SP500 and USDJPY updates

I am still no clearer to having a strong feeling with regard to the near-term direction of the SP500. I always preferred a breakdown from the rising wedge of the past month, however, it was how deep the breakdown would go, and how it performs post-breakdown, which for me was likely to be the key to subsequent direction. - The breakdown has actually been very deep, however thus far it still falls within the category of a re-test of the large 'Falling Wedge' breakout. Price action in the next few days is going to be crucial. - If 1050 gives way, (allowing for a possible spike), then the game is up for the bulls. If however, it can hold 1050-1080, and recover back over 1110, then the odds shift back in favour of the bulls, with a clear break over 1131 suggesting further highs ahead.

The following charts show one reason why I consider a break of 1050 as significant. The top chart shows the 2007/2008 SP500 'Top' preceded by the strong four year market rally. This rally was well supported by the 68 week Simple Moving Average (SMA). - The 2007/2008 top formed as a 'Falling Wedge' pattern, but the breakout of this wedge was cut short at this 68 week Simple Moving Average (SMA), which had turned from support to resistance.  - The lower chart shows a very similar pattern of behaviour with regard to the SP500 2009/2010, albeit with the 100 day SMA instead of the 68 week SMA. - The strong 2009 - 2010 rally, was supported (roughly) by the 100 day SMA, this has been followed by the recent Falling Wedge. However the breakout of this pattern has been cut short at the 100 day SMA, which has turned from support to resistance.

A quick look at the recent price action shows yesterday was a possible pivotal candle, this can be seen on the following chart. - The candle was a small 'Hammer' like candle with a gap down from the previous day's strong bearish candle. I do not think a strong rebound, given the strength of Wednesday's bear candle is likely near-term, however if yesterday's low can hold and the market pulls back slightly over the next few days, then it sets up some interesting possibilities. On the other hand if the gap yesterday remains open and the market breaks and holds through yesterdays's low, then dark clouds are gathering.

Finally a quick look at the USDJPY, which I touched on yesterday. - The USDJPY did manage to produce a strong pullback yesterday following the previous day's bullish hammer, this has created a 'Morning Star' type pattern, which is potentially a strong reversal pattern. - The chart below is the 4-Hourly candle chart of the USDJPY, the 'Falling Wedge' pattern can be seen clearly on this, I have also pointed out a series of lower highs from late July. - If this is going to reverse, then this series of lower highs has to be broken, and then a break and hold over the top of the Falling Wedge at around 86.60 must occur. Bigger picture, the trend remains lower, however there are some signs of a potential short-term reversal. Though I will add that a reversal would be unlikely to be maintained if equities get hit and a flight from risk occurs.- Even then, there is no rule that says the JPY cannot weaken as stocks move lower, particularly if, as may be happening, the BOJ are starting to jawbone it lower, or considering intervention.

And Finally..................


Something for the weekend. - I love this, it is Slash playing the Godfather theme...  Have a great weekend.