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Monday, 15 July 2013

Testing the SPX May High

I did a weekend post and if you missed that you can see that here. At the end of that post I showed an SPX chart with a projection of what might happen on SPX over the next few months, and stripped to basics and very approximately that projection is as follows:

  • Next High: 1770-1800 - Late August/September 2013 area
  • Next Low: 1625-75 - Late September through early November area
  • Possible Bull Market High: 1965 area - Early 2014

Obviously this is just an educated guess, but I have a decent possible pattern setup for that on the chart below. SPX daily chart from July 2010:
Back in the more immediate future SPX made a technical hit of the weekly upper bollinger band on Friday, closing at 1680 while the upper band closed at 1687. Sustained closes above the weekly upper bollinger band are rare, and this upper band can only rise at 10-12 points or so per week in a strong uptrend, so the breakneck pace we have seen since the June low is likely to slow down considerably, but if the uptrend continues all this week we could still see a close very close to 1700 by the end of this week. My 1770-1800 target range would be unlikely to be reached before August. SPX weekly chart:
On the SPX daily chart the close was at 1680.19 with the daily upper bollinger band closing Friday at 1681. There are often several consecutive daily closes within a couple of points of the upper bollinger band as SPX rides that band upwards, and if we see that again today the target closing range should be in the 1685-8 area. SPX daily chart:
I'm pressed for space today so I'll skip the SPX 60min chart and show the 15min chart instead. On there the pattern setup as I see it is that there is a likely rising channel forming (and arguably already established) since the June low, and the current lower degree pattern within that is a rising wedge from the 1604 low. What's worth noting is that the resistance trendlines for both patterns should cross in the 1687/8 area this morning, and that is also a decent fit with both weekly and daily upper bollinger band resistance. That is key resistance today and we may well see a reversal there to test rising channel support, currently in the 1647 area (and rising by 6/7 points per day)That reversal could just be a sideways consolidation of course. I've drawn the last two negative 15min RSI divergences on the chart with the note that in a strong uptrend all RSI divergences smaller than the daily chart RSI become very unreliable. SPX 15min chart:
On ES there is clear negative 60min RSI divergence, but that isn't a great guide in a strong uptrend. Of more interest is support at the 50 hour MA in the 1669 area and trendline resistance in the 1683/4 area. As ever there's not much to see on the bear side while ES holds above the 50 hour MA. ES 60min chart:
On other markets there is still a very strong reversal setup on ZB that could well develop into a multi-month rally. At the least I'm expecting a test of broadening descending wedge resistance before the downtrend resumes. ZB 60min chart:
On GBPUSD I'm expecting a larger rally after the declining channel broke down last week. There are two obvious targets for this retracement before the next likely leg up and they are the retest of broken channel resistance, tested and holding so far, or the second low of a potential double-bottom which would clarify the target nicely if we were to see that. GBPUSD 60min chart:
Lastly CL where an ok but not great quality rising wedge has formed since the last low, and since I capped this chart that has now moved from testing wedge support to having broken down from there. I'm expecting more downside and my preferred target is the 61.8% fib retracement and broken resistance in the 99 area. It is very possible though that we will see a test of the highs and possible marginal new high before that main retracement to make the second high of a double-top and establish negative divergence on the daily RSI. CL 60min chart:
I don't have room for the GC chart today but I will be posting a chart on twitter before the open with my rally target there and the trendline setup as I see it.

What I haven't mentioned at all today is the possible double-top that could be made when SPX and ES retest the highs. This would be mirrored across a number of other US indices as well. I'm not dismissing this possibility entirely, but I would say that such a double-top would most likely be a bull market top, which I don't see the setup for here, and the double-top target would be in the 1430-40 area, which for a number of reasons I don't think is a credible target. I've explained where I think the obvious next resistance across multiple markets is in my post yesterday, which I would recommend that everyone read, and you can see that here. That said technical analysis is about weighing probabilities and setups in my view, and a double-top here is possible, I just think it's improbable.

If we see a strong reversal at the test of the highs I would still think a double-top was improbable and would refer back to my SPX 15min chart above where I am looking for a possible reversal from that area into rising channel support. If that rising channel breaks I'll have another look at this possible double-top, but even then 65% of possible double-top setups with an initial reversal in the right area for the second top never reach the trigger level (1560 low). I would be really very surprised if this pattern formed and played out.

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