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Thursday, 2 October 2014

Cards on the Table

I was saying on my daily SPX chart yesterday that if we were going to see a move directly to the double top target at 1937.70, then I was expecting that move to start yesterday, and obviously that's what we saw. The low yesterday was at 1941.7, and we may well make that full double top target today.

This move was an important point of recognition and I think it is likely now that the market is starting a 10% or more correction, though we haven't yet had the full confirmation of that move that would come with a conviction break below the 1904 low on SPX. That 1904 level is the support level on a large double top that would target the 1789 area on a break below 1904, and that 1789 level is very close to both the 23.6% retracement level for the move up from October 2011, and rising support from that same low.

If I'm right about where we are now then that is my minimum (and likely) target area. The move to that level could be very fast, and leveraged longs continuing to buy every dip will be roadkill. My strong recommend is not to play chicken with this train.

I'll be calling the targets, changes and reversal prospects every day as equities progress down this road, and when this correction bottoms out I hope you will join me in what should be a really very nice dip buying opportunity.

On the daily chart the move yesterday was a strong punch down through the daily lower band that closed 12 points underneath it. The lower band closed at 1959 yesterday and could close as low as 1949 today. Yesterday was day seven of this lower band ride and I would normally expect to see a touch of the lower band at some point during today. We are now far enough below the 50 DMA at 1975 that I would expect that to now be strong resistance for the duration of this correction. SPX daily chart:
On the 60min chart SPX is getting close to the double top target at 1937.70, and also to falling megaphone support, now in the 1930-3 area. This is a prime area to look for a decent bounce, though I'm concerned that the bearish overthrow of falling megaphone resistance at Tuesday's high may be telling us that this falling megaphone may break down. There is no positive RSI divergence on either the daily or 60min RSIs as yet, and we would need at least a modest bounce to establish that positive divergence. SPX 60min chart:
I did my first ever webinar on Tuesday night, and one of the things I talked about there was the possible H&S on TRAN. That broke down yesterday with a target in the 8000 area, and I'm expecting that target to be made. As with all of the main US equity indices this current move is taking us to test support on major topping patterns, mostly double-tops, and that double top support level on TRAN is in the 7960 area. TRAN 60min chart:
None of the main US equity indices has made it to the major reversal pattern support test except for the ultra-weak RUT, which reached it at the low yesterday. On a conviction break below the target would be the 950 area, at which point the P/E would be down to a bargain-basement 60ish. No doubt legions of bargain hunters are already gearing up for that gold rush back into the Russell 2000 :-). RUT daily chart:
Oil has established a very nice falling channel from the 107 high, and now that strong 90 area support has broken I'm looking for a possible test of falling channel support in the 87 to 87.5 area. There is a good chance of a powerful reversal back up between here and there, but if that area fails to hold as support then I would have a double top target in the 68 area. That could get interesting as the Russian budget is significantly based on oil revenues and I understand that their balanced budget level requires an oil price near 100. Short term though I think that the 87 area on CL should hold and I am looking for a low here. CL daily chart:
TLT has been moving up as equities have been selling off, and looking at the TLT projection I published in July, there's no need yet to move any arrows. The obvious targets here are either to test the last high at 118 and possibly make the second high of a double top there, or to continue on to my preferred target at a test of the 2012 high in the 124 area. Either way my long term bonds charts are suggesting that this is a last move up on bonds to make the second high of a very large double top, so when this eventually starts back down you don't want to stay long. TLT daily chart:
We are still very much in sell rallies mode here and I am hoping that we get a nice rally to sell this morning, unlike yesterday morning. There is a chance that we may see a short term low at the hit of falling megaphone support, currently in the 1930-3 area, and I will start seriously looking around for signs of a low when that trendline is tested.

The next few weeks are likely to be very difficult for anyone who didn't trade until after the 2011 bear move, and at the least I would recommend selling rallies and not buying dips, at least not without very hard stops. For any futures traders uncertain as to how to trade a market like this, I would suggest taking advantage of a two week free trial in the Princeton Trader trading room where I am part of the top-flight trading team. We have been trading this very profitably so far, and expect to continue doing so. If you trade futures, and have no strong ethical or religious objections to trading profitably, then you can sign up for that free trial here. At the very least I can guarantee that it will be interesting and educational. :-)

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