More Downside Likely

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Yesterday went much as I suggested in the morning, with ES holding 1830, a run up to test the current highs, and then a clear fail there. A retracement of very uncertain size has started, as this may be just a bullish partial retracement of this last move up, but there is also now a technically very well formed candidate major double top targeting 1625 on a break below the last low at 1737. While I’m definitely leaning towards the bullish option, the bearish option needs to be borne in mind, and would need to be taken seriously on a sustained break below 1800 SPX.

For the moment I have a small (and very ugly) H&S target in the 1820 SPX area. Under that I am watching the possible larger H&S neckline in the 1809 area as if the bear option is going to play out here, then we may well form a larger topping pattern to take SPX through strong 1800 area support. SPX 60min chart:

140220 SPX 60min Support and Poss HS Scenario

If this is a bullish retracement then the key other areas to watch here are the 50 DMA, currently at 1813, which was of course support on the last retracement, the daily middle bollinger band at 1800, and the weekly middle bollinger band at 1797. There should not be any sustained break under 1800. SPX daily chart:

140220 SPX Daily Possible Major Double Top

All the main US equity indices have now broken their patterns from the last low, but there isn’t much in the way of decent topping patterns yet. I do have another small H&S like the one is still pointing on SPX on NYA and that again is pointing to at least some more downside. NYA 15min chart:

140220 NYA 15min Rising Wedge and Small HS

ES has bounced at a possible H&S neckline at 1816-8 overnight, and may be forming the right shoulder for an H&S that would target the 1790 area. That would be a decent fit with a test of main support at the daily and weekly middle bollinger bands in the 1797-1800 SPX range. There is also another possible H&S neckline in the 1802-4 range. If we see the right shoulder form this morning the ideal right shoulder high would be in the 1827/8 area, and ES should not go over broken 1830 support. ES 60min chart:

140220 ES 60min Trendlines

I’ve been giving some thought to the setup on USD here, and looking at the main USD component EURUSD. I posted a USD chart a few days ago just after the last fail at the 200 DMA and USD is now testing possible ascending triangle support from the last low. If that breaks then the possible test of 78.6 I was talking about then opens up. USD daily chart:

140220 USD Daily Main

How would that fit with the EURUSD chart? Well I have a possible major triangle forming on the EURUSD chart since 2006, and the next target within that triangle would be declining resistance from the 2008 high. That would require a retest of the last small high in the 1.385 area, and with the rising wedge from 127.5 having evolved into a rising channel, that doesn’t look hard from here. EURUSD weekly chart:

140220 XEU Weekly Triangle

I’m going to be out most of today, so I won’t be able to post any shorter term patterns or call any serious break upwards as it happens. I’m expecting ES to hold below 1830 today and an hourly close much over the 50 DMA, currently at 1830.5 would warn that yesterday’s high could be retested. A sustained break below the overnight low at 1817.25 would open up the main bullish retracement targets in the 1797-1813 SPX range, most likely delivering a test of the 1797-1800 SPX key support area.