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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. 

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