Submitted by Nic Lenoir of ICAP
When we recommended last Friday to take profits on shorts initiated in S&P at 1,080 when we tested the 88-week moving average, I certainly had no idea we would be right back hanging around 1,055 by Tuesday. In fact it seemed then we would get a good selling opportunity around 1,035/1,038. The ways of excess liquidity are sometimes mysterious...
There is a complete absence of sellers today. One can vaguely see a resistance around 1,060.3 for the future but it's very minor. In fact if one looks at the 21-RSI on the 30 minute chart we can see we are as overbought as we have been since July 15 and August 21, and both times correspond to short squeezes in the market after headfake sell-offs. Squeeze it is then! Beyond 1,060.3 the only resistance the S&P future will face is 1075.5, after which we should go straight to 1138 which corresponds to the 61.8% of the entire sell off since the highs. At that level I would expect a lot more resistance. I am not going to try and attempt to describe the wave structure from the lows of March. I have even come to consider recently that the real lows were October and that March was an irregularity as part of the consolidation (irregular wave b or ii for purists). It is what the FX and credit markets indicate in fact.
The only bearish case I can see from the highs at 1,080 would one where we are piling up as part of a violent wave iii lower, but that would be very bearish, and if it is the case then we should sell-off aggressively and relatively soon. Maybe this scenario has a remote chance of playing out if we are back down below 1,035 for the future by Friday or Monday, but it's a stretch.
The currency markets continue to allow cheap financing of the carry trade, with the dollar index now seemingly headed back for new lows. We will find consolation in that we offered a decent level of entry to attempt buying the USD, but from where we stand now it seems hard to conceive DXY will not make new lows in relatively short order. 76.21 was the 76.4% retracement which we are still hovering around keeping an ounce of hope, but I am afraid it is just that. Gold is screaming higher fueled by rumors of secrete meetings between a bunch of anti-dollar villains. I will have a lot more to say on that later.
Good luck trading,