ETF (GOLD & US Dollar)

On its way down from 168, GLD broke its first support level and came to rest on the second (200-DMA) from which it had a bounce. Last week, I suggested that it might find some resistance on the small horizontal red trend line, which it has, and which caused it to pull back three points. It’s difficult to see how it could have much more of a decline right away if the market is going to have a mid-correction rally, so we can probably expect the near-term trend to turn up again, perhaps reaching the top channel line (blue) before rolling over again.

Gold Etf

If GLD does not have much of a rally from here – especially if the market does rally – it will be an indication that some decent weakness can be expected into the cycle low. In any case, subsequent action should form a P&F pattern which will help us determine the extent of the decline into the 25-wk cycle low.

UUP (dollar ETF)

UUP normally goes against equities and gold. The index appears to be extended short-term and eady to pull-back. This can be seen in the indicators, one of which is very overbought and the other beginning to show some negative divergence. If a short-term top is forming, this should help the market to find a short-term low.

US Dollar ETC

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S&P 500 Weekly Update

Last Friday I suggested that price was involved in unfolding a terminal pattern: “Maybe price is unfolding a Triangle that should establish a bottom with the last thrust down, who knows if at the 0.618 retracement the PPT will step in.”

Instead of a Triangle price traced an Ending Diagonal, some good news came form Washington and price after testing the 0.618 retracement reversed to the upside, leaving in the daily chart a bullish hammer.

Therefore the wave structure off the November 6 peak is most likely over. This down leg, if my preferred count is correct, is the wave (A) of the last Zig Zag from the September 14 high. Therefore I am expecting a multi-day bounce followed by a lower low that should complete the corrective EWP (Recall that I am working with a Triple Zig Zag) from the September 14 high with positive divergences.

The internal structure of this bounce at the moment suggests that price may unfold a Double Zig Zag, in which case the common extension targets are:

1 x 1= 1369
1 x 1.618= 1380

A counter trend bounce always entails risks since the EWP can easily morph into something else, so next Monday I would like to see follow through to the upside or at least price should not breach the initial higher low at 1351.06.

In order to keep the ball running to the upside, bulls need price above the 50 wma = 1366.85 by next Friday, theoretically it looks like an easy task.

sp 500 chart

Therefore the extreme oversold readings of breadth & momentum Indicators + logical level for a short-term bottom (0.618 Retracement) + reversal pattern are the “ingredients” that should allow a multi-day rebound.

sp 500 weekend chart

In the daily chart below I highlight the target box for the assumed wave (B) countertrend bounce with a range 1382 – 1402.

A weak bounce should fail at the 200 dma while a strong one will go deeper inside the box and two trend lines resistance could come into play.

sp 500 weekly update chart

So the good news for the short-term bullish case is that there are enough technical reasons that auspicate a larger rebound.

But the negatives are still more overwhelming, since in addition to an incomplete EWP there is no sign of a major bottom from breadth-momentum indicator, VIX and sentiment.

Bulls also have the bullish seasonality of a shorter Thanksgiving week, while volume is expected to shrink.

In any case we know the two potential catalyst that are needed for the resumption of the intermediate up trend:

  • US political agreement of the “Fiscal Cliff”
  • Spanish Bailout

In addition since the Operation Twist ends in December, the next FOMC meeting on December 12 will be a major risk event and could be another detonator for a Major Bottom of the equity market.

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Flag Trendline SP500 Update

We’re hearing much talk about the potential Bear Flag pattern on the S&P 500 Daily Chart.

Let’s take a mid-week update on the pattern and note the current key price boundary levels to watch for clues.

First, here’s the S&P 500 Daily Chart trend-lines structure:

SP-500-Daily-Chart

Moving from right to left, we see the current “Bear Flag” consolidation pattern stretching from early June to present.

The lower rising trendline resides near 1,340 while the upper rising trendline continues near 1,390.  The 30-min chart below emphasizes these trendline levels.

Now, moving to the left of the chart, the last time we saw a similar Daily Chart ‘flag’ struture was from August to October 2011.

While price did break the downside trendline, the full downside target was NOT achieved due to a power-rally which developed off the 1,100 Index level.

From there, price structure continued to trade mostly in a “Creeper” uptrend, bound by the prior “flag” trendlines until the breakdown of May 2012.

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Shanghai Composite reached to Support

Shanghai-Composite

The Chinese government reported imports rose just 6.3 percent last month from a year earlier, less than half the 12.7 percent expected increase. No doubt this reflects softening domestic demand in the world’s second largest economy and one reason why commodities have been selling off.

Don’t you think the government has to be cooking up something big?

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Weekly Market Structure in S&P 500

S&P 500

Note the weekly bear flag on the S&P 500 index. You may call it by a number of different names (wedge, pullback, anti, flag, etc.), but the concept is the same: A period of contracting volatility with an upward bias following a sharp selloff. This pattern could be expected to resolve downward, providing a headwind for bearish trades over the next several weeks. Be aware that weekly patterns can take a long time to play out, and there is plenty of room for upswings on daily and intraday timeframes even if this weekly pattern resolves cleanly. Knowledge of higher-timeframe technical patterns often provides good context for trades on lower timeframes. This is an important part of understanding evolving market structure and potential technical risk factors.

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