whipsaw market has been confusing many of us, including most definitely me, though I've still been calling the turns pretty well. To add some clarity I've discarded all my usual trendlines and charted up various indices from scratch this morning on another computer. What I'm seeing from that is pretty interesting.

On the ES chart I can see no reason yet to think that the bullish trend up from March is in any trouble. Given the length and power of this move up from last July, and the fact that the obvious topping area for this move was always going to near the end of QE2 in June/July, I'm inclined to give the bull trend the benefit of the doubt until demonstrated otherwise. We're not there yet. The touch of rising support from the March low on ES yesterday wasn't perfect, but it was close, and this is a gently narrowing rising wedge, or ending diagonal in EW speak, which would be normal for a final stage move in a big wave up. The wedge has three touches on either side and is therefore fully formed, but it hasn't broken down yet, and the upper trendline target would be in the 1390-1400 area if immediate resistance is broken:

NQ has been divergently bullish on this latest retracement, and I'd generally read that as bullish for equities as a whole. I can't think of any good reason not to read it that way here as well. A strong support trendline has been established at the recent lows and NQ is now testing overhead resistance again:

I'm not as happy with my trendlines on TF, but support has been established and the overhead resistance trendline looks solid with the exception of the small overthrow in late February:

The direction of bonds is very important for equities, and I've had another careful look at the setup there. What I'm seeing is that there is a declining channel from the high last August that isn't yet broken. The current retracement to test channel resistance is also in a perfect gently rising channel, and the next obvious move is down, which would be supportive of equities here:

The overall direction of USD isn't as important to equities as bonds. Equities and USD rallied strongly together from December 2009 through to the equities top at the end of April 2010. EURUSD (55% of the USD index) may have made an important interim top here, in which case I'd expect a move to rising support in the 1.35-6 area. Looking at the weekly chart though, there's still a good case that this recent move down has just been a retest of broken declining resistance from the 2008 high. If EURUSD can close below that trendline on a weekly basis, there will be a good case for a bigger move down towards support:

I've also been having a fresh look at the oil chart. I've been calling the turns on oil very well in recent weeks, calling a top at 113.50 with a target at 96, then a bounce to 106 that only made it to 104.50, and a return to 96 which we say again yesterday. What now though? Looking at the weekly ten year chart this latest retracement may simply have been a retest of broken resistance. If that trendline is breached then I'd expect a move back to support in the mid-80s, with an expectation that support there should hold. Apologies for the strange candles in 2009 caused by bad data from my futures people:

We're all watching the show with great interest on silver, but for overall precious metals direction I tend to use the more staid gold charts, which are easier to chart with tradeable trendlines. The best timeframe to take at the moment on gold is the six month daily chart I think, and the beautiful broadening ascending wedge from the January lows. That could break down at any time and that break would be bearish, but the current uptrend is intact until that wedge breaks down and I won't be getting excited about the short side on PMs until then:

In the short term equities are hitting resistance this morning and I'm expecting a dip that I'll be buying. Until the lows this week are broken, JBTFD is still the higher probability trade in my view.

Blogger is down this morning so this is not posted at my blog today and I'm seriously considering switching my blog to WordPress.