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Sunday, 29 June 2014

Bear Window Closing

My daughter is getting braces tomorrow morning and I'm going with her so I'm unlikely to manage to put a post together before the open tomorrow. I've given this some thought and decided to do a short post tonight and then if I see anything else worth posting before the open tomorrow I'll post it on twitter then or, if I get back in enough time before the open, I might manage to put up another short post then, but at the moment I think that's unlikely.

SPX had a decent day yesterday, closing on the key resistance level at 1861 that I flagged as an important bull/bear level in the morning. That may hold tomorrow, as the stats for the last day of the second quarter are bearish, with Dow showing 33% positive closes over the last twenty years or so and SPX at 38%. I looked at the last ten years of these on SPX in detail and pulled out the following interesting points:

  • Six out of ten red closes
  • Seven closes less than ten points either way
  • Biggest red close -11 (2010)
  • Biggest green close +33 (2012)
The +32 close is an outlier as all the other closes were at 12 or less, but it's worth noting that the two largest moves, the +32 and the +12, were both upwards. We could see a retest of the highs tomorrow on this history, and if SPX takes the obvious red close option, there's no historical reason to expect a close under 1950 SPX.

So where does this leave the immediate case for a move to retest 1926? Not in a great place next week. After we made the 1968 high on Tuesday I was looking at the period from there through to the close tomorrow as the window of opportunity to see that retracement, and unless we see an almost 2% move down tomorrow, that window will close without the bears having managed anything more than a test of my first support level at the daily middle bollinger band. SPX daily chart:
I was also watching the SPX 50 hour MA all week and SPX just couldn't hold below it, despite it helpfully rising ten points to 1957 over the course of the week. A strong downtrend tends to hold below that as resistance, consolidations and weak retracements do not. This was a weak retracement that isn't showing any obvious sign of expanding. 

After the close on Monday we are into the last three trading days before the holiday weekend and the stats for those, and indeed generally for trading weeks into holiday weekends, lean bullish. We may well just see more consolidation, but the best chance for a significant retracement before the holiday weekend has already been lost, and the bulls should get another shot at breaking very strong resistance at the SPX weekly primary rising channel from the 2011 low, though I would repeat that really is strong resistance, and after two punches over the weekly upper bollinger band during the last four weeks, the historical odds strongly favor correction or at minimum another couple of weeks of sideways consolidation. SPX weekly chart:
So what are the odds of that strong channel resistance being broken? I'd still go with less than 25%, but it can happen. My third and last chart today is the AAPL chart where a decent channel from the low a year ago broke up in early June. It wasn't as good a channel, but it was decent and would normally have held. The other reason I'm posting this chart today is because since the small rising wedge has broken down AAPL seems to have been forming a bull flag, and has now established a new rising channel that could well mean that a new leg up is starting, if it holds. At the least I'm thinking that a retest of the current high looks likely on this setup. AAPL daily chart:

So what if the primary channel does breaks up? Well if that break wasn't swiftly and decisively reversed the case for seeing a big retracement at all this year would be badly weakened, and as I mentioned a couple of times last week I would then have a new rising wedge target in the 2160 area, with a possible fail area in the 2020 area if the wedge evolved into a rising channel from the 1736 low. Could that happen? Well it was interesting that on the top chart in this post you can see that SPX broke above rising wedge resistance for the third time last week, and that it was then acting as support on both Wednesday and Friday, though I would also note that the SPX 50 hour MA was at the same level both days and it may have been that which was actually the support. I'm definitely not ruling out this wedge breaking up though, and I'll be looking at this in more detail if that primary channel resistance breaks.

Short term though the stats for Monday lean bearish and I'd be surprised to see much more than a test of the current high at 1968 tomorrow. The SPX 50 hour MA and broken rising wedge resistance from 1737 are both in the 1957-9 area and the bulls would like another open and close above those. The chances of seeing a big retracement next week would improve considerably with a conviction break below 1950, but there's no historical reason to expect that tomorrow.

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