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Thursday, 30 October 2014

The Flagging Dow Industrials

Only three charts today as I've had a lot on this morning.

One reason I do my optic run views on my seven main US equity indices is because while SPX is often the technical leader, by which I mean not that it moves fastest, but that it is delivering the cleanest trendlines/patterns and fibonacci retracements, that is not always the case. That leader at the moment is the Dow Industrials, and my first two charts will illustrate why that is.

The rising wedge on SPX that I tweeted on Tuesday night hit the very well defined wedge resistance (tweeted at the high yesterday) and then broke down on the frankly very predictable not really news that QE3 had ended in October as planned, and the usual assurances that the Fed would be fighting hard to keep interest rates near zero until the stars fall from the sky. Now those of you who have been looking at my work closely for a while might have wondered why I was giving strong weight to a pattern on SPX that was mediocre due to the poorly defined support trendline, and the answer to that question is of course that .......... SPX 15min chart:
....... it was supported by a far better and directly equivalent pattern on the current technical leader index, which is the Dow. The pattern on Dow is very well formed, overthrew slightly at the high yesterday, and then broke down and retested broken wedge support at the close. At least the main part of this move up from the 1820 SPX low is over, and that overall move may well have topped out, though if so then we may well retrace, retest highs, then retrace more as part of the usual formation of a decent sized H&S or double top.  Dow 15min chart:
Are there any other implication from Dow being the technical leader here? Yes. I posted an SPX daily chart the other day considering the possibility that the double top that broke down and failed to make the 1789 SPX target was actually a bull flag forming. I see these initially misleading setups a lot on the intraday charts, though they are rarer on the daily and higher timeframes. SPX overshot the ideal theoretical bear flag channel target but here's how that looks on Dow as at yesterday's high. Obviously this setup is leaving the possibility open that the October low might be taken out if a retrace here should run away, though it wouldn't be likely to be broken by much of course. Dow daily chart from 1110:
On a break under 1969 SPX today I'd be looking for a target in the 1946.50 area. If seen we might see a strong reversal there to retest yesterday's high as a larger reversal pattern forms at these highs.

Wednesday, 29 October 2014

USD Dollar and FOMC Today

SPX broke strong resistance levels at the 50 DMA and the 1976-8 levels yesterday to close at a very impressive 1985. That break up over the 50 DMA opens up the daily upper band as a target and that closed yesterday at 2003. With FOMC today it seems unlikely that Yellen can say a great deal to cheer the markets, QE3 has ended and is unlikely to be even temporarily revived, and the Fed has made so many soothing noises about future interest rate rises already that it's hard to see what they could add to that. Nonetheless some more soothing noises today might just get SPX to that target at the upper band. SPX daily chart:
The structure of this move up has been unclear since 1950, when the initial rising wedge from the low broke down but failed to deliver more than a small reversal. SPX finally established a new support trendline yesterday morning and so I now have a larger rising wedge from the low. We could see an overthrow as high as the daily upper band today if Yellen manages to come up with something to say to give SPX a boost. SPX 60min chart:
I saw a even longer term USD chart today than the chart from 1980 that I have posted many times. I saw on that chart that the overall setup here is a falling wedge, with the wedge support trendline coming from a low in 1977/8. This makes the overall setup here on USD even more bullish long term. USD monthly chart:
What are we likely to see on USD in the short term? I'm expecting USD to retest the recent high and possibly make a marginal new high, but if there is any more than that then I have two decent trendline targets to shoot for here. The first is possible rising wedge resistance in the 87.6 area, and the second is rising channel resistance in the 88.6 area. Either would break falling wedge resistance from the 1985 high and be bullish longer term, but when a high is found then I'd be looking for a decent retracement that may well reverse back down into the low 80s. USD daily chart:
Silver looks close to a low. It could still go as low as 12 but I have an alternate trendline with decent support in the 15 to 15.5 area. I'm watching this closely as we may well see a very big bull move again on silver when a low is finally in. Silver weekly chart:
This move up from the 1820 low has been incredibly powerful, and may not be ending yet, though there is a decent chance that it might top out at or after FOMC today. The main remaining bear option here is one that I mentioned in the first couple of days of this move, and that is that SPX is making the second high of a much larger double top as a precursor to a much larger move down. We are now in the usual range for that second high to be made.

How seriously should this possibility be considered? Well seasonality is against the bears here as October ends, and in any case it would be hard to take that seriously until after we saw SPX break back down under the 200 DMA (currently 1910) with confidence, but the other thing to say is that the usual range for that second high of a double top to be made stretches from 1960 to 2080, so even if a larger double-top is forming here, that isn't necessarily of immediate interest.

For now I'm watching that rising wedge on SPX and expecting a short term high to be made soon, very possibly today. After that I'd be looking for a 38.2% to 50% retracement of this move up from 1820, and would be looking for the 200 DMA (currently at 1910) to now be strong support.