I've been hoping somehow my primary bear scenario might play out with a
rally to 1150 before SPX made the next move down towards 870, but it is
becoming increasingly clear that it simply isn't going to happen. After
reaching an obvious point for a low on Friday morning, the bounce on
Friday afternoon was very weak and we just traded sideways yesterday.
Overnight the range support level was broken very decisively and a test
of the next main support level at 1048 ES in the near future looks
likely.
If 1048 ES breaks again, and I think that now looks more than likely,
then the way will be open for the February and May lows to be retested
in the 1033 ES area, and it that level breaks then we will be starting
what I believe will the main event of the bear action this summer, with a
fall to the very important support level at 870.
I was expecting a bit more work to be done on the right
shoulder of the huge head and shoulders pattern on SPX, but we came
close enough I think, and the other two bear patterns on the SPX daily
chart, the rising wedge and the right-angled and ascending broadening
formations, are already sufficiently complete. The target of 870, as
well as being a viable target for all three patterns, was also such a
key support/resistance area in late 2008 and early 2009 that if we get
close to it, it should exert a degree of magnetic pull for a test of
that level:
Having said all of this we may well bounce initially
today. EURUSD hit a significant support level overnight & the
RSI on the hourly chart hit a major low:
GBPUSD continues rising in a strong channel, though it might retrace a
bit today after hitting the top of the channel again yesterday:
I read an argument recently that the only major hard currencies in the world
today were gold, silver, the Canadian and Singapore Dollars and the
Swiss Franc, and I would agree with all of those and also agree that
USD, EUR and JPY are all, on current policies, on the road to ruin. GBP
was too, but the last spendthrift and incompetent socialist government
is a receding memory and the new coalition government seems determined
to steer the UK back onto a sustainable economic and fiscal course over
the next few years.
If equities plunge hard over the summer then GBPUSD may
well test long term support again in the 1.40 area. After that I'm
thinking that GBPUSD might start looking attractive as a longer term
hold, and UK gilts will start to look a considerably better bet than US
treasuries.
Commentary from Tim
Most mornings, if I saw the /ES was down 15 points, I'd be thrilled. Not this time.
It's not because I'm net long. I currently have 25 long positions and 46 short positions, and my only large positions are on the short side (DBA and USO).
But, let's face it, these days I'm usually totally short, and my portfolio is often more than 100% committed. Due to (a) my concerns about a small push to 1100 before a resumption of the fall and (b) end-of-the-quarter conservatism, I am only 39% invested. So even if we fall hard today, I imagine I'll profit only modestly. I don't like that one bit.
I had really been hoping these last two trading days of the quarter would be quiet. I guess not; with the news from China driving futures and the Euro down, today, at least, is going to be a mover.
I've got 190 items in my "Bear Pen", and I'm only going to deploy them individually when I think the risk/reward makes sense. The Euro, however ,can't seem to get off the mat. If it breaks below 1.2141, the prospect for a modest push higher dim considerably.
In any event, I wanted to do a brief post just to let you know where my head was at. Even I'm surprised at how pitiful the bulls have become at putting together even a small rally in the face of this ongoing selloff.
A post from TOSHI that is also time sensitive
