If the SPX rising channel had broken down on this recent retracement I would have little doubt that we were looking at topping action here, with a steep channel being replaced with a shallower channel prior to a significant breakdown. The rising channel on SPX has not yet broken down however, so this may just be consolidation.
On the current ES channel an RSI 15min sell signal triggered overnight, but unlike the previous seven signals this was at the test of the last high rather than at channel resistance. This should mean that we are going to see this channel break soon. If we see a break downwards then there are decent looking candidate double-tops on ES and SPX. Here's that reversal on the ES 15min chart:
A deal was agreed on Cyprus last night and equities and EURUSD rallied strongly. I follow San's work and he was suggesting on Friday that we might well be looking at a diamond top forming on ES. Here's how that looks on the SPX 60min chart:
This morning we're looking at very much the same setup as we were yesterday morning, only we have moved to the other side of the looking glass. Yesterday morning we had an active ES 15min RSI sell signal and were sitting three points above the ES 50 hour MA at 1546, and this morning we have an active ES 15min RSI buy signal, and at the time of writing are sitting 2.5 points below the ES 50 hour MA at 1545. I posted an intraday ES 15min chart on twitter yesterday with a channel support target and you can see that ES reversed there with a slight pinocchio. On a break above the 50 HMA at 1545 the target is channel resistance near the current ES high, and that would now be a strong double-top candidate. If we see short term channel support break then main support is in the 1530 area, and on a break below there the double-top target would be in the 1500 area:
The decision on Cyprus has been delayed until Monday and may be delayed further. The principle that depositors' money has to be appropriated seems to be off the table and Cyprus is looking hard for a viable alternative. Cyprus may well not be a market mover over the next few weeks if an alternative solution can be found.
This toxic precedent has been set however even in the failed attempt, and this is likely to have a strong effect over the next couple of years as bank deposits leave the EU for friendlier climes. This also fits in with my view of bonds, where I think a major decline over the next couple of years is just getting started. I'll be explaining my technical reasons for this view another day, but for now I think an H&S is forming on TLT with the next major downside target in the 106.5 area as the H&S neckline. I have sketched a possible path for this on the TLT chart below:
On 25th October 1854 one of the most famous mistakes in modern (ish) warfare was made in the Crimean war at the Battle of Balaclava. Due to a mix up in communications the Light Brigade of the British cavalry was sent to frontally assault a very well defended artillery battery. This they did with panache and appalling losses, prompting the watching French Marshal Pierre Bosquet to remark 'C'est magnifique, mais ce n'est pas the guerre, c'est de la folie' which translates as 'It's magnificent, but it's not war, it's madness'.
Fast forward almost 160 years and similar orders were given by EU leaders to Cyprus. This time there was no miscommunication, simply arrogance and miscalculation. The attempted appropriation of a portion of the savings of bank depositors in Cyprus has set an unambiguous precedent that bank depositors in marginally solvent EU countries are now seen as a legitimate source of funds to shore up failing EU banking systems, and despite the overwhelming rejection of the plan by the Cyprus Parliament that precedent remains, though short term the EU has overnight been pulling back from their threat to pull ECB support from cypriot banks and force them into immediate bankruptcy unless Cyprus proceeded with this plan.A nod here to german comedian Wolfgang Schauble for his hilarious comment this week that the situation in Cyprus is 'unique' and sets no precedent for deposits elsewhere. Who says Germans have no sense of humor?
The overnight action on ES was not encouraging for the bear side. ES has recovered over the 50 hour MA and that has now held as support overnight. Declining resistance from the high has also broken. We could decline from here still but on a decent break over 1550 a retest of the current highs seems likely:
There will be some mystified expressions among European bureaucrats this morning after the blow-up over the EU plan to fund the bailout in Cyprus by appropriating up to 10% of bank balances in that EU member. Their confusion has some cause.
Over the last few years, as government central planners have responded to ever increasing crises (caused in the main by incompetent government central planners) by appropriating ever more powers and employing ever more 'unconventional' methods to avoid facing the consequences of previous mistakes, savers have had to become used to their pension funds being required to be invested in increasingly risky government bonds at very low rates, to centrally set interest rates every year that confiscate and redistribute to borrowers all of their real interest income and some of their (real terms) capital. There has been discussion and approving talk in the press of the possibility that interest rates might go negative, meaning that in addition to losing all of their real interest income, and some of their (real terms) capital every year, savers would also be fined some of their nominal capital per year for not spending their savings on consumption or non-cash assets.
On this day an awfully long time ago a roman general turned dictator for life learned the importance of maintaining a decent personal security team in a tyranny. It hasn't tended to be a particularly eventful day since then though there are strong rumblings on USD and CL today which I'll be coming to later.
SPX pushed up strongly yesterday and closed 6 points below the daily upper bollinger band. Historically this signals that the unusually short retracement from the upper bollinger band has ended. SPX is reaching 70 on RSI again so we are in an area where the next big high may start to form, but that could take a while and go quite a bit higher: