SP Index , EURUSD, and German 10 Year Yield.

The advance in US equities continued apace yesterday, the SP500 index has now had 6 solid days of gains. However, it is now running against some key levels which may check its advance in the short-term, and could even be pivotal in the bigger picture. These can be seen in the chart below: The top of the wedge and the 50 day SMA both coincided with last night's close around 1095/96, additionally short-term momentum studies (60 & 30 minute) are showing some minor divergence up here.  Also the round number 1100 possibly adds some weight to this, particularly with the 76.4%  SP Sep 10 future retracement at 1099.5.

Looking further ahead; yesterday I discussed the possibility of the NYSE advance-decline line signalling further bullish move in US equities (Click here to see this post). Today I present a chart showing the SP500 together with its advance-decline line. The SP500 advance-decline line has broken above its the upper boundary of its declining channel, which may be a bullish signal, however it would need a clear break and close over the equivalent price line to add any weight to this. I have also re-emphasised the similarity of the  price pattern over recent months with the a smaller price pattern last May - July. It is noteworthy that the Adv-Dec line for these 2 patterns are also moving in a similar fashion.

Moving on to the EURUSD (Click on chart below to enlarge), over the past couple of days  the downtrend line from the December's high has been breached, this adds to the possibility of a deeper retrace towards a cluster of targets near 1.3100. However arguing against this is considerable resistance in the form of the neckline of the Multi-year Head & Shoulders pattern (See lower chart). The neckline of this pattern occurs in the 1.2720/1.2750 zone, which continues to cap this for now. - Note a break of the neckline would not necessarily kill this Head & Shoulders pattern,  it would need to a major corrective move over many weeks before its potential downside threat is lessened .

Finally a look at the German 10 year yield. The top chart below shows another pattern similarity, again on different scales. This suggests growing possibility of a turn higher (lower in the Bund future) in yields possibly towards 2.86%. This would fit in with a scenario in these highly correlated risk-on/risk-off markets of higher stocks and a higher EURUSD. This move higher is supported by Bullish momentum divergence on the weekly German 10 Year yield chart (See Lower Chart). Further to this, I will add that the break out of the base in Mar 2009 was co-incidental to the low in the stocks, however also note how tortured price action was before finally squeezing higher. If this repeats it may go through a similar process, before finally breaking higher.

The next few days will be critical. With key earnings reports and options expiry on equities coming up, and some key pivotal level as mentioned, I would not be surprised if we were to see some corrective activity over the next few days. How far this goes will be key as to whether the next few weeks turn more bullish, or whether my prior bearish scenarios, which I have termed as currently on life-support, manages to make a return.