Directional Options

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I was thinking that we might see some retracement of Friday’s move up yesterday but as it happened SPX just traded sideways to form what is most likely a bull flag. ES was a little more interesting overnight and has been forming a possible H&S pattern with a target in the 1755 area. I have sketched in two options on my ES which are that the H&S forms and plays out, or that ES continues directly towards the obvious target and resistance area at the weekly R2 pivot at 1788.40. ES 60min chart:

131112 ES 60min HS Forming or Bull Flag

Which way am I leaning? Slightly long for today, on the basis that the falling wedge on RUT broke up yesterday. That might retrace somewhat today, and will do if ES retraces back into 1755. After that though the obvious targets are a retest of the highs on RUT (which has been lagging in recent weeks) and that move to the weekly R2 pivot on ES. RUT 60min chart:

131112 RUT 60min Falling Wedge Broken Up

Why does the ES weekly R2 pivot look so attractive? Mainly because it is an excellent fit this week with the daily and weekly upper bollinger bands on SPX. Unless Friday’s move up is quickly reversed the next obvious target on the SPX daily chart is at the upper bollinger band, currently in the 1790 area, though that might close the week as high as 1800. I also have the retest of broken rising megaphone resistance from Nov 2012 in the 1795 area, and if SPX is going to see a bull run from here into next year, that will need to be tested and broken sometime soon. A test is within range this week. SPX daily chart:

131112 SPX Daily Patterns BBs MAs

The SPX weekly upper bollinger band is now in the 1783 area, but if we see strength this week I’d expect that to close in the 1790-5 SPX area, with a possible overthrow into the 1800 SPX area. Obviously this is the last of four targets, all in the 1790-5 SPX area, and that is therefore a very attractive target area. SPX weekly chart:

131112 SPX Weekly Patterns BBs MAs

On other markets the strong bounce on USD is testing strong resistance at the 50 and 200 DMAs. If USD can get back over 82 then it should be back in a bull leg targeting a new high. USD daily chart:

131112 USD Daily Main Chart

WTIC / CL is bouncing here and may well be setting up positive RSI divergence at the test of channel support in the 92 area. This is a promising development for a reversal there. WTIC daily chart:

131112 WTIC Daily Trendlines and RSI

TNX broke over channel resistance and I thinking that the rally on bonds / retracement on bond yields is most likely over, and we are therefore reverting to the greater downtrend on bonds and uptrend on bond yields. Either way we may well see bond yields reverse back down here, as on the (yields) bull scenario TNX has reached a possible IHS neckline, and on the bear scenario this is the top of the right shoulder on the larger H&S. I’m going to be posting updated charts this week showing the longer term setup on bond yields and why I think the greater trend there is upwards. TNX 60min chart:

131112 TNX 60min Poss HS Patterns

GLD hasn’t established a clear direction here and the moves are getting smaller. GLD is currently in a small falling wedge that I’m expecting to break up. GLD 60min chart:

131112 GLD 60min Falling Wedge

I’d be happier about the long side here if ES and SPX had made new highs, but am nonetheless leaning strongly long on the overall trend in the expectation that those new highs will most likely be made soon. We might see a retracement to the 1755/6 area on ES (1759/60 on SPX) but after that I’m expecting the next move up. If I’m right about that then the ideal upside target for this week is in the 1790-5 area. If I’m wrong about that any retracement today would overshoot and take out the 1746.20 SPX low.

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