Direction was hard to call yesterday morning, and as it turned out, SPX went nowhere, though COMPQ, NDX and TRAN all managed solid gains on the day. The W bottom on SPX is now arguably an IHS and if we see a clear break over the neckline today, ideally with an opening gap over it which is not then filled today, then we should see at least a retest of the highs. SPX 60min chart:
Of the other indices that I was looking at yesterday morning, TRAN is probably going to give the best clues as to direction. TRAN is returning to test falling channel resistance, currently in the 7325-30 area, and channel resistance will decline to current resistance in the 7312 area by the end of today. If we don’t see a break upwards through channel resistance today, then that would favor the bears somewhat tomorrow. an ascending triangle has formed during the current move upwards, and while these are mediocre performers on a break up, a clear break above triangle resistance could give TRAN a boost to to break over channel resistance: TRAN 60min chart:
EURUSD is still some distance short of the 134.8 double-top target I gave on Tuesday morning, but is showing some strength this morning, backed up by some positive RSI divergence at the close yesterday. We could see a decent bounce here, most likely to establish a less steep declining resistance trendline. EURUSD 60min chart:
TNX made a serious break below rising wedge support earlier this week and is now retesting broken wedge support. I have a potential setup on TNX to take it from yesterday’s close at 29.78 to just over 19 in the next few months, so there is an interesting short entry here (long bonds). If QE3 is wound down over the next few months then the huge rallies on bonds at the ends of QE1 and QE2 suggest strongly that a target at 19 for TNX is realistic. TNX 60min chart:
The effective range on ES has been 26 to 35 over the last two days. ES has broken over that overnight and if that break holds into the open then we should see a break up on SPX that would ideally be confirmed by a break up from the declining channel on TRAN. If we see that then I will be expecting a retest of the highs at minimum.
