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Tuesday, 18 March 2014

Back at the SPX 50 Hour MA

Last Thursday morning SPX was looking like it might gap up over the very important support/resistance level at the 50 hour MA, and I was saying that a gap over that should be respected unless the opening gap was then filled. SPX then tested the 50 hour MA at the opening print and fell 30 points or so after the failure there.

We have a similar setup this morning, and as was the case then, a gap over the 50 hour MA should be respected as an unfilled gap over a resistance level is the strongest kind of resistance break in my view. As with the last time a strong reversal there this morning should be respected as well.

The setup is therefore unusually clear this morning. With the 50 hour MA very close to falling megaphone resistance on my SPX 60min chart, a gap over the 50 hour MA is a gap over double resistance there, and if we see that I would expect at least a test of the current highs in the near future. A failure there would strongly suggest a new swing down to test the strong support range around the 38.2% retrace level at 1827. Technically I'm leaning short here. In practical terms however I'll wait and see what happens at the open. SPX 60min chart:
On the SPX daily chart the close yesterday was within three points (above) the middle bollinger band. My downside targets at the 50 DMA and the lower band have not been tested, but a strong close above the middle band today would suggest that they won't be, and would open up the upper band, currently at 1886, as the likely next target. SPX daily chart:
The TRAN chart conceded the break back above double-top support yesterday and that has allowed SPX to come close to testing megaphone resistance, though that was just missed yesterday. TRAN has formed a falling channel from the highs and a break above that would be bullish. Absent that break the obvious target remains well below at the 38.2% fib retrace. TRAN 60min chart:
On other markets USD is moving towards the retest of 78.60 that I've been mentioning as a possibility for some months now. At that test USD will either reverse back up in a large double-bottom to retest the 2012/3 highs, or break down in an even larger double-top to retest the 2011 lows. Of the two options I think the bull case is much more compelling, but it may go the other way. USD daily chart:
TNX broke up from a small double-bottom targeting a retest of the 2014 highs, and that pattern failed. We may well see a break back down to test major double-top support at 24.71. TNX 60min chart:
Oil broke back below double-bottom support after developing the daily negative RSI divergence that I pointed out a few days ago. Historically we won't see a daily trend reversal back up until the daily RSI has at least touched the 30 level, with that just over 40 at the moment. WTIC daily chart:
I'm leaning short on SPX here, as in my view the obvious retracement targets have not been hit, and the test of falling megaphone resistance here is only what I have predicted as the next significant move on the last two mornings. What would change my view is a break over megaphone resistance and the 50 hour MA, and we could see SPX gap over both at the open. I'll be watching that carefully. If we see a break up then the next swing target is a retest of the highs. If we see a break up but SPX fails to close an hour over the 50 hour MA and fills the gap, then the next swing target will still be at least a retest of the highs, but there will be a serious danger that we will see the current lows retested first. If we see a failure at megaphone resistance and the 50 hour MA then my target area is 1823-9, and it's possible that SPX may go lower.

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