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Thursday, 24 April 2014

Key Inflection Point Area

After very solid AAPL earnings last night ES has gained 10 points and is testing those highs at the time of writing. This means that the inflection point that I have been talking about over the last few days is likely to be tested today and tomorrow, and the way this breaks will most likely determine direction for the next few weeks.

Front and centre this morning is the falling megaphone on NDX, with untested falling megaphone resistance in the 3610 area, and a distinct possibility that NDX will gap over that at the open. That would be bullish and would suggest strongly that SPX will test the highs, but NDX will still look potentially bearish because of the nice looking H&S forming there on the daily. The ideal H&S right shoulder high would be in the 3630 area, and I have an alternate, lower probability, falling megaphone resistance trendline in the 3670 area. NDX 60min chart:
The setup on TRAN here is clearer, with megaphone resistance in the 7780-5 area today. In this context this pattern is a broadening top, which sounds bearish but is actually direction neutral. The test of megaphone resistance could signal a significant reversal back down. There is obvious negative divergence on the 60min RSI here, and SPX and NDX will also show negative divergence today on a break above the current RTH (regular trading hours) highs. TRAN 60min chart:
There is no trendline to watch on SPX but there is obvious resistance at the test of the 1897 high, and we may see that tested this week. There should be significant negative RSI divergence at that test, and regardless of whether we see a major reversal there, it is an obvious place for a retracement of this move up from 1814. The obvious target for that retracement would be at the 50 hour MA, currently at 1857 and rising. SPX 60min chart:
Looking at the SPX daily chart the upper bollinger band is currently at 1900 and that should be an effective cap for any rise this week. I've mentioned the possibility on the chart that we might currently be making the second high of a double-top here and if so that would work very well from a TA perspective. SPX daily chart:
On the SPX weekly chart the upper band is now at 1895 and should close the week at 1900 or lower. That should be strong closing resistance tomorrow. SPX weekly chart:
On that last chart I gave 80% odds that the lower band would be tested before the upper band, after the punch through the weekly middle band a couple of weeks ago. Not everyone seems to have understood that this is just a historical probability, and that there was inherent within that a 20% probability that the upper band would be hit first instead. In the same way a 70% bullish falling wedge will break downwards 30% of the time. That isn't a failure, it is just the historically lower probability path. Just to clarify that for anyone who didn't understand that already.

I'd like to see a gap fill today and that would be a strong buy if we see it. As long as yesterday's low at 1873.91 holds then the lean today should be bullish and if we see any significant trendline breaks today I'll be posting those on twitter. I'm away tomorrow so my next morning post will be on Monday. Everyone have a great weekend. :-)

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