Yesterday started off very well for the bears. The SPX 60min rising channel broke down and the Vix broke the declining resistance trendline I posted. However, having spent most of the day below broken channel support SPX then broke back above it with confidence in the last hour. If we see more upside this week I have key resistance in the 1190 area and a break above would look very bullish. A break back below broken channel support slightly under 1150 would look bearish:
Looking round there are a couple of warning signals for bears here. 30yr treasury futures (ZB) may be forming another rectangle and the next obvious move is to rectangle support. If rectangle support breaks then the picture may become very bearish for bonds and bullish for equities as there is sharp negative RSI divergence on the daily charts:
The inverse correlation with precious metals is weaker, but it was interesting to note yesterday that the strong rising channel on SI (silver) in recent weeks has broken down:
Oil (CL) is looking unambiguously bearish, though it might rise to declining resistance from the high in the 92.5 area before the rising wedge breaks downwards. That would fit with a bounce here on equities first if that happens:
We saw a lot of technical damage yesterday. As well as the SPX and Vix breaks we also saw a pinocchio through rising support on copper that is a signal of future weakness IMO. The strong recovery later in the day was mainly about the rumors that China may intervene to support troubled Italy's bonds, and if that's true, then they may be interested in buying other kinds of overpriced paperwork from the PIIGS. If the rumors are confirmed we might see a strong follow-up rally in the short term It seems unlikely that China would be willing to invest in large amounts of dodgy paper at par though and I suspect that they will be unwilling to intervene on a scale that would do more than delay the inevitable for a short while. After this bounce plays out I'm still expecting to see equities at new lows.
