I posted a possible bear flag on the ES 15min on Friday morning. It broke down during the day and has played out to within a couple of points of the flag target overnight. We might see a bounce here with some positive RSI divergence on the oversold 5 & 15min charts. If we see that then I have short term declining resistance in the 1367.50 area and that would be the initial target:
Overall the action on equities looks weak and I'm leaning short unless we can see a strong recovery by the bulls, which initially would involve a break over 1383 ES today. On the SPX 15min chart the recovery from the current retracement low at 1357.38 SPX retraced just over 50% of the drop and is still looking like a bear flag:
On the SPX daily chart the middle bollinger band has been respected on this retracement and you can see that a move back to the lower bollinger band would be very close to a test of the current retracement lows. That would however require a definite break of the rising support trendline from October, which SPX has been trading around on the bounce over the last two weeks, and that break would suggest more downside:
If we do see a more definite break downwards, then that might run a lot further than people are currently expecting, as H&S patterns are forming on some indices. One of the best examples is on the equal-weighted SPX (SPXEW) where a break below the current retracement low at 2016.34 would trigger an H&S target in the 1903 area. That would be well below the October high at 1961.80 and close to the 38.2% retracement of the move since the October low and the 200 DMA, both of which are in the 1920 area. This is something to bear in mind, as after a conviction break of the neckline, these patterns tend to make target or close to target on equities historically:
On the Vix I was saying a few days ago that the next obvious target was a test of the daily middle bollinger band and we saw that on Friday. This is an obvious point to start another move up:
There was an argument for weakness on bonds on Friday morning but ZB has since made a new high. Looking at the TLT chart there's nothing really happening on the bear side unless we see a break below 114.50 area support, and on a break of the current high at 117.60, and it looks as though TLT should gap over that at the open today, then the obvious next target is slightly over 120:
The EURUSD chart is tricky to call at the moment, but is making higher lows and highs short term. The GBPUSD chart has been trending better overall,and there I had a short term rising wedge forming last week within a much larger possible rising wedge. The short term rising wedge has broken down on hitting resistance on the larger wedge, so I'm expecting some weakness here. If we see a move on GBPUSD into the 1.5875 wedge support area then that would most likely break the short term uptrend on EURUSD:
In summary bonds look bullish, USD currency pairs look bearish and equities are looking very weak. Overall that is a weak setup for equities this week, and I'll be leaning short unless the bulls can show some real strength on SPX. There's some Fed activity this week that might move the markets either way including a press conference by Bernanke on Wednesday, and a lot of earnings, including AAPL after the close tomorrow. I'll be doing a short post after the close tonight rather than a full post tomorrow morning as I have to be away all day tomorrow.