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Friday, 13 April 2012

Possible IHS Forming

I posted a chart on twitter late yesterday which has had over 1500 hits so far, and it's the most important chart to look at today. That chart is the SPX 15min chart which is showing the possible IHS that may be forming at the 1387.5 area neckline with a target on the 1417 area. Yesterday was a trend day, and that's generally followed by a consolidation day, and that consolidation may now form a right shoulder on this pattern. If that forms and the neckline breaks up, then historically these IHSes on SPX generally make the target. I've marked in a possible path within the nice little rising channel that has formed from the low.

There are two other things to note from this chart however. The first is that the high yesterday hit the strong resistance area that I was highlighting yesterday morning, and that area is obviously still strong resistance. The second is that there was negative RSI divergence from overbought on the ES 15min chart at the close yesterday. I mentioned yesterday morning that if the downtrend was to continue then this rally would most likely fail the next time we saw this. I'll be watching that rising channel support on the SPX 15min today:
The next chart is the SPX 60min chart, where I'm showing the two declining channel options on SPX at the moment, but more importantly I'm also showing that if that IHS does form and play out to target, then SPX may find resistance near the target at the broken rising support trendline from the Dec 19th low. If that breaks back up then I'd be leaning strongly towards a test of the 1442 SPX pivot, but until that is rebroken that will also be resistance:
Lastly on the SPX daily chart I'm showing the remaining two options that I was looking at yesterday, with the first being failure at key resistance above at the daily middle bollinger band in the 1400 area, and potential declining channel resistance in the same area. If we do see a decent IHS form and break up however, then I wouldn't expect those to hold. The second option is (at least) a retest of the highs which would fit with the potential IHS:
Vix closed back within the daily bollinger bands with conviction yesterday, and that has triggered a Vix Buy (equities) signal which needs to be confirmed today. In my experience these signals aren't worth much but I know a lot of people follow them. Regardless of that this move targets the 16 to 16.5 area for the middle bollinger band, and a close below there would look bullish for equities:
I had a request for my bigger picture USD outlook yesterday so here it is again. Longer term it looks extremely bullish, with the proviso that the obvious retracement target has not yet been hit. Short term a break over the declining channel would look bullish:
Gold is showing some signs of life here, so I'll also post my bigger picture chart for that. I posted this a few weeks ago forecasting a return to the early 1600s, which was a nice call as the low since was 1613. My bullish option from there was that a bullish IHS and bull flag would complete and break up towards new highs. I have some downside concerns from the bearish looking GDX chart, but that bullish scenario is still very much in play. Key resistance is not far above at the 150 DMA at 1694, and a close above would look bullish. I'll confess that as long as Bernanke stays at the head of the Fed I'll be leaning bullish on precious metals, so I do have some bias here:
The last chart today is the ZB chart, where ZB almost tested rising channel support, but not quite, before reversing back up. I often see this before a channel breaks down so I'm thinking we may see this channel break down soon. If we are going to see more upside on equities then it's hard to see bonds being particularly strong here. We'll see. Short term support at the channel support trendline then 140:
We should see a consolidation day today after yesterday's trend day so I'll be watching the channel and possible IHS forming on the SPX 15min chart if we see early weakness. If we see early strength then that IHS scenario will be trashed and I'll be looking for resistance in the 1400 SPX area. Do I think new highs are possible on equities in the near future? Absolutely. We're coming up on the ideal topping area in late April or May before a summer retracement, but we're not there yet. Reasons we can still go up are, low volume, not many sellers, and earnings, which may be stronger than expected, and we are now once again in earnings season.

I showed a video from Perfect Stock Alert yesterday and had a few comments afterwards about this that are worth noting. I see that this chartist had a subscription service in 2010 that burned a lot of subscribers badly, and you can see some articles and videos about that by searching online or looking at YouTube. I think this guy is a decent technician and I like his free daily videos which are interesting and educational. His longer term forecasts may or not have any value, but I haven't been watching those, and history would suggest treating them with some caution.

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