I’l start by paraphrasing Mahatma Gandhi this morning in saying that if anyone were to ask me what I think of western capitalism, I would respond that I think it would be a good idea. Maybe we’ll try it sometime using the invisible hand of the market rather than the visible hand of the Fed.
There was a nice short setup at the close yesterday which was thoroughly dynamited by our beloved head central planner Ben Bernanke in a speech after the close, after which ES spiked up and USD spiked down. This has pushed ES up into the mid-1660s and if, as seems likely, that holds into the open today, then all of the very promising negative RSI reversal setups at the close yesterday will have been trashed. Resistance levels to watch today are possible channel resistance in the 1672 ES area, the weekly upper bollinger band in the 1681.5 SPX area and the daily upper bollinger band that closed yesterday at 1663 SPX and could close as high as 1669 SPX today if we see a strong day. If we should see weakness then the ES 50 hour MA is now in the 1650.5 area and, as I said yesterday morning, there isn’t much of interest to see on the bear side until we see that break. ES 60min chart:
Here is the SPX weekly chart showing the upper bollinger band, now at 1681.50. Breaks above this are rare and short-lived so this is a pretty solid (though rising) resistance level. SPX weekly chart:
Apart from equities the market most affected was USD, with spillover into the related oil and gold markets. On GBPUSD the reversal setup I was looking at yesterday morning formed during the day and then made target very suddenly as Bernanke was speaking. I was expecting failure near double resistance in the 1.51 area and that broke, opening the path to what could be a larger rally than I was expecting. I’m watching to see what happens there next to clarify direction. GBPUSD 60min chart:
Oil spiked up too, though as with GBPUSD it has been retracing somewhat since. I’ve marked in the non-IHS pattern target on the chart with notes on why this is not actually a true IHS, though I see similar setups make target regularly regardless. Some useful notes on daily RSI divergences on CL and the frequency of DTR reversal trendlines on CL as well on there which may be of interest. CL daily chart:
I posted a projection for the next year on TLT back in March and TLT has followed that projection fairly well since then. TLT has now reached the major inflection point on the chart however, and if the H&S that I projected on the TLT chart then continues to form we would now see a multi-month rally on bonds to make the right shoulder on that pattern. There is some positive RSI divergence on the TLT daily RSI. TLT daily chart:
There is a an equivalent H&S forming on ZB (30yr Treasuries) though that would be sloping down. There is very clear positive divergence on the daily RSI now and the last seven equivalent divergences back into 2010 delivered significant trend reversals. That rises to eight out of nine going back into the start of 2010, and the other was a consolidation. There is good reason to think that we will see a significant bounce in bonds shortly and I’ve marked the ideal target area for that bounce on the chart. ZB daily chart:
I’m direction neutral on equities at the open today. I’m still expecting a retracement to the daily middle BB area soon but we may go higher first. My friend (and EW maestro) Pug remarked yesterday that in a wave up like this, and I think we can now all agree that this is a wave up, surprises will be on the upside. Quite so.