Running Out Of Road

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I was looking at the short setup on GC (gold futures) this morning and thinking how much better it was than the short setup on equities here. That’s for a couple of reasons. Firstly Gold is still either in a downtrend or in a bottoming process, and a rallies in a downtrend deliver better short setups than waves up within a strong uptrend. The second is of course that the Fed aren’t on constant watch to try and support the Gold market if it sniffles or soils a nappy. (Translation for Americans: poops its Pampers. – ed.)

The short setup on GC today looks absolutely peachy, with a reversal so far at double-channel resistance on clear negative 60min RSI divergence. The obvious target is first a retest of the strong 1300 level, then on a break below I have rising channel support in the 1266-70 area, and on a break below the rising channel I’d be looking for a test of the lows within the overall declining channel. I shorted GC this morning at 1334.1 and there may well be another chance for a very nice short entry on GC later on today. GC 60min chart:

130723 GC 60min Channels

Back on equities, if we are to see a retracement soon, and this is a very nice looking setup to see that, then it will need to start shortly, and I have a provisional path for that to take. SPX has now fallen well away from the daily upper bollinger band, albeit only because the band has kept rising as SPX has stalled, and if SPX breaks below short term rising support the obvious target is the daily middle bollinger band, currently in the 1644 area. SPX daily chart:

130723 SPX Daily Trendlines BBs MAs

That is a decent fit with what I am seeing on the SPX 60min chart, where there is limited room remaining within the current rising wedge. SPX could still test the 1700-5 area within the wedge but if we see a break below wedge support, currently in the 1685 area, then the obvious next target would be the candidate H&S neckline in the 1672 area. An M top or H&S forming there would target the 1645 area, which is also the 38.2% fib retracement area for the move from the June low. SPX 60min chart:

130723 SPX 60min Rising Wedge and HS Scenario

The question is of course whether we are going to see that reversal on equities. Other indices look promising. COMPQ (Nasdaq composite) has already broken the rising wedge there with some confidence, though there is obviously quite a bit of gap support below. COMPQ 60min chart:

130723 COMPQ 60min Rising Wedge Broken

WLSH (Wilshire 5000) has also broken down from and retested a good quality rising wedge on considerable negative 60min RSI divergence. As with SPX there is a clear candidate H&S neckline with a target at the 38.2% fib retracement level. WLSH 60min chart:

130723 WLSH 60min Rising Wedge Broken Down

TRAN hasn’t yet broken down but again there is a good rising wedge there as well and strong negative 60min RSI divergence. There is another clear candidate H&S neckline which would have a target near the 61.8% retracement area. TRAN 60min chart:

130723 TRAN 60min Rising Wedge

On SPXEW (equal weighted SPX) The rising wedge tested wedge support yesterday and there is now so little room left on the wedge that we must see a break one way or the other in the next couple of days. Again there is strongly negative 60min RSI divergence, a clear candidate H&S neckline, and an obvious path to the 38.2% fib retracement. SPXEW 60min chart:

130723 SPXEW 60min Rising Wedge

On other markets I’m looking at CL this morning as it has now retraced all of the spike up from the bull pennant a few days ago. It is hitting serious support in the 106 area and if we see a break below 105 I’d be looking for a retest of 100. There isn’t the negative RSI divergence on the daily chart that I have been looking for, but then there hasn’t been an RSI high as high as the last one in the last year either. CL may well be now in a retracement with an obvious target in the 100 area. CL daily chart:

130723 CL 60min Trendlines

I won’t post an ES chart today but I will mention that I have a weak downward bias because of the SPX 1min chart setup at the close yesterday. The ES 50 hour MA is now at 1689.50 and the first step in any decline is to see an hourly close significantly below that. If we should see that then there is a possible short term double-top in play with a trigger level at 1685.5 and a target in the 1675.50 area. ES rising support from the June low is now in the 1676 area (good fit) and if we reach that SPX rising support from the June low will already be broken. It would be very nice to see that retracement on equities start today but as with any reversal setup in a strong uptrend, it may not actually happen, and my two major targets for this move up are still well above in the mid to high 1700s.

It turns out that I’m not going away until Thursday so I’m planning a post tomorrow, though it may be short. While I’m away I may not be able to do more posts but I will be checking in every day and will at the least post some charts on twitter. This will be important as if we do see this retracement that I’m expecting, and if it is just a retracement, then we should see a decent pattern form to indicate when (or possibly whether) to buy back in.