I've said before that strong downtrends can ride the daily lower bollinger band down quite a distance, and we've been watching that on SPX for the last few days. The current run down has covered some 40 points since SPX hit the lower BB again after the last retracement and looking back to July 2011, there have been three previous instances where SPX has ridden the lower band downwards. Counting from the hit of the lower bollinger band, rather from the start of the decline, until the next significant move away from the band, the previous instances were as follows:
July/Aug 2011 – 195 points (Bear Market)
Nov 2011 – 60 points (Bull Market)
May 2012 – 70 points (Bull Market)
The current ride down the band is therefore currently still considerably smaller than any of these previous three, and if support is found near the H&S target at 1325 that would be consistent with the two previous big retracements within the bull market from the October 2011 low. If we are in a new bear market then obviously we might see a run well under 1300 before any significant bounce. Either way there's no strong historical reason to expect any significant bounce here, though the 1355 area is significant support and SPX has been consolidating here for a couple of days.
For the moment SPX has been continuing to ride the lower bollinger band down and I would expect that bollinger band support to be in the 1340-3 area today:
On the SPX 60min chart the break below the previous declining channel has resolved into a very steep and narrow declining channel. This is too steep and narrow to last long but it could easily get SPX down to the 1325 H&S target:
Looking closely at this on the SPX 15min chart I have short term channel resistance in the 1365 area and channel support already in the 1320s:
EURUSD hit my retracement target at 1.28 resistance yesterday and has broken the short term rising channel on the reversal. A break below the 100 HMA and then a lower low below 1.2715 should signal a resumption of the downtrend towards my 1.244 target. Short term I'm wondering about a retest of broken channel support to tag my still theoretical declining channel resistance:
Are there any signs of bullish reversal here? Nothing of great substance but I was talking about 127 resistance on TLT on Tuesday morning, and there is a possible reversal setup formed on TLT at that resistance. If this reversal setup fails, TLT would normally gap over resistance at the open. if that happens that break should be respected. Until then TLT may reverse at 127 and retrace into an obvious target in the 124 area, though I'd expect it to go higher after that retracement:
I've always enjoyed the Sherlock Holmes stories and one of my favorite Holmes quotes was where he referred to the curious incident of the dog in the night. When told that the dog did nothing in the night he replied that that was the curious incident. There are a couple of technical dogs that aren't barking here, and I'll have a look at those in my last two charts today.
The first of these is TRAN, which to a significant extent has been in a parallel universe since late July when both SPX and TRAN were close to their current levels, having been fairly well correlated with SPX before that. It didn't participate meaningfully in the big move up after mid-July and hasn't participated meaningfully in the subsequent decline either. Instead it has been consolidating sideways within what looks like a triangle, and if that triangle holds then it is due a strong bounce soon:
The second is copper and some of you will have read my post at MarketShadows last weekend where I outlined a nice-looking long trade within a similar but much larger triangle there. How has that long trade fared with the strong equities decline this week? Just fine actually, and it still appears to be basing for a decent move up within that triangle. To the extent that copper is a leading indicator here it seems to be pointing up short term and broadly sideways since the October 2011 low. A break of these triangles on TRAN and copper would look bearish of course, but if they hold triangle support, that is at least suggesting a powerful bounce coming soon:
I'm running low on time today so I'll be posting a possible short term IHS forming on ES on twitter before the open. The candidate neckline is at yesterday's overhead resistance at 1359 ES and if it were to continue to form and break up, the target would be the 1374 ES area, in effect for a retest of the broken 200 DMA on SPX. I'll be watching that 1359 ES level and any break above it would be at the least a short term higher high. As I mentioned at the start of this post however, I'm not seeing any really strong reason historically to expect a bounce of any substance before the 1325 SPX H&S target is reached, and this reversal setup may well fail just as the other bullish reversal setups in recent days have failed.
