The Hundred Handle Hurdle

I have a tasty chart medley in store for you on this beautiful Sunday – interesting perspectives on both the medium and short term. So let’s dive right in!

The spoos opened right at the prior NLSL and the best next support zone is the 25-day SMA at around 1180ish. A lot can happen overnight of course but if you are watching the tape in the next few hours then that 1198 mark is an important line for trading either a breach or just a retest.

That flag/channel continues that hundred handle hurdle neither side has been able to conquer. The inflection point for the bulls is the 1250 mark, which is where a lot of volume would most likely produce a massive short squeeze. If we ever get there that is – see my long term perspective further below.
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect] [amprotect=1,13,9,12,5] Here’s a slightly different perspective on the same story. In terms of momentum there was a real purpose for all the energy that has been exerted to keep the tape afloat. It’s not just a desperate measure to keep prices above the SPX 1000 mark – rather long and medium term momentum had a chance to catch up with that early August toilet flush.

The 25-day BB is already starting to point up and the 100-day is pushing into neutral. Will it help the longs to turn that big tanker we call trend around? I’m not sure yet as breadth is showing normalization but also weakening in both camps:

That August plunge came with an unheard of NYSE D/A reading of 64:1 – I had to recode my breadth indicator to not squash all other spikes. Since then it’s been down hill – less and less bearish momentum. But still – rather strong by ‘normal’ standards.

Same story on the bullish side – those spikes are insane and we have a lot of them, but each selling series up produces weaker spikes as well. It truly looks like both sides are running out of ammunition – OR – maybe either side is getting less emotional. Frankly, I still have to make up my mind about all this but wanted to share it so you guys can chime in as well.

In the end price is the ultimate judge and the weekly paints a clear picture of that hundred handle channel we need to clear – one way or the other. It’s either 1240-1250 or 1140-1150. Until we get beyond those clusters we remain in limbo land. Since it’s a rising channel the onus of course remains on the bears to take this tape down – time (and seasonality) is on the side of the longs (see Volar’s musings for more detail).

Just looking at pure NYSE volume I wanted to show you guys how shot out we were at the recent lows. A 15:1 ratio was not even recorded during the entire 2008 crash. And if you just visually compare that spike with prior ones above the 10:1 mark then I must say that we didn’t really drop a lot in terms of prices given such an extreme volume ratio.

Which is a bit puzzling in the context of the next three charts:

Copper – usually calls the shots, right? Well, it’s scraping at support yet again, but worse we are painting a clear divergence.

Credit markets seem to be pricing in risk and there continues to be a clear flight into saftely. And look at that bearish divergence – this is extreme as I have seen it.

Very same picture on my junk vs. long term treasuries chart – no surprise there. But I wanted to double check and this confirms a significant trend change starting in early 2011.

Adding to the confusion is gold which ought to be sitting pretty if there’s a flight into safety, right? Wrong! My P&F chart just issues a juicy triple bottom break down. For you uninitiated here are the rules right from stockcharts.com:

A triple bottom breakdown is similar to a double bottom breakdown except that the price at which the breakdown occurred is a price that the chart retraced from two times before. This implies that the price level is a more significant area of support (area where buyers are willing to buy the stock and create demand that outstrips supply) than what is seen on a double bottom. The breakdown below this level implies that the sellers are now creating more supply than there is demand and therefore the prices are breaking down.

What’s not explained here is how they arrive at that price target. Easy – just count the longest series of circles inside that triple bottom and project downward starting at the breach of the trend line. We have 12 boxes (highlighted) down and that gets us to (drum rolls…) 1690 or potentially lower. If you are a trend trader (paging Mr. Fearless!) then you should really really get your head into these P&F patterns as they will make picking targets a lot easier for you. In any case – gold could easily correct 200 handles without breaking a sweat within its current bull market.

Now let’s finish things up with where we left off last Sunday – currencies! A lot of interesting charts on that end:

This is really not the most significant chart today but I found it rather humorous. Moral of the story is that the Banque Nationale Suisse bitch slapped a whole bunch of currency vigilantes over a week ago and now it seems that they’ve completely lost their appetite. Gee – I wonder why! 😉

Which may make the CHF a great currency to to sit out any FX drama for now. Well personally I prefer to be hedged against several at the same time. Which reminds me – one intrepid rat sent me this a few weeks back – seems to be another great way to hold several currencies in one account. Don’t recall his name – but a big hat tip for sharing. It’s been extremely tough for U.S. citizens to not get jail raped whilst holding U.S. Dollars in the past few years, so any creative (and legal) ways to soften the blow of Bernanke’s QE policies are always appreciated.

Alright, on to the raw meat: AUD/USD – I can literally hear Scott thinking retest variation buy here. But wait for it – we want to see how today’s candle closes. I’d prefer it either down but above that support – or a push above the Friday’s highs – that simple.

I was looking forward to a nice inside candle opportunity on the EUR/USD and then the damn thing has to gap lower today. I would watch out for that 100-hour lower Bollinger which is almost exactly at the next NLSL. So, I would love to see a drop down to 1.356 to stage an easily defensible long position.

AUD/JPY – courtesy of a carry trade our closest correlation to what happens over in equities (and in particular the spoos). The 80 NLBL seems key in staging any push higher – so this is where you want to be long. On the downside look at 79 – 79.10, which on the hourly seems to provide support in the form of the 100-hour SMA and the lower 25-hour BB line.

Finally cable which looks awfully terminal in my unprofessional opinion – I don’t even play a doctor on television. But when I see a currency pair fall away from almost a dozen NLBLs without ever touching one of them then I am looking down and not up – unless proven otherwise. If you are a trend trader this is where you keep holding as currencies and commodities do not trend like equities – they keep pushing way beyond most people’s pain threshold and then some. Great markets for masochists and sadist a like and you don’t have to wear leather.

Anyway, look at those Bollingers – the 25-day is already pointing down and if that 100-day is starting to drop as well we may see quite a bit of continuation here. Lower lows and lower highs – that’s all I’m seeing right now.

Bottom Line:

Admittedly a contradicting picture on the equity side – long term things are still looking bearish, medium term we may see some an early fall surprise to the upside. But remember seasonality and once again it seems the bears are ignoring a huge opportunity to stick it to the bulls. Despite copper and that divergence on the junk ratio you must always remember that the market opens doors and then eventually closes them. In terms of downside potential the door is still wide open for the bears but I don’t see them take it – yet. Once we push into mid October that boat will have sailed, and that’s when we’ll be mostly focusing on the long side again.

Cheers,

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