Lots of items to tick from yesterday’s post:
- a reversal at ES 1770 to 1760 (those were yesterday’s high and low)
- a quick spike in the dollar up to 81.11-81.22 (just tagged 81.21)
- a dip in EURUSD to 1.33-1.34 (just tagged 1.335)
- USDJPY would reach and react to 98.76 (just tagged it, waiting for a reaction)
Here are some charts…
ES just ran up to the red midline on the ECB rate cut and should react here before heading higher.
Yikes! After a perfectly obvious breakout on the ECB rate cut, the market came undone on (good news is bad) news that GDP grew faster than expected (2.8% versus 2.0 expected) and a decline in initial claims.
It’s silly, really, since most of the GDP growth was due to inventory buildup. Without it, GDP growth was 2.0%. And, consumer spending (1.8% growth) slipped to its lowest level since 2Q 2011.
When I wrote that ES “should react here” after breaking the Oct 30 highs this morning, I never dreamed it would drop 22 points. It has probably bottomed out here at 1752.25 and should respect the white channel bottom (aka the H&S neckline) and the purple .786 Fib.
But, as we discussed yesterday, all the support in the world won’t matter much if buyers — delirious over their Twitter gains — are convinced that a bubble pop is imminent. We’re skating on thin ice, and a failure to rebound intraday would be quite negative for equities.
Even though the previous high was taken out, the pattern’s 2nd right shoulder still hasn’t busted the H&S pattern (top of the white channel.) I suspect this latest neckline test was designed to clear out the weak bulls before the next leg up. From where I sit, it was pretty darned effective!
UPDATE: 2:30 PM
The cruelest aspect of this morning’s pump and dump was the way it stopped out the bears who had stops in at the previous high (interestingly, this didn’t happen on SPX, just ES.)
Could the same thing be happening on the other end? ES just dipped below the Nov 1 1747 lows — no doubt stopping out most anyone with a bullish bent.
Yet, there are plenty of signs of a bottom here at ES 1745. Consider the Dow, for instance, getting strong channel support when it counts.
EURUSD caught a bid at the white .236 channel line and .500 Fib of the 1.27 to 1.38 rally. A backtest of the broken yellow channel at the red .618 (1.2636) or even .886 (1.3770) looks like a good bet.
And, SPX itself is a mere 14 points from closing at the neckline of its H&S Pattern (and, back in its rising red channel.) It would mean a recovery 50% of its losses on the day — something we often see in the last half hour of trading.
One word of warning: SPX has seen more than its share of failed H&S patterns after similar sell-offs. I wouldn’t hold short overnight on the expectation of a continuation tomorrow unless you’re able to hedge your position.