Courtesy of Springheel Jack
The test of the 1440 area pivot on the S&P 500 (SPX) that has seemed likely for weeks is now occurring. SPX closed at 1438 on Friday. I described two alternative outcomes of this test on August 19: a very bearish strong reversal, or a very bullish break above the 1440-50 area (read here):
I’ve posted several charts supporting a bearish outcome of this test during the last few weeks, but the overall bear case has taken a pounding over the last few days. The bullish case has strengthened considerably.
The downtrend on EURUSD (Euro down, USD up) and the uptrend on USD (US Dollar) were broken with confidence on Friday. EURUSD broke its declining channel; USD broke below its main rising support trendline. Below is the USD daily chart showing the break. Similar breaks below support during the last five years have led to trends continuing in the direction of the break and lasting several months (not shown):
(click on charts to enlarge)
Another bullish sign on Friday was copper breaking declining resistance from the 2011 highs. The 32 year chart below shows that copper is still at nosebleed levels historically, but further upside seems likely and the case for a large H&S pattern forming is weakening:
I posted the MSWorld chart (currencies of the world, without the US Dollar) a few weeks ago showing a fully formed H&S, and the declining channel from the 2011 high that would need to hold to maintain a bearish outlook. That declining channel has been broken and retested (below), and I expect a move to retest the 2012 highs. I am looking for a retest of the 2011 highs in the 1850 area also. The MSWorld chart is now distinctly bullish:
A bullish outcome is never guaranteed, and it depends – in the long run – on the predicted actions of the world’s central banks, the perceived results of their interference with so-called natural market forces (a myth), and ultimately on the actual results of their activities.
The European Central Bank is willing to “print money” as needed, and that was interpreted as bullish for the Euro and bearish for the US Dollar. With a large European QE push in progress, an argument could be made that it should weaken the Euro, but instead it is strengthening it now.
From a technical standpoint the odds have shifted towards a break up through 1440/50 resistance on SPX. If that happens, a test of the 2007 highs is likely to follow.
Short term, however, SPX is very overbought, trading well above its daily bollinger bands. A short term high below 1470 is likely, followed by a retracement and test in the 1400 to 1420 areas. I think that test would be a buying opportunity.
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