Slope Of Hope with Tim Knight

Topping is a Process (by Springheel Jack)

That was a very nice day for the bears yesterday until the rally in the last hour wiped out the day's losses. Overnight ES has broken to a new high and so far the broken resistance area at 1352-3 is now holding as support. Technically however, despite all the drama, nothing much has changed on the SPX chart apart from a double pinocchio of support from Dec 19th that is suggesting a bigger break downwards soon. Short term I have trendline resistance in the 1362 area, and support is now in the 1344-5 area. The 2011 high was at big resistance in the 1370.6 area and that isn't far away now:

Greek Fires

The Greek Parliament passed the austerity measures required for the Eurozone rescue yesterday night, and the spontaneous street celebrations in Athens are showing that, for the moment at least, the greek public seem to be solidly behind the deal, even if those celebrations seem a little over-exuberant by non-mediterranean standards. It's reassuring to see however that the greeks are united, as they undertake a program of austerity and reform which might well prove overambitious for a more weak and divided nation:

 

Inflection Point (by Springheel Jack)

As I mentioned yesterday the negative divergences have been building over the last few days and it appears that at the time of writing, equities are likely to gap down heavily on reports that the Greek deal is falling apart. I'm surprised by the Greek news I have to say, I was expecting it to last at least a week or two after being finalised, though against that, the deal is so obviously against the best interests of Greece, and has so much resistance to it there, that perhaps this is not such a surprising development after all.

Quite a few interesting charts this morning and I'll lead with a chart showing the daily bollinger bands on SPX, NDX and RUT. You can see how these indices have been walking the upper bollinger band upwards during this amazingly strong move, and if we are to see a retracement here, which seems likely, the obvious targets are the middle bollinger band in the 1320-5 area on SPX, with some strong support in the 1333 area, and rising channel support (marked) on NDX and RUT:

Bonds Near Breakdown

Bearskin Rugs (by Springheel Jack)

I was joking on twitter yesterday morning that the short-term bearish setup I was looking at looked very tempting, even if people were having to climb over piles of bearskin rugs to get to the screens to see it. Needless to say there was a report early in the day that the Greek are very close to finalising their no-default default, and both EURUSD and ES broke up hard to trash that bearish setup. This market remains in a strong uptrend and JBTFD is still the order of the day.

It still looks early to think about a top on EURUSD and GBPUSD at the moment. I've been posting my big picture USD chart and the obvious target is a hit above 76.72 in mid to late February. I can't see any reason to doubt at the moment that we will see that level hit, and at that point we will see if that rising channel on USD can hold:

Bullish Break (by Springheel Jack)

SPX broke decisively above declining resistance on Friday, which has eliminated one of the last bearish options on the table from the low in October. There are two main options remaining. The first is that SPX makes a double-top at the 2011 high. That is a very strong resistance level as it was also the base for the 2007 double-top. The second, which would fit with a retest of broken rising support from March 2009, would be a higher high as the end of wave 5 from that 2009 low. As wave 3 cannot be the shortest wave, that would have to finish below 1434.44. Above 1434.44 the path is clear to a retest of the 2007 highs.

Obviously there may well be no bearish resolution here, and given how far this current wave up has come since the December 19th low, any reversal in the near future may just be a retracement of this current move before new highs. With NDX at 11 year highs, and Dow beating the 2011 high on Friday, this is certainly looking pretty bullish at the moment:

US Dollar Weakness Examined (by Springheel Jack)

I haven't much to add to my ES & SPX charts from yesterday here so I'm going to concentrate on other things today. Support is still at Monday's low and resistance is still at last Thursday's high so a break of either with any confidence should deliver the next significant move. I was asked yesterday whether in effect I was saying that a break higher should be followed by more upside, and that a break lower should be followed by more downside, and that is exactly what I'm saying here, and is a good description of any setup confined between strong support and resistance levels. Obviously we are a lot closer to resistance than support here at the moment.

Teasingly Ambiguous (by Springheel Jack)

It's often tempting to anthropomorphise the markets, whether describing the movements of the markets, or referring to the dark forces that some feel are manipulating the markets behind the scenes. I don't subscribe to the latter view, as I think that the force manipulating the markets is doing so quite openly, and that force is the Fed, helped by other central banks, keeping interest rates negative and flooding the world with new money in the expectation that rising asset prices will boost the real economy. I do sometimes anthropomorphise the market however, and this week the market is being a tease.

I mentioned yesterday morning that a break above my SPX declining channel would open the way to a test of the highs and that was what we got, to within three points. In terms of direction that resolved absolutely nothing, as the failure at the afternoon high on SPX was a lower high, a potential double-top, and a second test of declining resistance from the 2007 high. Here's the updated big picture SPX daily 6yr chart:

Looks Corrective (by Springheel Jack)

SPX has closed down for four days running now without actually moving down much. That might be a topping process of course, but this looks like a corrective move before a new wave up, which supports the contention of many EWers that this is a wave 4 retracement. That being the likely case, has this retracement already ended? Well we made a higher low yesterday, and on ES we've seen a (short term) higher high overnight, but looking at bonds and EURUSD I'm still leaning short, and SPX has not yet hit the obvious target at rising support from November, though it might not get there of course.

Short term on SPX I'm watching a new declining channel. Resistance is in the 1317.5 area so ES is going to have to drop somewhat from the current area near the overnight lows to stay below it. As long as SPX opens below there the current downtrend is intact. If that channel breaks then the path is open to a test of the highs and perhaps much higher. If the channel holds then the blue trendline within the rising channel is rising support from Monday's low, and on a break of that trendline a possible move to channel support in the 1290 SPX area opens up:

Retracement, Interrupted? (by Springheel Jack)

A very annoying feature of this move up since the December 19th low is that the retracements have been shallow and, mainly in consequence, no strong support trendlines have formed. This was looking very good to be the first decent retracement this year, with a clear target trendline in the 1275-85 SPX area (depending when it was reached) combined with a pullback on EURUSD that also looks overdue.

I posted an ES chart on twitter last night that showed the ideal setup there and that was on the 15min chart below: