SP500 .. Consolidation Continues.

PM Update. Some ugly price action today, seen both sides of the range (mentioned below) touched with minor breaks. Also interesting pattern possibly formed, looks like upward sloping Diamond, similar to the top in April. 
(See chart below).

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AM Update

Today, is one of those days, when I am lacking inspiration. Not much has changed over the past 24/48 hours, the SP500 has been rangebound, having touched exactly the resistance at 1150 on Tuesday, then fallen away to the first support at 1132, for me these 2 levels are key for now. I remain undecided as to direction, there is definately an underlying Bullish momentum behind the SP500 after the surprisingly strong September, however as I have pointed out over recent days, there are plenty of potential warning signs that this could turn ugly again (See postings below).  In the meantime patience is required.

SP500.... Consolidation or Broadening Formation ??

The SP500 remains in consolidation mode. Last week it broke out above the June and August peaks, setting up an inverted Head + Shoulders consolidation breakout, and at the same time breaking the string of lower highs which has been a feature since late April. It has however balked at the 1150 resistance level, I have covered the various resistances at this level in the posts over the past two days.  - The past two week have seen tests of the breakouts and failed attempts to overcome 1150.  Hence we remain stuck inside this range for now, capped by 1150 and supported by 1132 and backed up at 1118, with lots of noise in between. (See chart below - Click on chart to enlarge).

One new aspect I am considering on the SP500 is the Broadening/Expanding pattern possibly being formed. The 4 hourly candle chart on the E-mini S+P futures below highlights this. - Broadening or Expanding formations tend to be reversal patterns, however one problem with these types of patterns is that they can be extremely difficult to confirm, price action can be very volatile and erratic and what may appear to be a Broadening Formation could easily turnout to be consolidation.

 

If however this does turnout to be a Broadening Formation, then this could have strong Bearish implications. The next chart shows the SP500 Index over the past year, I have highlighted the current formation, and 3 previous Broadening Formations, each of which led to significant corrections.

One noteworthy obsevation, all three prior formations saw minor breakouts to the downside, followed by a sharp correction back to the upper half of the pattern before ultimately breaking lower. This is not unusual with these type of patterns, I stress that they are one of the most difficult patterns to successfully navigate, however they can have serious reversal consequences once successfully completed. I highlight this further by showing the weekly SP500 Index back to 2005; the major top in 2007, prior to the 2008 bear market, was a Broadening Formation, and as I have stressed before, it is possible that our current price action over the past year may be part of one ugly Broadening Formation.

SP500 - Failure at 1150?

We have seen a lot of noise on the equity indices these past few days, one of the indices I have been watching is the Bank Index, this has been lagging the recent rally in equities, last week this produced a bearish 'Three Black Crows' Candle formation, Friday's move only managed to return to the middle of this pattern, whilst yesterday produced a 'Bearish Engulfing Day', this keeps the near-term picture bearish on the Bank Index.

With regard to the SP500, the 'Rising Three Methods' formation which I mentioned yesterday on the SP500 was null and void following failed confirming follow through. This also backed away from the 1150 resistance, just a reminder I had 4 different signals acting as Resistance here at 1150 on the Daily SP500. The chart below shows three of these. 1) The Horizontal Line drawn from the Jan 2010 highs. 2) The Mid Line on the Andrews Pitchfork. 3) The top of the Rising Channel which has largely contained price action over the past 5 months, and which is projected from resistance and support form 2009.  The 4th resistance level is the 2/3rd retracement of the decline from April to the June low, which also occurs at 1150.

Also worth noting that the Nasdaq Composite has hit the 2/3rd retrace in the past 2 days as have the NYSE index, whilst the Dow Industrials has hit the 76.4% retrace. The confluence of these key levels as resistance may yet prove to be significant. moving back to the SP500, as long as the 1150 resistance holds firm, my stance will be neutral, a break back through last weeks low at 1118 would however be a bearish setback.

SP500 finely balanced - but leaning to the upside.

I believe that most the time markets are finely balanced, the price at any one time relative to an earlier period reflects the various arguments for and against a higher or lower price, be they Technical Arguments (which in my opinion are a graphical depiction of the overall market psychologically), or Fundamental Arguments. - That is not to say that I believe the price is necessarily right at anyone time, but rather that it could go either way, depending on whether the bullish of bearish factors win in the short-term, eventually though it will move to the right price level, though when that occurs and how that occurs is a path unknown, indeed even the idea of a correct price level is itself a subjective argument. - But as the great investor and trader Benjamin Graham once said "In the short run, the market is a voting machine, but in the long run it is a weighing machine." 

- In recent weeks I have espoused various Technical Arguments in favour of the Bull Case, along with some contra arguments which could argue in favour of the bear case. Last week was an interesting week, after an initial break up through key resistance, the bear case appeared to re-assert itself with a number of potential warning signals causing concern, however this turned around sharply on Friday posting a strong bullish move on decent volume which took the SP500 back towards the high of the week, indeed Friday may well have been a key day. - I will re-iterate the 5-day Candle Pattern formed over the course of the week, which I mentioned on the afternoon update on Friday, it is a pattern known as a 'Rising 3 Methods' pattern, this is a continuation pattern, an example of this is shown below:

The above pattern is a short-term pattern, and as with all short-term patterns follow through is required as confirmation, without this the pattern could be null and void. In the meantime the SP500 is very close to significant resistance at 1050. I have 4 different signals acting as Resistance here at 1150 on the Daily SP500. The chart below shows three of these. 1) The Horizontal Line drawn from the Jan 2010 highs. 2) The Mid Line on the Andrews Pitchfork. 3) The top of the Rising Channel which has largely contained price action over the past 5 months, and which is projected from resistance and support form 2009.  The Fourth resistance level is the 2/3rd retracement of the decline from April to the June low, which also occurs at 1050.

However, what is also crucial is that last week saw a break up over the neckline of the Inverted Head + Shoulder continuation pattern, which can not be seen in anything other than a Bullish light. 

One of the markets giving me concern last week was the Bank Index, this has been the laggard market in recent weeks. Friday however it made a decent bounce off support, keeping a large Rising Wedge pattern (A potentially Bullish Formation) as a remote possibility. Note I had said on Friday that the top line of this had been busted, however this appear not to have been the case (See chart below showing the BKX ETF).

I will re-iterate the various Bullish and Bearish arguments in greater detail in tomorrow's post. I hope today's post is not too confusing, in summary I think the odds are increasingly favour the Bullish side, though the Bearish arguments still weighs on this.

SP500 Index, BKX and VIX Update + classic Fawlty Towers.

Yesterday's setback for US equities has not resolved anything, the likelihood of a pullback was strong after the breakout of the neckline of the recent inverted Head + Shoulder formation, however I am still undecided as to whether this is merely a pullback to correct some of the strong rally over the past 3 weeks or if we are looking at something more worrying. I made a decent case for the bullish argument a few weeks back, (This can be seen by clicking here and scrolling down the posting), yesterday I said that there a number of warning signs suggesting caution, that posting can be seen here. - Today I am bringing something new to the argument, it is a further interesting twist on the SP500 it shows the range of the past few months as a very wide consolidation band, sloping slightly upwards. However, whilst at first glance these lines these lines, and particularly the upper line, appear to be drawn against the recent highs and lows, they actually extend a lot further back. - I have pasted a second chart below showing these same lines extended back to 2008.

When looked at from the bigger picture, this turn down from resistance looks like it may have greater significance. The upper line acted as key resistance in June 2009, then as support on several occasions through late 2009 and early 2010. Since late May (the flash crash did break it for a few minutes in early May) it has acted as resistance, with the exception of the failed break above it in early June. - This line has proven to be pretty pivotal over the past year and a half. - The same can be said for the lower line which exactly parallels the upper line. The lower line acted as support in late 2008, despite being broken for a couple of days on a spike basis, it then provided support through Jan 2009, once broken it saw a very sharp decline to the March 2009 low, however when the market recovered it acted as support in April 2009 and again crucially in July 2009. More recently it provided solid support to the two recent lows of June and August this year. - Of course the rejection of the upper line does not mean that it will not break above it, however I think this has throw out a further warning indicator to add to the points I made yesterday.

With regard to yesterday's posting, the Bank Index posted a very poor day yesterday, and closed inside the upper declining wedge line, which further points to an increased risk of a false breakout of this declining wedge. (See chart below).

Finally the VIX index continues to stir, this had failed to decline with the recent rally, it not surprisingly jumped on yesterdays sell-off, and is very close to the upper line of a large declining wedge. A break of this line would be a concern, suggesting possible further gains for the VIX. (See below).

To sum up my view, I do not have a firm opinion at the moment on this, I see an underlying Bullish structure bigger picture, but shorter term I see some indications that are a touch disconcerting. On the downside, I would not take a bearish view yet, I would like to see some sort of cofirmed short-term top, this I do not see yet. I think the market may help me make up my mind in the couple of trading days, in the meantime patience is warranted.

PM UPDATE

The market has made a strong upmove in the wake of this afternoons data, and is currently re-testing the early weeks high, if the market closes anywhere near current levels (1142) this will have completed a Bullish Candle Pattern known as a 'Rising Three Methods' pattern, which is a Bullish Continuation pattern. The insert below shows a typical 'Rising Three Methods' pattern, the chart below shows the current Daily SP500 Future. If the SP500 does hold this level into the close it shifts the odds towards further gains for equities, at least in the short-term.

 

 

Finally something for the weekend.

Earlier this week I had a frustrating ordeal talking to a Call centre in India,,, sound familiar?....As the conversation progressed (or rather did not) I could n't help thinking I had the Sub-continent's equivalent of Manuel of Fawlty Towers fame on the other end of the line. Which leads me nicely into this weeks 'something for the weekend', a couple of clips from the brilliant 'Fawlty towers'. The first clip is the Spanish waiter Manuel on the phone. The second clip demonstrates Basil Fawlty unique way of dealing with Communication issues, I would love to know how he would have dealt with an Indian Call Centre.

SP500 v Bank Index - Some worrying signs.

The last couple of days have seen a pause in the SP500, perhaps this is expected after such a continually strong rally in recent weeks, and given the key break of the 1132 resistance this week, we could be merely seeing a corrective pause. Many of the elements I have mentioned in recent weeks continue to suggest medium term we will see further strength, however I certainly do not consider this a given at this stage, and there is one or two matters which still bother me. One of these is the lagging performance of the Bank Index. - The top chart below shows the Bank Index above and the SP500 below. On the face of it, the Bank Index made a break out of its own Falling Wedge in the past 2 weeks, this should and could be a bullish development, however thus far this breakout has been somewhat uncertain.

Looking at a direct comparison versus the Bank Index and the SP500 the picture however looks more worrying. The top chart below shows the past five years of comparison between the SP500 and the Bank Index. I have highlighted the incidences where the price action diverged negatively between the Bank Index and the SP500, this occurred on three occasions in the early stages of the 2007/2008 bear market and each time subsequently dragged the SP500 lower. The lower chart shows the Bank Index v the SP500 in the past six months, note there is a strong similarity between this chart and the period in the larger chart in 2007 at the start of he major 2007-2008 bear market. 

Another concern has been the recent divergence between the VIX Index and the recent gains on the SP500. The charts below highlight this.

Another worrying sign has been the recent Volume on the SP500; during the rally from the late August lows, the volume has been poor, on Monday it picked up a little, however given the big up day and break of key resistance it was not huge, however the last 2 days have seen small negative days, yet Tuesday was the largest volume day since late June (with the exception of last Friday's option expiry day), and yesterday also saw bigger volume than Monday. (See chart below).

Divergences (either momentum or comparison indices) and volume are secondary indicators, in the same way that a warning light on a car indicator panel warns that there is something which needs looking into but does not necessarily mean the car is about to stall, however, the more indicators are flashing, the more caution should be taken - Currently therefore, I read this as an increased risk of a correction to the recent rally, with an outside possibility of a failed breakout of the recent key resistance around 1126 on the future (1132 Cash), which could have longer-term bearish implications.


Further to the above, I have posted below charts showing the SP500 future (8 hour candles) over recent months, note how the price stalled exactly at the Andrews Pitchfork resistance. The second chart below shows this same chart zoomed in, the futures have broken below the base of the rising channel of the past 2 weeks during the European morning session today, support from the neckline (not shown) connecting the June and August highs come in around 1121 on the future (1127 Cash), a break below here could see a more aggressive correction towards the gap at 1105-09 on the future (1109-1113 Cash).

EURUSD main trend may have turned? same for EURJPY + USDPY updats

EURUSD WEEKLY

Yesterday's strong jump in the EURUSD in the wake of the FOMC statement has seen a couple of key levels breaking on the EURUSD chart. This may be suggestive of a larger Bullish move in the pipeline over coming weeks and months. - The top chart below shows the Weekly EURUSD in the much bigger picture. I have highlighted the significant divergence with the MACD and price at this years low. In addition I have also shown the 40 Week Simple Moving Average, this can be seen to have been a pretty reliable indicator of trend on the EURUSD. The second chart below is a close-up of the Weekly Candle chart, the break of the 40 week SMA can be seen more clearly as can a Head + Shoulder type formation on the EURUSD, with the Neckline broken overnight. - In order for these signals to be gain validity I would like to see this break up hold through to at least the weekend.

 EURJPY WEEKLY

The EURJPY is also seeing a number of Bullish signs. The top chart shows the Long-Term weekly EURJPY chart. The recent low has also produced significant Bullish Divergence between the major lows of the past few years. The lower chart shows a close-up of the Weekly Candle Chart, I have highlighted a Falling Wedge pattern on the EURJPY, which has seen a breakout over the past couple of weeks, this has strong potential as a significant reversal pattern. Finally I have highlighted a break of the downtrend in momentum on both the RSI and MACD, although I always consider momentum as secondary indicator to price, breaks in the trend in momentum can still be catalysts for significant moves when accompanied by a price pattern or set-up. 

USDJPY Update.

The USDJPY has come back to test the breakout of the July - September descending channel @84.70/75 after failing to take out the 86.00 level, it has since moved a little further hitting a low at 84.52. Whilst I consider this a re-test, I would have liked to have seen 70/75 hold, I now consider the 84.38/40 area as key intraday support, this is the 50% retrace and the intraday highs on the 10th/13th Sept before the drop to new lows and the intervention rally.  - A failure to rebound back above at least 85.00 in the next day or so, would lead me to question my more Bullish view, whilst a move over 86.00 would bring the Bullish scenario very much back into play.

SP500 , Bund, US T-Note, USDJPY, + AUDUSD updates.

SP500


The break up yesterday on the SP500 Index above recent resistance would appear to suggest further gains ahead. Last week I highlighted a number of Bullish Technical Factors supporting the SP500 (Can be seen by clicking here), the breakout of the Neckline of a continuation inverted Head + Shoulders pattern further bolsters this. - Key now will be to see how this performs in the wake of this breakout, I still suspect that we may see a pullback in the next week or so after a probable further push higher, possibly to the neckline of the breakout at 1132 on the SP500, or I suspect perhaps deeper to the gap underlying the the recent consolidation around 1110-1113. - If this occurs, then subsequent price action on this pullback will provide a strong clue as to future direction. Bigger picture I favour a return to the highs of April 2010, if however, the pullback makes a successful break below the 1110 gap, then I may have to reconsider.

USDJPY FX

After last Wednesday's intervention inspired rebound on the USDJPY from a low below 83.00 to almost 86.00 the USDJPY has been consolidating just below 86.00, I still feel a stronger rebound remains a possibility. The pattern on the weekly chart supports this, the past 3 weeks has formed a Bullish 'Morning Star Pattern'. This can be seen on the Weekly chart shown below: Note how the entire downtrend from late April began with the Bearish form of this pattern, a Bearish 'Evening Star Pattern'. Dec 2009 also produced one of these patterns. I also refer back to the analysis I produced last week whereby I noticed a similarity between USDJPY recently and the period in early 2004, this can be seen by clicking here .

Thus far the USDJPY has not yet re-tested the breakout around 84.70, I do not rule this out before this makes further headway, however it is possible that a re-test may not yet occur and the USDJPY forges ahead, this will grow more likely on a sustained break over 85.90/86.00. The daily chart below shows the key resistance around 85.89-93.

BUND FUTURE

The following chart shows the Bund Future (German 10 Year Yield inverted) daily candle chart. The past few weeks have seen a significant retracement of the major June/July rally. Currently I feel this move is an on-going correction, I feel that there may be some further room to run on this move. If this correction does run further, then I have highlighted some levels where I feel this may run to, I have a cluster of supports around 128.20 - 128.45, with a key level just over there at 128.70. I am however keeping an eye on a possible breakout of a Bullish 'Flag' pattern on the US 10 year note future ( I will highlight this on the next chart) should this happen it is probable that the Bund would get dragged higher too, if that proves to be the case then the downside may not have much further to run on the Bund future. 
























US 10 YEAR NOTE FUTURE

The following chart shows the 10 Year Note Future continuation daily candle chart up to last nights close. I have highlighted what I believe is a Bull Flag pattern, this is a continuation pattern, a successful break of this pattern should see a further resumption of the strong rally seen over recent months. Note, this morning the T-note has broken above the upper flag line, however I would prefer to see whether the move is valid in US trading hours. Also, at the risk of missing a big move, I would like to see if any break can hold for a couple of days.

AUDUSD FX


Finally the AUDUSD, this broke above its key resistance of the past year. If this can now hold this break through the week, ideally over 93/94, then this suggests significant gains ahead in coming months for the AUDUSD. - A failure in the wake of the break of resistance could however be a signal of a deeper retrace. though for now I consider this the lesser probability. Weekly momentum studies are supportive, though shorter-term studies suggest immediate further headway and some consolidation are perhaps likely.

Some Market Psychology, the SP500 and AUDUSD FX..

I had a comment on Friday that my posting contained quite a few 'ifs and buts and possiblys' etc, etc. - This is no accident, nor an attempt to be try and be deliberately noncommittal, rather I always try to express all my views and opinions in terms of possibilities and probabilities, rather than definites or certainties. The reason for this is that I always assume there are no certainties in markets, the very best view I can have is what I consider a high probability view. I try to take this attitude into my trading, whereby I never think that a particular trade will make money, but I believe it may make money. - Furthermore, I do not necessarily always take a trade on every market view I have, in fact I take relatively few trades in relation to the many opinions I have, however what I do is try and understand the market at all times, then look for what I consider low risk/reward set-ups.  -- As an aside; - in my past I was guilty of placing trades which I considered guaranteed to make money, those were usually the ones which blew up in my face, furthermore, with these trades as they moved against me I was usually adamant that the trade would turn around and eventually make money, therefore I would hold these losing trades far longer than I should, thus compounding the original error. - This is why one of my favourite market quotes (Courtesy of Todd Harrison of Minyanville) is: 'Know what you know and know what you don't. And no matter how good you think you are, remember to stay humble. For if you don't, the market will do it for you.'

SP500

Harping back to Friday's post, not a lot has changed, Friday's rejection of the key resistances on Equity indices was always a strong possibility on a first attempt. The price action left a number of potentially bearish Daily candles across US equity indices, with the S+P e-minis producing a Shooting Star pattern. In order to see further gains a clear and sustained break has to be be seen above the congestion between around 121/124, and then the 126 area, which is approximately equivalent to 132 on the SP500 cash. Significant support for me is the gap on the futures at 1105.75/1108.5, I would not be surprised to see this tested at some point this week, particularly if the futures fails to clear the resistance area. If this test does happen, the reaction to it may be both crucial and pivotal as to how this performs moving forward. - The chart below highlights this:

AUDUSD

The AUDUSD FX has made a strong move higher this morning, if this can be maintained then this will favour the odds of a successful break higher on the AUDUSD. This comes in the wake of what appeared to have been a rejection on Friday when the AUDUSD produced a strong Bearish Gravestone Doji candlestick. This shows the importance of waiting for confirmation before taking a single candlestick signal. (This can be seen below). - I will add that if the current level, which is a break of major resistance, is not maintained or if the price fails to make a clear break over the next few days above the range of Friday's Doji candle then the possibility of a setback is still on the cards. If on the other hand a clear beak is maintained, then the range of this Doji is likely to become major support for a pullback.

AUDUSD - Break or False Break?? SP500 an interesting Short-Term Pattern . + Classic 'Life of Brian' moment.

I have mentioned on many occasions how I see AUDUSD FX as a strong barometer of Risk-on versus Risk-off. - Over the course of this week the AUDUSD has been trying to break over key Resistance around .9400. It made a push earlier this week, however it was not able to sustain this, once again however it is making a push over .9400, currently it stands at 9440, the high of the day so far was .9469.  If this break can be maintained then the odds grow strong that the AUDUSD is likely to make a meaningful push higher over the next few months. IF this were to happen, it is likely to suggest that investors are once again looking to adopt greater levels of risk, which clearly should have bullish implications for US equities.  - The counter argument, would be that a failure here would at a minimum suggest further consolidation of the range of the past few months, with the risk of a much deeper correction. - My favoured view is that an break higher is coming, though I am not certain whether this is it, the next next couple of trading days should produce some clarity on this.

To elaborate on what I am looking at. The pattern I am seeing on the AUDUSD chart is a Right-Angled/Descending Expanding Triangle. (Essentially this is a Descending Expanding Triangle where the top line is Horizontal or near Horizontal). Successful breakouts of these patterns tend to lead to strong Bullish moves. The insert below shows the typical set-up.  [Note: On shorter term charts I call this a 'Slingshot Formation', as the behaviour reminds me of a slingshot, whereby the strong pullback will add impetus to the eventual breakout, leading to a strong and dynamic move.]

The Weekly AUDUSD FX chart below shows the large pattern I am referring too, which has formed over the past 10 months.

Below I have posted some prior examples of this pattern. Note : these patterns are quite rare, they are also prone to false breakouts as per the first example below which shows the US 10 year Note Future through 2009 - 2010. The above chart bears quite a strong similarity to this particular example, thus if it were to repeat the similarity it could mean we may see a further period of consolidation below the upper line for several more weeks prior to eventually breaking out.

The next two examples are from the Continuation Bund Future in 1993 and the Sp500 Future from 2005.

 

 

One other observation from the AUDUSD chart is that this pattern may be part of a much larger Multi-Year 'Cup and Handle' pattern which has been forming over the past 10 years. I am always a touch reticent to label patterns over such large periods, however since this may have strong Bullish consequences for the AUDUSD over the long-term I do think it is worth displaying.

Today's close is quite crucial, since a close well over .9400 could confirm a Daily and Weekly break of the key resistance. However as per the first example above, a reversal and poor close could mean further consolidation lays ahead.

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MIDDAY Update - Markets have turned around sharply, the AUDUSD has slipped back sharply to 0.9400. If this sharp intra-day correction is maintained, and we close around here or lower, it brings the 'False Break' scenario into play.

Also I have noticed the SP500 may be forming a rare '3 Peaks and a Domed House' pattern on the Short-term Chart. - I have attached the chart below, together with a copy of the Idealised '3 Peaks' pattern. This may lead to a correction down towards the start of the pattern around 1090 over the next few days.

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Finally ... Something for the weekend.

Earlier this week I was discussing crowd psychology and its effect on price action.  I will not bore you with details of the conversation, however it did lead to me recalling one of my favourite scenes from 'The Life of Brian' which easily makes it into my 'Top 5 movies of all time'.  The scene is where the reluctant Brian is addressing the mass crowd standing outside his house: it goes as follows:

Brian: Look, you've got it all wrong! You don't need to follow me, you don't need to follow anybody! You've got to think for yourselves! You're all individuals!
The Crowd (in unison): Yes! We're all individuals!
Brian: You're all different!
The Crowd (in unison): Yes, we are all different!
Man in Crowd: I'm not.

Here is the scene -- Pure class.....


Have a great weekend... Wherever you are...........

US EQUITIES

 Equity indices have reached key levels. The SP500 index is running into 1130/1132 key resistance band, I favour the first shot at this area as likely to see an initial failure, however I have to consider that there is a risk we could see it burst through here leading to heavy stop action, or we could see a small stop induced break and failure.  Bigger picture however, I think there are increasing bullish signs and a successful break over 1132, either now or after an initial setback, will I believe be a signal for further gains in the weeks and months ahead. I do however consider all options open, and can not rule out that a failure here could be the beginning of a sharp decline which could accelerate below 1090. 

My view that we may be heading higher eventually relates to the price action and the pattern formed over recent months. - I posted an article back on the 3rd August (can be seen by clicking here.) where I suggested that the larger formation occurring could be a Falling Wedge pattern which may have a bullish outcome. In support of that I posted the following chart, where I identified different types of Falling Wedge patterns (This is a repeat of earlier exercises I have carried out in Fixed Income markets).

A list of the four types of 'Falling Wedge' can be seen by clicking here. At the time I identified the pattern forming as a 'Type 2 - Falling Wedge', though I did add the following caveat - 'Just to add a layer of confusion (The market does not like to make it too easy). Though I have labeled the recent wedge as a 'Type 2', it is not out the question that it is a 'Type 3' or even part of a larger non-wedge pattern.'  - Price action since then has if anything re-enforced my belief that we have a 'Type 2' pattern, if this turns out to be the case, this would suggest that we should have a bullish resumption, with a strong possibility that we are heading back to the highs of April at a minimum. - By the way though my confidence in the 'Type 2' call is increased, the above caveat still remains. - The chart below show the current pattern labeled as a 'Type 2 Wedge', I have also shown below that the two previous 'Type 2 wedges' from 1998 and 2006.  - Note the 2006 example bears a stronger resemblance to the current pattern.

Further to the above this Type 2 Falling Wedge pattern can be seen across a host of US Equity Indices. The following charts shows the Dow Industrials, Nasdaq and NYSE index.

 

The Bank Index (See Chart Below), did start to follow its own path on the last low, however it appears that this may have moved back to becoming a 'Type 2' set-up, this is one to be watched...

The Dow Transports Index also shows a similar set-up, however price action created a Type 1 rather than a Type 2 Falling Wedge, this also tends to have a Bullish Resolution (See chart below).

At present none of the above indices have yet made a break above the previous high from early August. This should be watched, since a clear and sustained break over these levels are likely to be the confirmation needed to suggests higher levels ahead, a failure (which I think is most likely short-term) will be lead to further consolidation for now or possibly a deeper decline (which I favour as least likely).

Elsewhere there are other signs which I believe continue to point to an eventual favourable resolution for US equities. The chart below shows the VIX Index v the SP500 index over the past few years, the VIX index continues to trend lower in a similar way to how it moved in early 2009.

Finally a number of key FX markets, which have been strong barometers of Risk-on versus Risk-off over the past few months continue to shows signs of potential bullishness suggesting a return to Risk-on may be on the cards. The top chart below is the EURCHF, the trend remains lower, however there is strong bullish momentum divergence between the low of July and the September lows, as well as within the recent September low. This may be flagging up a risk of a correction higher in the EURCHF cross. The lower chart shows the AUDJPY cross, this has been one of my favoured risk barometers, this has made a decent breakout of the symmetrical triangle, suggesting further gains ahead.

 

 

Finally the AUDUSD has a potentially very Bullish 'Big Picture' pattern, this can be seen on the chart below the Pattern is a 'Right Angled Expanding Triangle'. This suggests a strong bullish move eventually for the AUDUSD.  A rising AUDUSD, is something I equate with 'Risk-on'. - However, short-term, it is up against strong and significant resistance, in the same way as the SP500 and other US equity indices. I would be very surprised if the AUDUSD was to make a successful break over this resistance on a first attempt for many months, particularly in light of the 6+ big figure rally over the past three weeks, without any real consolidation or correction.

 

 - To summarise. I feel that the technical outlook for US equity is starting to look brighter, I am seeing what I consider increasing signs of an eventual Bullish resumption for the next several months (though I still feel that this will be a precursor to a much more severe eventual bearish move). In the short-term I still feel a corrective setback may occur, though possibly on a failure at 1132 or on a stop induced breakout above 1132.