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Wednesday, 22 March 2017

Markets Are Like Onions

That was a very powerful break down yesterday, ending what I understand was the longest period on SPX ever without a 1% daily decline. The rising wedge from November 2016 has broken down. The minimum target retracement should be the 38.2% fib retracement target in the 2280 area, and the next trendline support is rising wedge support from the February 2016 low, currently in the 2220 area and rising of course.

In the short term the open sell signals on the daily and hourly charts have made target, and I am looking for a topping pattern. I am also watching for the potential lower band ride that may be starting here, and in the case of a strong lower band ride we may see the daily lower band, currently at 2347, act as resistance, and the 3sd lower band, currently at 2335, act as support. If bulls can convert the lower band at 2347 to support then they have a shot at a strong rally here that could potentially retest the ATH to make a likely second high of a double top. SPX daily chart:
Peeling away a couple of layers down to the hourly chart, both RSI 14 and RSI 5 buy signals have fixed today, as well as buy signals on all of the ES, NQ and TF hourly charts that fixed overnight. That is encouraging for a rally here, if bulls can break back above the daily lower band, which they have failed to manage so far but are trying again now. At the moment there is a perfect 70% bullish falling megaphone formed on SPX and that's a decent pattern that could deliver that ATH retest.

Sometimes though these patterns form and then take the lower probability 30% option and break down. If seen here the target would currently be in the right target range 2265-75 and in effect the falling megaphone would be that topping pattern that I'm looking for. This is a relatively rare setup but happens regularly nonetheless. If bulls can't break resistance and deliver that strong rally then that may well happen here. SPX 60min chart:
Peeling away more layers down to the 1min chart we can see that from the rally high at 2359 yesterday a triangle has formed on SPX, and has broken up and may be backtesting now before a terminal thrust up begins. If bulls can make that confident break up over the daily lower band then this setup could deliver that strong rally. if the break up fails here then I'd expect at minimum a retest of today's low and very possibly continuation down from there. If the hourly falling megaphone breaks the support trendline then ideally that would backtest the broken support trendline and continue directly down. If we see that then we could see that 2265-75 target range made in the next few trading days. SPX 1min chart:
So there we have it. We have been watching bulls and bears duking it out in a key support and resistance area today and a sustained break in either direction from that range may well define the next few days. We'll see how that goes.

Stan and I are doing a free educational webinar at theartofchart.net an hour after the close tomorrow, and that will be a third webinar in the 'Technical Patterns You Can Profit From' series. If you would like to see more of the methods that Stan and I have developed to help forecast market direction over many markets then you can sign up for that on this page here.

Tuesday, 21 March 2017

The Rising Wedge Breaks Down Hard

The SPX rising wedge broke down slightly yesterday and then followed through hard this morning. I have a minimum target at the 38.2% fib retracement in the 2280 area. However I would normally expect to see a topping pattern at a high like this and while there is some potential for an H&S to form, I'd note that about 70% of SPX significant highs are made with double tops, so we may well still see an ATH retest before the main decline begins. If we are to just see a move to 2280, and that is going to be set up with a double top, then the obvious place to see the rally to the second high start would be in the 2340-50 area, and I have drawn in a couple of possible bull flag support trendline options for that. The first one has been tested at the current low today. The hourly RSI 14 sell signal has made target but no positive divergence yet. SPX 60min chart:
On the daily chart the middle band has broken down hard and the lower band has been tested at the lows. If we see a move to the 3sd lower band in the 2340 area that would be an extreme level of short term oversold that would normally deliver at least a modest rally. In the absence of a large rally today the RSI 5 sell signal should make target at the close. SPX daily chart:
I'm seeing some H&S potential on ES here if we see a rally into a backtest of broken triangle support in the 2362 area (ideally). ES Jun 60min chart:
NQ made a new ATH this morning and then broke down from a small double top with a target in the 5340 area that has not yet been made. NQ Jun 60min chart:
Yesterday morning's double-top setup on TF broke down hard this morning and has made target. TF has broken the last low at 1350 and the obvious big level not far below is the possible H&S neckline in the 1340/1 area. TF Jun 60min chart:
I'm watching for divergence here and looking for possible high retests starting soon on SPX/ES & NDX/NQ. Less likely on RUT/TF. We may not see those retests but if seen those should set up some great entries for the main decline to come. Today is a cycle trend day and it may be that there will be no significant rally until the last hour or the close.