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Friday, 17 November 2017

Janus Flags

The Janus flag setup I was looking at on Wednesday delivered yesterday and I'll talk a little more about these today as they are relatively common and worth remembering.

In this case on SPX what appears to be a high quality H&S has formed and broken down towards a target in the 2635 area. In truth though, as shown on the chart below, a perfect bull flag channel has also formed, which broke up yesterday with a strong minimum target at a retest of the all time high.

What were the tells here? The RSI divergence buy signals and lack of topping patterns on the hourly NQ and TF, and the channel/wedge shaped decline on SPX. A classic example of this kind of continuation flag is a break below the reversal pattern support and then rejection from there breaking declining resistance from the high, and that is what we have seen here.

These are very useful patterns and I've named them Janus Flags after the roman god with two faces. Janus is the god of gates / doorways / transitions, and has two faces because he is always looking simultaneously backward and forward in time, not unlike a technical analyst actually, so he might well be considered the patron god of TA. :-)

SPX 60min chart:
On the SPX daily chart the RSI 5 sell signal made target and the RSI 14 sell signal has found support for the moment at the 50 level on RSI 14. What is often seen in this situation is a higher high on price with another lower high on RSI before another and probably stronger retracement. SPX daily chart:
The ES, NQ and TF futures charts below were done before the RTH open for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

ES broke up from the flag wedge yesterday with a minimum target at a retest of the all time high. The weekly pivot at 2579 was support overnight and is being tested as support this morning. On a break below the next support would be broken flag wedge resistance, now at 2573/4. ES Dec 60min chart:
The bull flag wedge broke up yesterday on NQ and reached the minimum flag target at the full retest of the all time high. I'm not seeing any obvious reason to expect NQ to reject hard there, but obviously this is a potential double top setup. NQ Dec 60min chart:
TF did pick up the pace yesterday and I still like this setup as an overall bull flag megaphone forming. If so the next target within the megaphone would be megaphone resistance currently in the 1515 area. If that isn't the case then the 61.8% fib retracement of the falling wedge that broke up there yesterday is obvious possible resistance. TF Dec 60min chart:
NQ and TF reached obvious resistance levels yesterday, but the ES/SPX target to retest the all time high is a strong target that I'd expect to see reached 90% of the time, so my lean is that ES/SPX reach that target after this small pullback and likely that also pulls NQ and TF through immediate resistance.

Support today on ES is at the weekly pivot at 2579.1 and broken flag resistance in the 2773/4 area. Support on SPX is at the 50 hour MA at 2580, being tested at the moment, and the daily middle band at 2578. A break with any confidence below the daily middle band today would add considerable weight to the bear scenario here.

Next week is a holiday week and I'd note that the only remaining days this year with a historically significant bearish lean are the last trading day of November and December. Everyone have a great weekend :-)

Wednesday, 15 November 2017

Waiting For A Break

The daily RSI 14 sell signal that I was looking at yesterday fixed at the close, and there are now fixed daily RSI 5 and RSI 14 sell signals on both SPX and ES, though the SPX RSI 5 sell signal may well reach target at the close today. SPX daily chart:
At the open this morning the H&S that I was looking at on ES yesterday broke down with a target in the 2532 area. On the chart below is the even higher quality SPX version, which broke down with a target in the 2535 area, before rallying back over the neckline. At this point there are only two high probability options. The first option is that SPX/ES head down to those targets, the second option is that the setup fails, and we see a fast return to the all time high, and that reversal would generally occur shortly after the pattern support break. SPX 60min chart
If we do see that reversal, then that would be something that I call a Janus flag, which is a kind of flag that looks like a topping pattern until that pattern fails, but is in fact something else. In this case there is a decent argument that all of ES, NQ and TF are in fact forming falling wedges that would normally be forming as bull flags. It may be that the reason that the only decent topping pattern is on SPX/ES is that all time high retests are needed to form topping patterns on NQ and TF as well.

The alternate option to that though is that the falling wedges are the topping patterns on NQ and TF, and that they will take the lower probability 30% option to break down delivering high quality targets below. That makes the setup here a simple one.

On ES wedge support is now in the 2555 area, slightly under monthly pivot at 2556.8. A sustained break below looks for first the H&S target at 2532, and then the wedge target in the 2515 area. Wedge resistance is now in the 2579 area, crossing the weekly pivot at 2579.1. A sustained break above looks for that all time high retest. ES Dec 60min chart:
On NQ wedge support is now in the 6230 area. A sustained break below looks for the wedge target in the 6110 area, slightly below rising support from the September low, currently in the 6125-30 area and the obvious target for a retracement here. Wedge resistance is now in the 6310 area, slightly above the weekly pivot at 6301.2. A sustained break above looks for that all time high retest. NQ Dec 60min chart:
On TF wedge support is now in the 1454 area, and broke down slightly in what may have been a bullish underthrow this morning. A sustained break below looks for 1390 area, where there is some established support at the early September low. Wedge resistance is now in the 1475 area, slightly under the weekly pivot at 1479.6. A sustained break above may looks for an all time high retest, though TF would need to pick up the pace a bit to deliver that. TF Dec 60min chart:
This should be a straightforward either/or scenario, and if it resolves up then the ATH retests on Es and NQ may well be the second highs of slightly larger double tops. We'll see how it goes.

Stan and I are doing a free webinar at theartofchart.net after the close tomorrow looking at AAPL, AMZN, FB, NFLX and TSLA. If you'd like to attend that you can register for it on our November Free Webinars Page.