breakout

Here is an update version of the hourly chart of the cash S&P 500 I showed you last week.

The S&P has broken out to the upside from a clearly defined, head and shoulders bottom formation. The standard measuring implication is that the market will move as far above the breakout point (green dash line) as the head (labeled with a green H) was below it. This works out to an upside target of 1405 or so (blue dash  rectangles).

In fact I think the market is going to break above its March-April highs by a substantial amount and will visibly exceed the target shown on the chart above. The rally from the June 4 low has developed against a steady drumbeat of despair over the ability of the EU to heal its economic sickness. Market sentiment also has been steadily bearish during the rally which began with a bullish divergence in my advancing issues oscillators.

The ability of the market to rally on bad news was actually emphasized today by its response to the Fed announcement. The Fed said that it was going to extend "operation twist" until the end of the year. In my view this was actually a bearish piece of news for two reasons. First,  operation twist is a purely cosmetic change in the composition of the Fed's balance sheet, not a balance sheet expansion which is what is needed now. Second, the Fed scheduled a tentative December end for the program. This is beyond stupid. It guarantees that the market will discount the end of the program well ahead of time and that any stimulative effect "twist" might have had will thereby be negated. What the Fed should have said was that it would continue operation twist until the economy moved onto a normal growth path of 2-3% real and about 5% nominal GDP growth.

The S&P dropped only 7 points after the Fed announcement, a surprisingly bullish response to what I thought was quite bearish news. It has since rallied to new  highs for the day and is flirting with its rally high. This response to the news shows that the underlying technical condition of the market is very, very strong. By this I mean that longer time frame traders and investors have on average bigger than normal long positions while shorter time frame traders have smaller than normal long positions. Shorter time frame traders are going to have to bid prices up a lot to entice longer time frame traders and investors to sell shares back to them.

The S&P is going much higher over the coming weeks and months.

Guesstimates on June 20, 2012

September S&P E-mini Futures: Today's range estimate is 1350-1367. A move to new bull market highs is underway.  

QQQ:  A move to new bull market highs is underway.

TNX (ten year note yield):  The 10 year yield is trading below  the low of its recent multi-month trading range. I suspect that QE III is just around the corner. If so yields will head back up to 3.00% and higher.   

Euro-US Dollar: The market has bounced off of 1.2250 support. Resistance above the market is now at 1.2760. EU survival will require a much lower euro than we see now. I think the market will eventually drop well below 1.1500.   

Dollar-Yen: This market is headed for 75 and lower.

July  Crude: The market is headed  down to  75.   

GLD – August Gold:   The market has dropped to the vicinity of the September and December low points at 1544 and 1529. I think a sustained up move is underway.  

SLV - July Silver: A sustained move up is underway.

Google: Google should hold support near 562 and then  resume its move up to 750.

Apple: So far AAPL has held well above its low at 528 (I think the reported 522.16 low was a bad tick!) even while the S&P and the Dow broke below their corresponding lows. This is a very bullish development. It makes me think the AAPL is now in fact headed above its 644 top. 

Guesstimates on June 19, ,2012

September S&P E-mini Futures: Today's range estimate is 1337-1353. A move to new bull market highs is underway.  

QQQ:  A move to new bull market highs is underway.

TNX (ten year note yield):  The 10 year yield had dropped below  the low of its recent multi-month trading range. I suspect that QE III is just around the corner. If it is yields will head back up to 3.00% and higher.   

Euro-US Dollar: The market has bounced off of 1.2250 support. Resistance above the market is at 1.2680. I see no sign that the decline is over. Indeed EU survival will require a much lower euro than we see now. I think the market will eventually drop well below 1.1500.   

Dollar-Yen: This market is headed for 75 and lower.

July  Crude: The market is headed  down to  75.   

GLD – August Gold:   The market has dropped to the vicinity of the September and December low points at 1544 and 1529. I think a sustained up move is underway.  

SLV - July Silver: A sustained move up is underway.

Google: Google should hold support near 562 and then  resume its move up to 750.

Apple: So far AAPL has held well above its low at 528 (I think the reported 522.16 low was a bad tick!) even as the S&P and the Dow have broken below their corresponding lows. This is a very bullish development. It makes me think the AAPL is now in fact headed above its 644 top instead of to 520 as I had thought previously. 

Guesstimates on June 18, 2012

September S&P E-mini Futures: Today's range estimate is 1320-1337. The overnight high at 1347.50 on the Greek election  news should be taken out later this week. In any case a move to new bull market highs is underway.  

QQQ:  A move to new bull market highs is underway.

TNX (ten year note yield):  The 10 year yield had dropped below  the low of its recent multi-month trading range. I suspect that QE III is just around the corner. If it is yields will head back up to 3.00% and higher.   

Euro-US Dollar: The market has bounced off of 1.2250 support. Resistance above the market is at 1.2680. I see no sign that the decline is over. Indeed EU survival will require a much lower euro than we see now. I think the market will eventually drop well below 1.1500.   

Dollar-Yen: This market is headed for 75 and lower.

July  Crude: The market is headed  down to  75.   

GLD – August Gold:   The market has dropped to the vicinity of the September and December low points at 1544 and 1529. I think a sustained up move is underway.  

SLV - July Silver: A sustained move up is underway.

Google: Google should hold support near 562 and then  resume its move up to 750.

Apple: So far AAPL has held well above its low at 528 (I think the reported 522.16 low was a bad tick!) even as the S&P and the Dow have broken below their corresponding lows. This is a very bullish development. It makes me think the AAPL is now in fact headed above its 644 top instead of to 520 as I had thought previously. 

Guesstimates on June 15, 2012

September S&P E-mini Futures: Today's range estimate is 1324-1342. Yesterday's strength surprised me and it looks like the start of a breakout move above the June 11 top at 1342. In any case a move to new bull market highs is underway.  

QQQ:  A move to new bull market highs is underway.

TNX (ten year note yield):  The 10 year yield had dropped below  the low of its recent multi-month trading range. I suspect that QE III is just around the corner. If it is yields will head back up to 3.00% and higher.   

Euro-US Dollar: The market has bounced off of 1.2250 support. Resistance above the market is at 1.2680. I see no sign that the decline is over. Indeed EU survival will require a much lower euro than we see now. I think the market will eventually drop well below 1.1500.   

Dollar-Yen: This market is headed for 75 and lower.

July  Crude: The market is headed  down to  75.   

GLD – August Gold:   The market has dropped to the vicinity of the September and December low points at 1544 and 1529. I think a sustained up move is underway.  

SLV - July Silver: A sustained move up is underway.

Google: Google should hold support near 562 and then  resume its move up to 750.

Apple: So far AAPL has held well above its low at 528 (I think the reported 522.16 low was a bad tick!) even as the S&P and the Dow have broken below their corresponding lows. This is a very bullish development. It makes me think the AAPL is now in fact headed above its 644 top instead of to 520 as I had thought previously. 

Guesstimates on June 14, 2012

September S&P E-mini Futures: Today's range estimate is 1291-1312. It looks like the ES is headed down to 1280 or so. From there a move to new bull market highs should begin.

QQQ:  A move to new bull market highs is underway.

TNX (ten year note yield):  The 10 year yield had dropped below  the low of its recent multi-month trading range. I suspect that QE III is just around the corner. If it is yields will head back up to 3.00% and higher.   

Euro-US Dollar: The market has bounced off of 1.2250 support. Resistance above the market is at 1.2680. I see no sign that the decline is over. Indeed EU survival will require a much lower euro than we see now. I think the market will eventually drop well below 1.1500.   

Dollar-Yen: This market is headed for 75 and lower.

July  Crude: The market is headed  down to  75.   

GLD – August Gold:   The market has dropped to the vicinity of the September and December low points at 1544 and 1529. I think a sustained up move is underway.  

SLV - July Silver: A sustained move up is underway.

Google: Google should hold support near 562 and then  resume its move up to 750.

Apple: So far AAPL has held well above its low at 528 (I think the reported 522.16 low was a bad tick!) even as the S&P and the Dow have broken below their corresponding lows. This is a very bullish development. It makes me think the AAPL is now in fact headed above its 644 top instead of to 520 as I had thought previously. 

interesting chart patterns

Here is an hourly bar chart of the cash S&P 500 covering the past month of trading.

As you know I think the reaction from the March-April highs ended at the June 4 low. Since the May 21 low point the market has been tracing out a couple of interesting examples of the classical head and shoulders formation.

The bigger and more significant pattern is a head a shoulders bottom. The left shoulder and the head are labeled with green letters. I am not really sure if we have seen the right shoulder yet or not, hence the two green  "S" labels which follow the "H".

Part of the uncertainty arises from the fact that the rally from the June 4 low has stalled and in the process of moving sideways the S&P has traced out a potential head and shoulders top (red lettering). The standard measuring implication of such a formation is that the market will drop as far below low preceding the rally to the right shoulder as the head was above that low. This would imply a drop into the 1280-85 range which I would then interpret as the likely left shoulder of the bigger head and shoulder's bottom formation.

With the Greek elections this weekend and the Fed meeting next week the market will have plenty of excuses to move in both directions so I think we are going to see breakouts from one or both formations over the next week or two.