SPX traded well above the middle bollinger band yesterday but closed back at the band. This is a natural level to see some retracement:
SPX didn't quite reach the last high and potential IHS neckline at 1335, but may be forming a downsloping IHS. If so, looking at the left shoulder, this might well involve a retracement lasting a week or so and with a right shoulder low in the 1290 area. The SPX 200 DMA is at 1288, and in both 2010 and 2011 there was a retest of the 200 DMA after the first test. If an IHS does form here the upside target would be in the 1385 SPX area:
The potential IHS setup is clearer on NDX where there was a perfect hit of the potential neckline there. As with SPX the right shoulder might take several days to form and retrace deeply. If it forms the upside target would be in the 2700 area:
There's a potential IHS on RUT too. Interestingly that is forming on the underside of the H&S neckline that did not quite make target:
EURUSD reversed perfectly at 1.2625 resistance yesterday and we might have an IHS forming there as well. However if we do then it would be badly out of sync with the potential IHSes on equities as the right shoulder on EURUSD would need to be shallower and take only a day or two to form. If we see the IHSes form on equities then we'd be more likely to see a double or W bottom form on EURUSD while that happened:
Is there any reason to think that the rally may have ended yesterday? Definitely. SPX, NDX, RUT and EURUSD all hit obvious and strong resistance levels. RUT never did hit the H&S target so that's also potentially in play until we see a definite break back above the neckline. Vix has retested the IHS neckline there and that might hold:
30yr treasury futures also hit nine week rising support yesterday and bounced strongly there. That's excellent news as it has established a strong and steep uptrend support trendline that should deliver a decent signal when bonds are ready to retrace more deeply. Meanwhile however it leaves the uptrend intact and may signal that the next move up has started:
I'm leaning towards seeing this rally go higher, and the possible IHSes that are forming look promising. If they continue to form then the ideal downside target on SPX is in the 1288/90 area and the ideal downside target on NDX is in the 2475 area. I like the gap fill today but I'd be surprised to see new highs. The last five Fridays have closed down, and the only Friday to close up more than five points this year was on 3rd February.
