Mayday

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It is the first of May today and the equity markets are at an important inflection point. A break up here with any confidence will most likely run quite a bit further, and a break down here with any confidence has a good chance of delivering a retracement to the 200 DMA on SPX (currently at 1460), and might perhaps even be the end of the current cyclical bull market. I showed the importance of resistance on SPX in this area on the standard chart last week, and here it is on the monthly LOG chart since 1980 today, with some comments on what this setup may say about whether we are still in a secular bear market. This is a really very significant resistance level on SPX regardless:

130501 SPX Monthly since 1980

On the daily chart the last high was tested and very slightly exceeded yesterday. We are still in an ideal area for a double-top and overhead resistance is at the daily upper bollinger band at 1604:

130501 SPX Daily Trendlines BBs MAs

On the SPX 60min chart I’m showing the options for a strong break up or down. Realistically we are about to see one or the other. I’m leaning short until we see a definite break up:

130501 SPX 60min Poss Double Top and Neg Div

We now have negative RSI divergence on the ES 60min as well as SPX, and the ES rising channel was broken at the low yesterday. What didn’t happen yesterday was an hourly close below the 50 hour moving average. That’s now at 1589 and a confident break and close below that would boost the short side here considerably:

130501 ES 60min Trendlines and RSI

EURUSD has made a higher high overnight and the next big resistance level is at 1.33. I have a currently very theoretical rising wedge resistance trendline in the same area:

130501 EURUSD 60min Poss Rising Wedge Forming

Negative RSI divergence has been building on the CL 60min chart this week and has now delivered a strong retracement. Rising support is in the 91.2 area. If we see a break below that then the short term trend may well have changed back to down. As I have marked on the chart the overall trend is down, with lower highs and lows, but CL has not yet reached the obvious target area between 97 and 98 that I was looking for before the next shorter term reversal:

130501 CL 60min Trendlines and Overall Trend

The most bullish six months of the year ended yesterday and the first trading day in May was the 2011 cyclical bull market top. SPX is testing major resistance and we have a very nice looking bear setup for a spring high at exactly the right time. Will it play out? Maybe, though most inflection points that I have watched on the first trading day of the month in the past have resolved upwards. There are decent odds of a strong decline here and at the least it’s generally a bad idea to go long just under major resistance. We shall see what happens today. As I write ES is now testing the 50 hour MA which is an encouraging start to the day.

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