SP500 At very interesting Psychological pivot.

I rarely comment on markets these days. However, the recent price action on Stocks (as well as many markets) are extremely interesting. Just over a week ago the psychology of the market, and various commentators, were along the lines of 'The world is about to end'. Maybe not quite that extreme, but I am sure you get the picture, it was an extreme of fear. Since then the bounce has been quite stunning, though with relatively little fanfare. The overriding chatter I sense is that this is just a bounce before further woes. However as the chart shows, there is a possibility that a much bigger rebound may be on the cards, at least with regard to the technical picture. Short-term signs are potentially a double bottom pattern over recent weeks if the market can break and hold above 1940/50. The twin hammer candles suggest that this may be quite possible, and if this does happen then this set the possibility of a move up to 2056 or even 2085. - Whilst this would not kill the formation of the overarching major topping formation, it would call into doubt for now. Equally failure to clear 1940/50, which may act as resistance for a few days, could turn the focus firmly back to lower levels.

Risky assets likely to stay on back foot, perhaps after bouncette. Quick Bund Update

Although risk seems to gaining some traction again, I can not help thinking that the upside is limited. THE SP500 followed through nicely on last weeks call, and whilst a bounce is possible, I can not help thinking that further downside is to come. I will hopefully elaborate on this further at some point this week, when I have time.

Echoing this theme, of risk-off has been a the Bunds (German Government 10 Year Future), which has seen a  decent bounce and rally of late, echoed by a large drop in German 10 year yield, all helped by the latest concerns on Greece and the PIGGS. This looks like it it a serious bounce, and I can not help thinking we have more upside to come over the coming weeks, though probably after some consolidation.

I have attached a Daily chart which shows the Bund future continuation. It looks as though we may have an irregular double bottom on this chart, also of interest is the daily pattern over recent days, the 3 up days ending yesterday have produced a bullish '3 White Soldiers' pattern, the antithesis of the bearish '3 Black Crows' pattern.

For longer-term players, there is a possibility of a move in coming weeks towards 127 area, with support first in the mid 123s, and more meaningful support in low to mid 122s, which will have to hold to keep rally on track. If this is correct, we may see some further flight from risky assets at the same time in coming weeks, after a small pause/correction.

The Hanging man looks in and EURCHF possible big reversal.,

The SP500 'hanging man' post of a couple of days ago generated some interest amongst some of my contacts, with opinion fairly divided as to what this signifies... It looks to me that the pattern is a done deal, though well this is bullish or bearish will only be determined in coming months. My favoured option is short-term it is bullish, suggesting a re-test of the recent high (with a possible marginal new high), but longer-term I feel this will likely be a major topping area. -- but the jury is out for now.

EURCHF

The top chart is the EURCHF daily, note how it has recently broken a significant downtrend. In addition a potential pattern forming appears as though it may be a major double bottom (of the rare 'Eve and Adam' double bottom format; for further info, including why it is called this, click here). The lower diagram shows an example of this sort of pattern.  - Note confirmation would be a clear break over Feb's high at 1.3205, with a poential target near 1.3900.

Cable(GBPUSD) is this a major breakout ?

- Shorter-term GBPUSD possibly heading for move to 1.7000/1.7150 in next few weeks, if current break up holds.
- Longer-term GBPUSD hugely pivotal at 1.7000/1.7150. I currently believe this area will cap it, however a clear break above could see move to 1.9000s through 2011 and 2012.

 The long-term GBPUSD FX (Cable to us old timers) chart appears to have made a significant break up. Recent weeks have seen the pair swinging about wildly as it tried to confirm and test what appears to be a major reversal triangle break out. The push higher of the past 2 days appears to me to confirm that we may have a valid triangle breakout here. In addition to this, the internal pattern, formed over the past 2 years appears to be another good old 'Cup and Handle' pattern.  - There is even the possibility of a major 'Double-Bottom' pattern, which would be confirmed over 1.7000. - The most significant feature however of this for me, is the breaking of the sequence of falling 'Significant Peaks' since the high in Nov 2007. All these signs point towards this being a major breakout of a significant nature. - (See Upper chart)

The big level is going to be around 1.7000/1.7150. The second chart shows how pivotal this level has been over the past 20 years. There has been 8 major approaches at this level from both below and above. The first being the month after the UK's exit from the ERM in 1992 (I remember that well). On that occasion, GBPUSD spent a month dancing with the 1.7000 level, before spectacularly breaking lower through it.  Since then this level has on 5 occasions acted as key resistance/support leading to significant retraces,and on 2 occasions it has broken through spectacularly. (Though it is worth noting that both occasions of spectacular breakthroughs on the longer-term charts, saw the initial approaches on daily charts rejected for 4 and 2 weeks respectively). - Also worth noting is that the 200 weeks Simple Moving Average is currently at 1.7096. The 200 week sma has also often acted in a pivotal nature over the past 20 years (See third chart below). The confluence of this with the pivotal zone at 1.7000/1.7150 only increases the significance of this area: On the one hand I believe it may act as a magnet in coming weeks, on the other hand it will act as a major hurdle and possibly a barrier if it gets there.

 

Is this the major bottom that the patterns above possibly suggest?

If I am honest, and counter to what I have written above, I don't think it is, or rather I think the balance of probability is against it. -  I believe 1.7000/1.7150 is likely to check the advance (though can not exclude a stop induced spike). This area is such a key level, that I doubt GBPUSD will have the head of steam needed to clear it. - I also have one or two reservations about the patterns I have described above: I prefer major reversal patterns to be contextually small relative to the major moves preceding them. If one looks at the major 'Head and Shoulder' pattern at the top from 2006 - 2008, this was relatively small compared to the move before it. Whereas the bottoming patterns I have identified are huge in time and price relative to the prior move. Further, I am a touch dubious of the 'Cup and Handle' pattern due to its clear 'V' shaped pattern. - Nonetheless, the break of the 'Significant Peaks' is to me hugely important, though it does point to the downtrend being over (for now at least), it does not signify a definite change to a longer-term uptrend, rather it suggests either a move to an uptrend or a move to a large longer-term sideways range.

In truth, time will tell, the patterns suggest a real possibility of a major advance, my feeling is that 1.7000/1.7150 may be a hurdle too far. - However, if GBPUSD can make a clear break through that pivotal level, then there is a real possibility that GBPUSD is looking for a continued move into the 1.9000s.

Shorter-term, barring a major new shock, or a real surprise budget, I believe the odds of a continued move towards 1.7000 over the next few/several weeks is strong, caveat - staying above the 1.6000 area.

One final point: At my last bank we called 'GBPUSD' (and 'Short Sterling' for that matter) 'The Widowmaker'. There was a reason for that.... I'l leave you on that note.....

S&P Correction

This morning the S&P futures have posted a quite dramatic turnaround from their overnight lows. Currently they stand at 1026 having been as low as 1003 overnight. On the daily chart this is potentially signalling a bigger bounce. If we can close around here or higher, then the futures will have completed a western 'Key Day Reversal'. This would also create a potential short-term double bottom with, the first part of which is a Doji Candlestick. Additionally this all occurs in the wake of Bullish momentum divergence. I do not think this is likely to change the bigger picture bearishness, however the futures have sold dramatically lower in the past 2 weeks by almost 130 points almost without a break, and a pause/correction is probably overdue.

Looking at the bigger picture, a correction would fit perfectly within the overall bearish outlook. I have posted two sets of charts below showing the larger bearish potential. The first is a set of comparison charts. The upper chart is the Weekly S&P Continuation Futures 2001 - 2008, the lower chart is the Daily S&P Continuation Futures Sep 2008 - July 2010. If u click to enlarge these charts, you should be able to see a very strong similarity between the 2 charts. (Note: this is different to the Fractal charts I posted in recent weeks). The current phase we are in, i.e. divergence at a new correction low, keeps the strong synchronisation of this comparison intact. If this comparison continues to unfold in a similar manor, this suggests the risk of a pullback towards 1060/65, though a break over the old support at 1040 may be a struggle. Followed by a a deep and strong bearish move with potential much lower.


The next set of charts show a Fractal pattern, which has occurred pre-the 1987 crash, and pre- the fall 2008 crash (and is therefore part of the above weekly chart). The current pattern over the past 2/3 months has unfolded in a very similar manor. A short correction from the current levels would be totally in keeping with this fractal pattern. - ( Obviously this does not mean a crash is coming, however it does highlight a favourable set-up is forming. )