Ask and Ye Shall Receive

By -

I was grumbling yesterday morning that the lack of any bounces in the decline so far meant that I had little to work with in terms of trendlines or patterns. After yesterday’s bounce I’m happy to say that has all changed today.

The script for the bounce yesterday followed the double-bottom scenario I outlined yesterday morning. ES broke over the 50 hour MA at 1650, made the double-bottom target at 1655.50, and reversed at 1657 at the possible IHS neckline to close at 1650 in the ideal right shoulder low area. ES needed to hold that area overnight but didn’t so we have two options this morning. The first option is that ES tests the low and perhaps makes a marginal new low as part of a double-bottom setup, and the second is that ES resumes the downtrend to test support in the 1630s and perhaps below. ES 60min chart:

130821 ES 60min HS Failed Now What

Whichever way it goes today, I do now have a perfect declining channel on SPX. As with ES a possible IHS is forming on the SPX chart and that isn’t broken yet. If ES can recover back to the 1650 area by the open that may still be in play. If we see a resumption of the downtrend I have channel support in the 1630 area and declining rapidly. When we see a break above the declining channel that should be a good signal that this move has bottomed or is bottoming. SPX 15min chart:

130821 SPX 15min Declining Channel

SPX closed back above the lower bollinger band and if this was a bull move I would be fairly confident that SPX would now continue closing within the band. That’s less certain in a downtrend but if that’s the case here then I am expecting the daily lower bollinger band to close today at 1642/3 SPX or above. SPX daily chart:

130821 SPX Daily Trendlines BBs MAs

The declining channel that I was looking at on TRAN yesterday morning broke up and was retested at the close.. So far however the break over the channel has the look of a bear flag so we’ll see how that goes. TRAN 60min chart:

130821 TRAN 60min DT and Trendlines

On other markets CL broke down yesterday to make the 105 H&S target I gave in the morning. I’m expecting a bounce short term but am leaning bearish on CL after that. I’ve done a bigger picture CL chart today to show that CL could well fall back into the 90s on this move. CL 60min chart:

130821 CL 60min Rising Channel and Poss DT

I tweeted a nice looking long setup on ZB yesterday and that still looks very nice. The action since the break up looks like a bullish pennant so far but we might still see a reversal to test the lows and make a double-bottom. ZB 60min chart:

130821 ZB 60min Long Setup

I’ll post the trading hours only GBPUSD chart today to show quite how strong the performance of RSI divergences on GBPUSD have been in delivering reversals. GBPUSD has also formed two bearish rising wedges of differing degrees. I’m still expecting GBPUSD to break downwards here but that might not happen. 30% of rising wedges do break upwards of course. I’m looking for GBPUSD to make a short term lower low soon if it is going to break down. GBPUSD 60min chart:

130821 GBPUSD 60min Trendlines and Patterns

The bounce scenario is still in play here on ES & SPX and if ES can recover back to the 1650 area by the open then the IHS setup is still in play on SPX. If we see a break above the SPX declining channel today I will be treating that as strong bounce confirmation. If the downtrend resumes I have strong support for SPX in the 1630s and key trendline support in the 1615 area.