I'm a big fan of rising and falling channels for trading, and it has
been a disappointment that in recent weeks there has been a distinct dry
spell on ES for these. No longer, as the decline this week has resolved
into a perfect declining channel:
Now the question of course though is whether we are likely to continue
declining from here. On the upper side of the channel, the trendline
reinforces the already strong range resistance trendline at 1101.5. If
that trendline is broken with any confidence then the chances are very
strong that the decline this week is over, and that we should expect a
new short term high over 1130 ES in the near future.
On the other hand if we should reach the lower trendline of the
declining channel, we would have to break through the important support
level at 1084 ES, and that would seriously undermine the idea that this
was just a correction before a continuation upwards. In the short term
that would open up the lower trendline of the next range down at1070.5
ES, and if that was broken then 1048.5.
My view is that this is just a pause on the way up as the USD currency
pairs that I watch, particularly EURUSD, have not yet reached their
upswing targets, but we've already had one return to retest the lows,
and I wouldn't be that surprised to see another.
In terms of EURUSD I posted a chart yesterday showing a falling wedge on
EURUSD that has since broken upwards. These wedges frequently turn out
to have been a diagonal slice of an unrevealed declining channel though,
and this one has been testing the upper trendline of that theoretical
declining channel for the last four hours as I write. If it breaks up
that would be a weakly bullish signal for both EURUSD and equities, and a
further move with confidence above 1.235 would be very bullish.
There is some positive divergence on EURUSD in relation to ES already.
As both rose they established parallel trading ranges, and the first
strong signal for me on Monday that the equities upswing was finishing
was EURUSD breaking support. Yesterday ES broke down into a lower range
and EURUSD did not, which was a very significant positive divergence. If
EURUSD should break that range support at 1.2255 with confidence this
morning, that would be a strong bearish signal for both EURUSD and
equities, and on EURUSD the lower trendline of that range is at 1.2166,
which would be the obvious next target:
I posted a Vix chart yesterday morning showing the likely upswing target
if this is just a pullback and it was reached yesterday. RSI &
stochs both look overbought now:
Oil generally moves up and down with the market and a falling wedge has
developed on the oil futures (Sept) this week. As with the other falling
wedges though, this might yet resolve into a declining channel and I've
marked in the possible alternate trendlines if that is the case:
