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Tuesday, 14 January 2014

Double-Tops Abound

Last Wednesday I posted an SPX chart looking for a retest of the highs and sketched in very light grey a scenario where SPX made the second high of a double-top which would then break down with a target near the 61.8% fib retracement at 1799. The second high of that double-top peaked yesterday and it broke down with conviction with a target at 1798, and a possible alternate target at 1804 (due to the second high being six points lower). SPX 60min chart:

The double-top on SPX has a lot of support on other indices. The double-top on Dow had been testing the valley low area for days and also broke down hard. Dow 60min chart:
The broadest US index, the Wilshire 5000, tells the same story and none of these indices has either reached target or developed significant positive divergence, so the low yesterday is unlikely to be a final retracement low. WLSH 60min chart:
So what are the obvious trendline targets here? Rising support from the 1646 low is the best trendline target, and that is now in the 1805 area. That is perhaps looking a little high now. I have another target area in the 1790s which isn't a trendline target and the next is a retest of the 1768 low. That would be a fit with either of two trendline targets marked below in early February. SPX 60min trendlines chart:
On the daily chart SPX closed significantly under the middle bollinger band yesterday, and the next two obvious support levels are the 50 DMA, now at 1801, and the lower bollinger band, now at 1782 and rising steeply. The 50 DMA is currently a good fit with the double top target at 1798 and the 61.8% fib retracement at 1799, and if the target isn't made until the end of the week then the lower bollinger band may by then also be in the mid-1790s or higher. SPX daily chart:
If support in the 1790s doesn't hold, then the retest of the 1768 low and test of the possible H&S neckline there would be a decent fit with the SPX weekly middle bollinger band, currently at 1765, and likely to be over 1768 by the end of the week. Why am I thinking that SPX might retrace this far? Well I posted some stats on the aftermath of punches over the weekly upper bollinger band on 19th November , which you can see here. On the basis of those stats it would be reasonable to expect this retracement to retrace between 3.5% and 4.5%, which would be to a target in the 1766-84 range. Just something to be borne in mind, though SPX may well reverse back up at trendline support at 1805. If not however ........SPX weekly chart:
There are other reasons to think that the retracement may be deeper however, and that is because there are other double-tops that have formed and not yet broken down yet. If they do break down then the targets wouldn't be a good fit with a marginal new low on SPX. Here's the one on RUT, which I have also marked up as a possible megaphone, though it makes a much better double-top. RUT 60min chart:
There is an unambiguous version of the RUT double-top on COMPQ, and another on NDX that I won't show today due to space constraints.This is a particularly well made pattern with a well founded fibonacci target and may well play out. COMPQ Double-Top:
For the moments the bears now have a lower high and low, and I'm expecting at least a marginal lower low before a reversal to make new highs. ES/SPX is bouncing and ES has already reached the retest of the broken SPX double-top valley low. It may go a bit high but if so I'll be looking for likely reversal back down in either the 1823-5 ES or 1830 ES areas. With ES already at 1819 as I write that may not leave much further room for upside today. Either way what I'm looking for here is a lower high to establish a declining resistance trendline, and possibly a pattern, from the high yesterday.

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