- This blog has a copy of all header posts that I publish anywhere, so that those interested in seeing what my thoughts are on the markets can find them easily.
- I will be answering questions and responding to comments, so feel free to respond to any posts and I will see your comment even if it is not on the most recent post.
- If you're interested in seeing any intraday charts I post, I do that on twitter, and my twitter handle is @shjackcharts.
- The charts in the posts are as large as I can practically make them. if you would like to look at one more closely, click on it, and the link will take you to a larger version at screencast. If you click on that again, you will get a full page version, and can use the resizing function on your browser to enlarge parts of interest further.

Wednesday, 27 November 2013

Packing for the Weekend

I'm packing for the long weekend and travelling today, and many others will be doing the same, so volume into the end of the week is likely to be feeble. I will just post one chart today and this will most likely be my last post until Wednesday 4th December, though I'll most likely post the odd chart on twitter between now and then.

The main thing to watch today is the bear setup on SPX, which may or not play out obviously, but will command attention if SPX can take out yesterday's intraday low at 1800.77. The smaller double bottom marked would target the 1793 area on that break, and a test of rising support from 1746 in that area. If that were to break then next serious support would be at 1777. On a break below 1777 the larger double-top would trigger with a target in the 1746 area for a full retracement of the latest move up. SPX 60min chart:
Does this reversal setup have a real shot? Well on the plus side SPX is obviously bumping up against stiff resistance here and is obviously overbought with a lot of negative divergence on multiple timeframes. There is also clear 60min negative RSI divergence and the strong rejection at the close was encouraging.

On the other hand the bears could have used a gap down this morning and didn't get that, and ES is now back above the 50 hour MA at 1803.25 and holding that as support. Thanksgiving week also has a bullish bias into the end of the week and low volume holiday trading tends to favor the bulls. We'll see if SPX can take out yesterday's low. 

Everyone have a great holiday weekend :-)

Tuesday, 26 November 2013

Looking for Retrace Soon

I've mentioned a few times that the punch over the weekly upper BB on Friday 15th November should deliver a 4% retracement starting soon, and I have a decent looking topping setup right here as it happens. On the SPX 60min chart that is a possible double-top at the high yesterday that would target the 1746 low (and possible H&S neckline) on a break below the last low at 1777.23 SPX. It may not deliver, or we may see another retest of the highs before it delivers, but this is a nice and classical reversal setup after last week's break below rising wedge support from the 1646 low. It's worth mentioning as well that 1746 would be an almost perfect 38.2% fib retrace of that move up from 1646. Just sayin '. SPX 60min chart:
Looking at ES there is obviously a possibility that we may see a retest of the highs before any short term high is made. If so I'd be looking for reversal there. If the short term high has already been made then I'd be seeing a break below yesterday's low at 1798.5 ES as confirmation that the short term high is in. ES 60min chart:
Looking at the SPX daily chart SPX is still riding the band. If we see a break downwards then first support is at the daily middle bollinger band, currently at 1777, also the trigger level on the possible double-top on the SPX 60min chart above. If ES and SPX break below yesterday's lows then we may see a fast slide to test that 1777 area support. SPX daily chart:
SPX is very extended here, bumping against the upper bollinger bands on the weekly and daily charts, with the weekly upper BB being formidable resistance historically. If we are to see anything other than a slow grind upwards then there will need to be decent retracements to clear overhead room for impulse moves up. We should see such a decent retracement soon, though it may not arrive until the (statistically bearish) week after Thanksgiving.

Just a short post today as I am packing for the holiday weekend. I'm planning to post a couple of charts before the open tomorrow and then I will most likely just be posting charts on twitter until I am back from my long holiday weekend next Wednesday.

Monday, 25 November 2013

Big Inflection Point Week

Back on the 30th June, with SPX at 1606, I did a weekend post arguing the case for a move to a rising wedge target in the 1965 area. You can see that post here. That target looked ambitious then but as SPX has since risen over 200 points into the likely opening print today, that target no longer looks particularly ambitious. From a pattern perspective the only thing that would negate that target would be if that wedge turned out to be part of a larger pattern, and the only likely pattern would be an overall rising channel from the October 2011 low. There are a couple of possible alternates for that trendline but the ideal and highest trendline target would deliver a perfect rising channel, and that target looks to be in the 1810 area today. Here is that channel on a chart showing the major patterns formed since that October 2011 low. SPX daily chart from October 2011:
SPX close within two points of both the weekly and daily upper bollinger bands on Friday, so I would count that as a close on both bands. In the event that we see a strong week on SPX this week,l and that SPX can break above strong trendline resistance in the 1810-12 area, then I have the maximum closing range for the weekly upper bollinger band in the 1815-20 area this week. SPX weekly chart:
I've been working a possible rising wedge from 1646 on the SPX 60min chart, but the upper trendline on that was invalidated by the break back above it at the close on Friday, as a rising wedge cannot have both an overthrow and underthrow before breaking up. a possible rising channel was established at the 1777 low, and I have marked in an alternative rising wedge upper trendline with wedge resistance in the 1812 area today. SPX 60min chart:
I'm pressed for time today so I'll posted a CL chart on twitter after the open, and the last chart for today's post is the AAPL chart, where as long as 511.55 holds as support, AAPL would appear to be forming a bull flag here. AAPL 60min chart:
Are we going to see a big reversal at possible rising channel resistance on the SPX chart? Maybe. There is nice negative RSI divergence on the SPX daily and weekly charts, and SPX is certainly overbought. On the other hand QE is still going full steam and seems likely to continue to do so for a while yet, and history leans towards significant highs in the Spring/Summer rather than just before Xmas. We shall see. Even if those trendlines break however, SPX is very overbought and I'm expecting to see a 4% retracement at the least before the end of 2013. Until that retracement SPX isn't likely to rise at more than 10-15 points per week on average, so new longs right here or on a break up don't look very interesting.

Friday, 22 November 2013

Higher Probability Paths

Before I start today I'd like to nominate my pick for best chart of this week posted by anyone anywhere, and that was the RUT 15min chart that I posted on twitter on Wednesday night. The version updated to yesterday's close looks like this. RUT 15min chart: 
Obviously the falling wedge on SPX broke up yesterday and the break below on Wednesday afternoon was just a bullish wedge underthrow, so the bizarre possibility I raised yesterday morning that bears might have overridden a strongly bullish scenario turned out not to be the case. The target for that falling wedge is at a retest of the highs and we may well see that happen today. SPX 5min chart:
However this retest of the highs may well be putting in the second high of a double top. The rising wedge from the 1646 low broke down on Wednesday and that cannot have been a bullish wedge underthrow as there had already been a bearish wedge overthrow. What I am expecting to see here is a double-top form with the low on Wednesday as the pattern trigger level for a double-top target in the 1750 area. SPX 60min chart:
If we do see the highs retested, and very possibly exceeded, today then I am expecting the SPX weekly upper bollinger band to close no higher than 1804, and as I am not expecting to see another punch above the weekly upper bollinger band I am expecting to see the close today no higher than 1806 SPX. The strong resistance trendlines that SPX touched and reversed at on Monday morning would be tested again on any break above Monday's high and if those trendlines are going to hold, then that new high should be marginal and the second high of a small double-top on SPX targeting very strong support in the 1750 area. SPX weekly chart:
On that basis I am seeing three higher probability paths from here, and have marked the three on the SPX daily chart below. The first and least likely option for a number of reasons in my view is that SPX breaks up here, confirming the rising wedge targets in the 1900s. This option looks unattractive from a weekly bollinger bands standpoint in particular, but the holiday week next week could deliver a low volume grind up to break SPX through resistance, so I will be considering this option seriously. The second option is that SPX retraces here to test strong support in the 1750 area and that support holds as a springboard towards those same wedge targets in the 1900s. The third option is that all the patterns from October 2011 have been within an overall rising channel, and that 1750 support then breaks on the way back to test rising channel support, currently in the 1575 area. I don't have a preference between the second and third options really. We'd find out which was the runner at the test of support in the 1750 SPX area. SPX daily chart from Oct 2011: 
On other markets I posted charts giving my views on TLT and oil on twitter yesterday morning and the move up on oil has already started. For anyone long CL with me I would say that 95 should hold on an hourly close basis now and if we see a break back below then I have some more immediately bearish options that I'll post on twitter. Until then I'm looking for the 98.25 area on a break over 95.75. 

What I will show this morning is the GBPUSD chart. Every so often I post a currencies chart with a high probability pattern target a long long way away, as I've done with Yen last November, AUDUSD several times and this is not one of those charts .... yet. Sometime in the next few weeks I will post this chart with a wild sounding target that will most likely be made and that will be when GBPUSD breaks either up or down out of the current triangle from early 2009. I have posted a few triangles this week that broke one way before resolving the other and this is just a much larger example. If it breaks up from the triangle now the upside target is in the 1.97 area, and if it breaks back down the target will be in the 1.21 area, though with very strong long term support in the 1.36 to 1.42 area. Watch this space. GBPUSD weekly chart:
For today what I am hoping to see is an AM low in the 1786-89 ES area that is followed by a grind up into new all time highs this afternoon. There is decent support at 1792 ES however and any morning low may stall there. I should also mention that I will be away between Wednesday 27th November and Tuesday 3rd December and may well do no more than post some charts on twitter during that period. Everyone have a great weekend :-)

Thursday, 21 November 2013

Dogfight at 1780 ES

Something very unusual happened yesterday. There was a strong bull setup that ended the day looking as though it may have been steamrollered by the bears. That will need confirmation today, and might well not get that confirmation, but if it is confirmed it will be an impressive show of strength from the short side here.

That setup was the falling wedge that I posted on twitter last night showing what may well be that 70% bullish wedge breaking down. The break downwards may just have been a strong bullish underthrow and if so we should see a break over wedge resistance in the next day or two and at least a test of the highs shortly thereafter. If SPX should dip back below wedge support today however, then most likely that wedge is breaking down with a target in the 1765 area and, as I said, that would be the most impressive bull setup failure that I have seen in quite a while. SPX 5min chart:
So which was is this going to break today? There has been a strong recovery on ES overnight, and at the time of writing ES has recovered back over the weekly pivot at 1781.8 and retested that as support. ES has also recovered back over the 50 hour MA at 1784 and as long as that can hold as support the bulls are in with a shot today. I would put key resistance today at declining resistance in the 1791.5 area and the key support that the bulls need to hold at the weekly pivot at 1781.8. ES 60min chart:
I have been using RUT as my canary in the coal mine over the last few days and while the setup on SPX gives the technical edge to the bear side in my view, the setup on RUT is strongly bullish. RUT broke up from a falling wedge yesterday morning and then returned to put in the second low of a possible double bottom at the afternoon low. It has formed a strongly bullish double-tap reversal (DTR) that I have pointed out and explained on the chart. As long as yesterday's low holds this is a strongly bullish setup. RUT 15min chart:
Even if we see the highs retested and new highs made, I'm expecting a strong retracement soon and on the weekly chart that should be a decline of 4% or more as I explained on Monday after the punch over the weekly upper bollinger band on Friday. That would be a decent fit with a test of the weekly middle bollinger band, currently at 1708. SPX weekly chart:
If we do see a break downwards today, I mentioned that the wedge target would be in the 1765 SPX area, a decent fit with a test of the daily middle bollinger band at 1771. The support level to watch however would be the 1650 SPX level, at the broken rising wedge resistance trendline from the June low that was retested at the last low. That would be a decent fit with the daily lower bollinger band which will soon hit the 1650 area, and is in my view the key resistance level below. As long as the bulls can hold the 1750 area they remain in control. if the 1750 SPX area is lost then a lot of potential downside will open up. SPX daily chart:
I was asked overnight what my thought on TLT were after the strong move down there yesterday. I posted a TNX chart two days ago with the comment that I was expecting a strong move down on bonds (and up on bond yields) over the next few months and I suspect that is now starting. I'll be posting a TLT chart on twitter after the open. Gold also appears to be starting a serious move downwards and I'm expecting to see the whole precious metals complex carried down with it. I've been posting the perfect falling channel on GDX regularly in recent months and am posting it again today to show that this next move down may cut GDX by a third and undercut the late 2008 low at 15.48. Don't be long GDX unless that channel breaks up until at least the test of the 2008 low. GDX weekly chart:
This will be an important day technically and could go either way. As long as the bulls can hold first the 50 hour MA on ES, and secondly the weekly pivot at 1781.8 I will be leaning cautiously bullish. Bears want to kill support at both and break back below the SPX falling wedge, at which point the advantage would be strongly back with the bears.

Wednesday, 20 November 2013

Falling Wedge on ES

I'm expecting to see a short term high soon, and that might turn out to be a very significant high that will last months. Generally before a significant high we would see equities test the water, as it were, with a first decline before the main high. I suspect strongly that is what we are seeing at the moment, so I'm expecting this move to have limited further downside and to be followed by (probably marginal) new SPX highs in the near future.

On ES a decent quality falling wedge has formed from the recent high. I have resistance at 1788/9, with the 50 hour MA at 1788 and falling wedge resistance at 1789. Support yesterday was at the weekly pivot at 1781.8, and I have falling wedge support just under 1780. There is a possible double bottom forming that would target 1799 on a break over 1790.5. ES 60min chart:
SPX closed well below the daily upper bollinger band yesterday, but of course the upper band was still tested intraday. If we see a day without such a test today then there will be a strong case for a test of the middle band, currently at 1769. SPX daily chart:
On the SPX 60min rising wedge support has not yet been tested. If the higher wedge trendline is correct I wouldn't expect it to be tested. If the lower wedge trendline is correct then I would expect it to break. Either way there would most likely be a retest of the highs afterwards. SPX 60min chart:
RUT has been a decent guide to events in recent days and I'll be looking towards it for confirmation of any upward breakout today. Confirmation would be in the form of a 15min candle close significantly above falling channel resistance. RUT 15min chart:
On other markets I'm expected to see the current lows on gold retested in the coming weeks. In the short term the bull side has nothing until current falling channel resistance can be broken. GC 60min chart:
On bonds I am expecting the next move to be down. Looking at the (inverted) picture on the TNX 10yr Yields chart the consolidation in recent weeks has been retesting broken W bottom resistance while forming a bull flag. The next obvious move is to test falling channel resistance in the 37-9 area (3.7%-3.9%). in the absence of any tapering I am expecting that move to start soon. TNX monthly chart from 1970:
I was looking at false breaks on triangles yesterday morning and a reader pointed out the current example on the Nikkei. It is indeed a beauty with a very nice false break made with a gap below triangle support and then a gap back above it. I have the upside target in the 16,600 area and if we see a retest of broken triangle resistance that would be a very nice long entry. What is this telling us about the next few months on SPX? Possibly nothing but the retest and play out scenario would be perfect fit with a decent retracement soon on SPX followed by a push up into a spring high. NIKK daily chart:
Since I started writing ES has broken over wedge resistance and opened a new hourly candle above the 50 hour MA. I am leaning bullish and looking for long entries subject to RUT confirmation at the open. I would mention again the possible double-bottom on ES with a target at 1799 on a break over 1790.50.

Tuesday, 19 November 2013

Hitting Inflection Points on SPX and Oil

SPX reversed hard after breaking 1800 yesterday and it seems that high may have already hit the trendlines I was looking at as strong resistance in the 1805-15 range. SPX could go a little higher within those trendlines, but not much. 

The first resistance trendline hit yesterday was broken megaphone support from the November 2012 low. This has been firm resistance since August and was hit at the high yesterday. There is a bit of play in the trendline but no more than another three or four points. SPX daily chart:
The second trendline hit was possible channel resistance from the October 2011 low. I have an alternate slightly higher but the best fit trendline has now been tested. Again a bit of play in the trendline so SPX could go a bit higher. SPX daily chart from Oct 2011 low:
The third trendline hit is on the current rising wedge on the 60min chart. SPX didn't hit the wedge resistance trendline I showed yesterday but I found a lower alternate last night that was overthrown at the high. That is a decent alternate possibility and if that's right then we should see wedge support in the 1778-80 area broken before any possible retest of the high. SPX 60min chart:
What is RUT telling us here? There was a clear rising wedge breakdown yesterday afternoon and I am no longer looking for the IHS target in the 1126/7 target to be made. There is now a possible large double-top in place on RUT and as I have mentioned a couple of times, there is a real possibility that the next retracement could be a big one. RUT 60min chart
I've been looking for a test of rising channel support on CL (and WTIC) and that has now been hit with positive RSI divergence on the daily chart. This is a setup that I would expect to deliver at least a decent bounce and very possibly a main trend reversal. Oil is a long here as long as that channel support holds. WTIC daily chart:
You'll notice from the chart above that the current rising channel is within a much larger triangle. If rising channel support breaks then the next target would be triangle support in the 80 area. If that were to happen I am running a VERY bearish possible scenario that would see oil fall back into the 40s. I'll illustrate that scenario with a very nice example of a symmetrical triangle on the SPX 1min chart that delivered a false break up yesterday afternoon before resolving downwards as you can see below. Triangles do that a lot which makes them tricky to trade. SPX 1min chart:
With that example in mind, consider the WTIC weekly chart with that huge triangle which has so far followed a similar path to that SPX triangle. I'm not saying that WTIC will do the same, but the pattern setup is very similar, and that is why I have mentioned this possibility regularly in recent months. WTIC weekly chart:
The bears delivered a decent afternoon yesterday, but need to follow through today to firm up any reversal here. the key support levels I am watching on SPX are rising wedge support in the 1778-80 area and broken resistance at 1774/5 SPX. 

Monday, 18 November 2013

Weekly Upper Bollinger Band Punches #2

I was saying last week that punches well above the weekly upper bollinger band were both rare and very bearish, and I really wasn't expecting to see one last week, but to my surprise SPX closed at 1798.18, well over the weekly upper band at 1789.98, so we have the second strong punch over the weekly upper BB in 2013, which is the first time there have been two of these in a single calendar year since 2004.

I have reviewed, updated and expanded my stats for these punches to the start of 1993 and the past instances I have are as follows:
  • 2013 May - At the 2013 spring high made over the next week - next decline 7.5%
  • 2010 Apr - At the 2010 spring high made over the next 2 weeks - next decline 17.1%
  • 2007 Apr - Continued up 70 pts (4.5%) into July first high 2007 dbl-top - next decline 11.9%
  • 2004 Nov - Continued up 50 pts (4.3%) into Dec  - next decline 4.5%
  • 2004 Jan - Continued up 50 points (4.5%) into the March high - next decline 9.3%
  • 2000 Mar - At the 2000 bull market high - next decline 13.8%
  • 1999 Jun - Rose 2% into Jul high over next 3 weeks - next decline 10.7%
  • 1999 Apr - Rose 2% into May high made next 5 weeks - next decline 7.1%
  • 1998 Jul - At the 1998 summer high - next decline 21%
  • 1998 Feb - Rode upper band 120 (11.9%) points into March high - next decline 5.1%
  • 1997 Jun - Rode upper band up 110 (13.4%) points into July high - next decline 7.5%
  • 1996 Sept - Rode upper band up 8.5% into Nov high - next decline 6%
  • 1996 Feb - At Feb high made next 2 weeks - next decline 5.6%
  • 1995 Dec - At Dec high made next 3 weeks - next decline 4.4%
  • 1995 Jan - Rose 2.5% into Feb high - next decline 2%
  • 1994 Aug - Rose 1% into following week high - next decline 6%
  • 1994 Jan - Rose 1% into following week - next decline 9.8%
  • 1993 Oct - At Oct high - next decline 3.6%
  • 1993 Aug - Rose 1% into high made following week - next decline 3%
Weekly punches when RSI 14 over 70
  • 2010 Apr - At the 2010 spring high made over the next 2 weeks - next decline 17.1%
  • 2004 Jan - Continued up 40 points into the March high - next decline 9.3%
  • 1998 Jul - At the 1998 summer high - next decline 21%
  • 1996 Feb - At Feb high made next 2 weeks - next decline 5.6%
  • 1995 Dec - At Dec high made next 3 weeks - next decline 4.4%
Weekly punches in Q4
  • 2004 Nov - Continued up 50 pts (4.3%) into Dec  - next decline 4.5%
  • 1995 Dec - At Dec high made next 3 weeks - next decline 4.4%
  • 1993 Oct - At Oct high - next decline 3.6%
I'm going to be looking at these in detail this week but the takeaways for today are that there will most likely be an interim high in the next couple of weeks that will be followed by a 4.4% or greater decline. The decline may of course be considerably greater. SPX weekly chart:
I have a number of resistance trendlines in this area and the first of those broke at the high on Friday. That was possible channel resistance from the 1560 low in June. I wrote on the chart last week that in the event there was a break over channel resistance the next resistance trendline would be at rising wedge resistance, and I have that in the 1810-5 area this week, backed up there by two other important resistance trendlines. SPX 60min chart:
The second trendline in that area is broken rising megaphone support from November 2012. That held the high in September at a retest and the October high was just short of another retest. I have that in the 1805-15 area this week. I will also mention that SPX is riding above the upper bollinger band at the moment and I am expecting the band to close today in the 1797-1800 area today. SPX daily chart:
The third resistance trendline, and the most interesting one is possible rising channel resistance from October 2011. I have this again in the 1805-15 area this week and it is interesting because the only thing that would negate my rising wedge targets in the 1930 and 1965 areas would be if both turned out to be part of a larger pattern, such as this channel. If we see a strong reversal at channel resistance there is therefore a possibility that SPX will retrace to channel support, currently in the 1575 area. SPX daily chart since Oct 2011:
The RUT chart is moving up slowly towards my targets back at the current all time high and the IHS target a little higher at 1126/7 area. That is supportive of a move on SPX up to the 1805-15 area to hit resistance there. RUT 60min chart:
There is a scenario coming together here and that is that SPX hits resistance in the 1805-15 area, reverses there at multiple resistance trendlines, and then reverses back to the daily lower bollinger band, currently in the 1738 area. At that point we most likely see reversal back up towards the rising wedge targets in the mid-1900s, but possibly continue downwards towards channel support, currently in the 1575 area. We shall see whether those resistance trendlines can hold SPX in the 1805-15 target area. 

Friday, 15 November 2013

Trendline Targets

All equities edition again today as I'm still not feeling that well and I'm considering options for the next short term high on SPX. There are a number of important trendlines in the same target range so I'll go through those individually.

Yesterday's daily SPX candle opened and closed above the daily upper bollinger band. That is rare and for obvious reasons generally signals either an imminent retracement or period of consolidation. I'm expecting SPX to make a short term high in the next two or three trading days, and the important trendline target I'm looking at on the chart below is broken rising megaphone support from last November. That held at the last test at the September high and I have that trendline in the 1795-1800 SPX area today. SPX daily chart:
The second trendline is one the daily chart below from the October 2011 low, and that is possible rising channel resistance for the move since then. I'm doubtful about this holding long but we may well see the next short term high at this trendline, which I have currently in the 1800 area. SPX daily chart from Oct 2011:
Could we hit those targets today? Sure, though unless we are going to see a rare (and highly bearish) punch above the SPX weekly upper bollinger bands then I'd expect the close today to be flat or down. The close yesterday was 2.6 points above the weekly upper BB, and while I'm expecting that weekly upper BB to close a couple of points higher today, SPX shouldn't exceed yesterday's close by much at best. Worth adding as well is that the ES weekly R2 pivot is at 1788.40, and that also tends to be decent weekly closing resistance. SPX weekly chart:
I'm not seeing any imminent sign of reversal on the SPX 60min chart, so most likely we get a morning dip this morning and then see a new high either today or Monday. I have two trendline targets on this chart and the lower target is possible rising channel resistance from the 1560 low which I have in the 1795-7 area. If that breaks, and there is obviously a lot of other resistance in that area so it may well hold, then I have rising wedge resistance from the 1646 low in the 1805-10 area. SPX 60min chart:
I posted a 5min chart yesterday night on twitter showing what is clearly a rising channel on SPX from the 1746.20 low. As I pointed out though, the pinocchio through channel resistance at the first high yesterday was a signal that this channel might break up. That should be clear near the open today and if we are to see a swing down to test channel support that is currently in the 1770 SPX area, though rising rapidly of course. SPX 5min chart:
RUT was the dog that didn't bark yesterday and I'm considering what that might mean here. A move towards a test of the highs was the obvious move but RUT just retested Wednesday's high. That was surprising. RUT 60min:
Janet Yellen had a very entertaining morning in front of the Senate Banking Committee yesterday morning, and with some wittily ironic remarks about there being little obvious correlation between QE and rising asset prices had me laughing out loud. There is talk however that she may face some serious grilling about her long rumored but unconfirmed family links with Gringotts Bank. Hopefully that won't derail her confirmation and deprive the US of what may well be the most talented comedian to be nominated to the Fed Chair in decades:
There is now significant risk to the downside here but I'm not expecting a significant decline today. The normal setup to expect here would be a morning low followed by a push to a new high. That can still run within the channel on the 5min chart, but if that channel resistance holds I'd expect the retracement into rising support to start after a marginal high was made.

Thursday, 14 November 2013

Rubber Bands

ES and SPX bounced very strongly off the daily middle bollinger bands yesterday morning and SPX closed back at the daily upper bollinger band. Kudos to my trading room bud Mike Vacchi of Princeton Trader for predicting the exact low on ES in the premarket to within a tick (at the ES daily middle bollinger band) and going long at 1754.5 (to my channel based entry at 1756.5). I hope some of you saw me tweet the bullish falling megaphone on ES before it broke up, and later tweet the likely close area before the last move up. We had a VERY nice day.

So where does that leave us this morning? I had a very nicely formed rising megaphone on ES that broke down not that long after the close and while no globex patterns or signals are as reliable as the regular trading hours SPX equivalents, what I would normally expect here is that an H&S or double-top would form and we'd see a fib retracement of the megaphone move. That scenario is still in play and if that plays out the topping pattern is still forming. I have marked some fib retracement targets on the chart but would stress that there is still a lot of upward pressure here, and that after SPX puts in a likely morning low we'll most likely see strength for the remainder of the day. ES 5min chart:
I've been using the clear setup on RUT as an indicator for likely SPX direction this week and it's worth noting this morning that RUT closed yesterday at 1112.18. I'm expecting a retest of the highs at 1123.26 on the falling wedge setup and I also have an IHS target in the 1126/7 area. There is therefore a reasonable expectation that RUT should rise another 1% or so into the end of the week, and I'd expect SPX to tag along for at least part of the way there. RUT 60min chart:
On Monday I gave a maximum likely closing range of 1790-5 with possible spillover to 1800, and unless we are to see a strongly bearish punch above the SPX weekly upper bollinger band (BB) then I'm still expecting that to be right. On ES I am expecting a close at a maximum of 1788.4 at the weekly R2 pivot. The SPX weekly upper BB closed at 1786 yesterday and if we see more strength today I'd expect to see that in the 1790 area tomorrow. SPX weekly chart:
Normally I would say that the SPX daily upper BB should rise at 5-7 points per day in a strong uptrend, but that is when it is already rising. As the SPX daily upper BB has been declining the last few days, and takes a day or two to stop and reverse, I'm not expecting more than a marginal rise at most there today. As SPX close at the upper band yesterday that suggests that we may well see a punch above the band at the close today. SPX daily chart:
I've been mentioning my wedge targets in the 1930 and 1965 SPX areas very regularly in recent weeks, but I have a possible pattern setup that could negate those targets. That setup would have both the rising wedges that have broken up within a rising channel from the October 2011, with channel resistance now in the 1800-5 area. I think seasonality and the QE setup over the next few months make a big reversal at this channel resistance a long shot, but you never know, and in any case we may see a smaller reversal in that area. SPX daily chart from October 2011 low:
On other markets I was looking at the GLD daily chart this morning and unless GLD can break back over 130 with some conviction new lows seem just a matter of time, though there might well be a decent buy opportunity there of course. GLD daily chart:
The CL chart is looking interesting here. I'm not expecting a serious low to be in yet but there is now some positive divergence on the daily RSI as CL Is forming a possible double-bottom. On a decent break above 94.4 the target would be the 97 area for a likely test of declining resistance from the 110 area. CL daily chart:
I'm expecting to see some follow through from yesterday's SPX move today and most likely that would take the form of a push up from a morning low on SPX. Having said that I'm expecting the weekly R2 pivot to be good weekly closing resistance tomorrow, so any move above 1788.4 ES (1791.4 SPX) will start to look attractive on the short side.