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Tuesday 30 September 2014

Possible Change of Plan

Another whippy day yesterday, but one that, unlike the more superficially bullish Wednesday and Friday rallies last week, leaves the bulls in a very good position for a break up today. The daily lower band was tested in the morning, so that was either day three or day five of this sideways lower band ride, depending on how the second day with tests of both lower and middle bands is counted. The candle was a 60% bullish reversal hammer, and there are now possible bottoming setups across all the main US equity indices as well as some broken declining resistance trendlines. SPX daily chart:
Now one thing that I dislike seeing when I have open downside targets is a marginal new low that is strongly rejected. There was one yesterday of those on SPX (and NYA and WLSH). That has set up a possible double bottom that would target the 2008.50 area on a sustained break over Friday's high at 1986.27. That level is the centre of a resistance zone that starts with falling megaphone resistance in the 1985 area, continues with double bottom resistance at 1986.27, and ends with the 50 hour MA at 1987.74. if we see a break over the 50 hour MA that will be a break that should be respected, though if bulls want to make the full double bottom target they will also of course need to take out the daily middle band, currently at 1994. SPX 60min chart:
At the close yesterday declining resistance from the high (or last significant high on RUT and NYA) was not yet broken on SPX, Dow, NDX and NYA. It has already however been broken on TRAN, RUT and WLSH, so I'll be looking at those next.

On TRAN falling channel resistance has been broken, retested, and a downsloping IHS has formed and broke up yesterday afternoon. The IHS target is the 8650 area, close to a retest of the highs. TRAN 60min chart:
On RUT the falling channel or wedge has broken up, retested, and a double bottom has formed with a target in the 1134 area on a break over 1120. There is also a possible IHS neckline in the 1130 area and an IHS could form there to take RUT back to falling channel resistance in the 1150-3 area. RUT 60min chart:
WLSH was breaking up from the falling megaphone there yesterday afternoon and another possible double bottom has formed there. On a break over the 20,295 area the target would be the 21,175 area, though as with RUT there is a possible IHS neckline in the 21,050 area that may deliver an IHS and a target back at the highs. Given the right-angled falling megaphone on WLSH there is a decent argument for a retest of the highs in any case. WLSH 60min chart:
I was asked to look at the AAPL chart yesterday and not much  has changed since I looked at this at the start of September. A double top is forming that would target the 88.54 area on a break under 96.14. The obvious bigger picture target would be a test of rising megaphone support, currently in the 82.5 area. AAPL daily chart:
It may be that falling megaphone resistance will hold at the (likely) test today and that the double-top on SPX will then make the 1937.70 target. However almost everything about the setup forming since that double-top broke down last week is suggesting strongly that this particular pattern is going to fail. That is unusual on a double-top (or bottom) that has made it halfway to target, and is mostly seen when a larger reversal pattern is forming. My working assumption if we see a break up today would therefore be that SPX is about to make the second high of a larger double top. That might involve a higher high, though I'd prefer a failure short of the high.

A larger double-top would make technical sense. An issue that I have muttered about once or twice over last couple of weeks is that the current double-top targets 1937, well short of the obvious bigger picture support test at the 1904 low, leaving a substantial void between the two targets. A larger double top without a marginal new high would then target the 1909 area on a break below 1964, largely closing that gap, and a larger top with a marginal new high at (say) 2022, would close it altogether. As ever time will tell, but the bulls have a real chance today to break resistance and set up a retest of the highs, and I'm now leaning towards that scenario as being the likely outcome of the resistance test that we should see today.

Monday 29 September 2014

Whiplash Decline

Another whiplash day on Friday with a strong rally to 1986. That looked more bullish than it should have done because, rather than rally in the morning and close weak, the rally was in the afternoon and closed strong. Nonetheless the high was in the 1980-9 target range I gave in the morning, and anyone buying that high on Friday afternoon is very heavily down so far this morning. SPX daily chart:
However the high on Friday afternoon didn't hit the obvious trendline target, which was at falling megaphone resistance. Surprises are likely to be on the downside in a move like this, but we may well see SPX return to test that megaphone resistance trendline today or tomorrow. SPX 60min chart:
There is a similar untested megaphone resistance trendline on Dow. INDU 60min chart:
There is another similar untested megaphone resistance trendline on NDX. NDX 60min chart:
USD has been trending up hard, and is now close to the test of declining resistance from the 1985 high. There is strong resistance there and we may well see a reversal at that test, though if that breaks I have next strong resistance in the 88.7 area. That 88.7 resistance is double bottom resistance on a pattern that would target the 105 area on a break above it, but I'd be expecting a reversal at that double bottom resistance at the first test. USD daily chart:
At the time of writing ES is down 17 points from the close on Friday. That's a big opening gap, and I'm doubtful about seeing that gap fill today, regardless of the obvious unfinished business above. However I would usually expect to see at least a test from below of the SPX daily lower band, and that's at 1974 at Friday's close and might close as low as 1969/70 today. That argues for a likely rally to at least that level in trading hours today. Beyond that the double-top target is at 1937.70 SPX and I'm not seeing anything to suggest that won't be made. As long as falling megaphone resistance, currently at 1990, and the 50 hour MA, currently at 1992, on SPX remain unbroken, I'll be assuming that target will be made.

Friday 26 September 2014

SPX Double Top Breaks Down

There were three significant technical landmarks for me yesterday. The first that double top support on SPX broke down, breaking the third and last support level I gave last Friday morning. The second was that the daily RSI 5 closed under 30, so the daily RSI 5 / NYMO sell signal I've been following has now unambiguously made target, though the historic stats on these nonetheless further support that the SPX double-top that has just broken down should make the pattern target in the 1937.70 area. The third was that a daily lower band ride was confirmed with the strong punch below the daily lower band.

So what now? Well the odds favor a lower close today, but not another trend day down. We may see a modest rally close or perhaps a flat close as a less likely but possible alternative. SPX should test the lower band at some point today, and that is currently at 1975. Yesterday's low is very unlikely to hold and all longs should be counter-trend now until the double top target is hit. SPX daily chart:
Looking closer the decline yesterday was stopped by a declining support trendline that was tested three times without breaking. The chances are that trendline will hold today and a decent bounce should be brewing. Hard to say where that bounce might top out, but if SPX can recover over the daily lower band and 50 DMA at 1975/6, then I have possible targets in the 1980-9 area. Wherever a significant bounce tops out should give us the decline pattern for the current move. I've marked a couple of options on the chart but these are just educated guesses. SPX 60min chart:
So where is all this going? Well The last highs have now finally given me enough data points to identify the primary pattern from the Oct 2011 low with some confidence. , and it is a simply beautiful rising megaphone. The next obvious move within this pattern would be a test of megaphone support in the 1780-1800 area, and we have a double top setup that would target 1789 on a break below the 1904 low. SPX may well be starting that move now, though we'll have to see whether the 1904 low can be broken before that can become a firm target. SPX weekly chart:
Essential points for today: - The daily lower band should be tested at some point today. There is strong bias on lower band ride days to see early highs that die. The odds strongly favor but don't require a lower low today. The support trendline that held yesterday afternoon will most likely also hold today, so a decent bounce is most likely brewing here. Everyone have a great weekend :-)

Thursday 25 September 2014

The Long Shadow of Pavlov

That was a strong rally yesterday, and the long bull move over the last few years has left many of us with a very strongly conditioned response to any strong move up, to jump on the long train in the confident expectation that it wouldn't be turning back down anytime soon. Don't get me wrong, that conditioned response has served everyone well in this long long long bull run, but in this particular case it needs to be suppressed until we see some actual evidence of a bullish break, and we haven't seen that yet. 

In terms of the rally yesterday it followed the roadmap I gave in my post yesterday morning almost exactly. There was a lower low in the morning, with a low just 0.15 above 1978.48 support, then a rally to 1999.79, just 0.21 under the top of my 1995-2000 target zone. The close was 0.68 below the 50 hour MA, and 0.35 above the daily middle band, so a close directly on the main resistance levels I gave in the morning. SPX daily chart:  
The rally retested broken rising wedge support from the 1904 low as well as testing the 50 hour MA. SPX 60min chart:
Looking closer the rally established a perfect falling channel from the high, with the rally forming a decent rising wedge into the 50% fib retracement area that was breaking down at the close. This was a viable ABC with the bull flag managing a modest but acceptable 23.6% fib retrace of wave A. Nothing to see here that is bullish unless that falling channel breaks up. SPX 5min chart:
The rally wasn't broad based. NDX led with a 65% area retracement, SPX and Dow turned in 50% fib retracements, NYA and WLSH managed 38.2% area retracements, TRAN about 30% and poor ailing RUT was the laggard, only managing to scrape a 23.6% fib retracement. RUT did manage to establish a steep falling channel at the high though, so again, unless that channel breaks up, there's nothing to cheer the bulls there. RUT 60min chart:
There hasn't been a break up overnight and unless we see a break over the multiple resistance levels tested at the highs and close yesterday, with a break of that perfect falling channel on SPX, I'm going to be assuming that this is the last really nice short entry before a move to the double top target at 1938 SPX. I'm expecting at least some weakness today, and ideally that would extend into a move back to the daily lower band, now at 1982.44, If we see that tested, I'll be treating this as the third day of a lower band ride and looking for continuation downwards. If we see a break up instead today I will exit shorts and consider the odds of a retest of the highs.

Wednesday 24 September 2014

Flogging a Dead Cat

Last Wednesday I was warning that the odds were better than two to one that SPX would make a marginal new high and then come back to make a lower low, and SPX came within four points of making that lower low yesterday. You can see that post here. SPX hasn't made that new low yet, but the RSI 5 / NYMO signal that I was using to make that prediction has now made target as the daily RSI 5 closed at 30.84 yesterday, and there is a visual hit of the 30 level on the chart, so I'm treating that signal as completed to target.

That isn't quite the end of the story though, as there is still the matter of the lower low outstanding, and also the matter of the double top that has now formed on the SPX chart, targeting the 1938 area on a break below the last low at 1978 48.

Looking at the nine previous examples of this sell signal that made a new high and then reversed back down, it's worth noting that all nine made a lower low, so the odds that SPX breaks 1978.48 here are very high. Of those nine though, three went on to make a marginal new high that was the second high of a clear double top setup, as this one has as well, and all three of those went on to break double top support (at 1978.48 here) and then play out to the double-top target, which in this instance is 1937.70, so history is leaning strongly towards a hit of 1937.70 in the near future, albeit from a sample size of only three for this permutation of this sell signal. For the moment therefore I am assuming that we should at least break lower than 1978.48 (very high probability), and then make the double-top target at 1937.7 (high probability)

Looking at yesterday the close was on the daily lower band, and that is supporting the start of a lower band ride down to the 1937.7 target. There is also an obvious target, and possible support, at the 50 DMA, now at 1976. SPX daily chart:
What are we likely to see today? Well the move down from the high has been very fast so far, and I haven't yet managed to identify a decent decline pattern from the high, as I have a decent support trendline, but a weak resistance trendline. I have a tentative falling wedge, and I think we may see a break up from that wedge soon to establish a decent declining resistance trendline for the next leg down.

If that happens then I'd expect the wedge to break up, then a reversal pattern should establish, either a double bottom or IHS, then a break up to a fibonacci retrace target that in this case should be either the 38.2% or 50% retracement.

The target area for that dead cat bounce would be the 1995-2000 SPX area, with both of those fibs close by, and with a confluence of resistance levels there including:

  • 1998 - hourly 50 MA
  • 1998 - daily middle band
  • 1998 - hourly middle band

If we see this hypothetical bounce then that resistance area should not be broken. I'd be leaning towards seeing a lower low today before such a bounce and that bounce would ideally come from a low within  the 1974-81 area. I'd prefer the 1978.48 level to be unbroken before the bounce as that would improve further the odds that overhead resistance would hold. SPX 60min chart:
RUT has clearly broken down from the falling megaphone with a target in the 1072 area, just below key support at 1082. RUT has serious and urgent unresolved business to the downside. We could still see a dead cat bounce though. RUT 60min chart:
I'm expecting a low below yesterdays low in trading hours today and we may well see a strong bounce develop from there. Unless SPX can get back over 2000 and hold it, the next move down should target the 1938 area.

Tuesday 23 September 2014

Two Down, One to Go

SPX broke down hard yesterday and closed near the lows, giving bears their first complete day in a while. SPX broke back below the daily middle band and, as long as we don't see a daily close back above it, the next obvious targets are the daily lower band at 1985 and the 50 DMA at 1976. The band pinch here means that it is very likely that SPX will start an extended band ride in the near future. The bulls had a shot at starting an upper band ride last week and couldn't sustain it. If bears can get SPX to the lower band then they get a shot at starting a lower band ride instead. SPX daily chart:
The first thing to say about the SPX 60min chart is that my second important support level at the 50 hour MA was broken yesterday and then held as resistance into the close. This might still be a wave 2 move with a wave 3 up starting shortly, but at minimum the uptrend from 1978 broke yesterday. The third and last important support level that I gave on Friday morning is possible double top support at the 1978 low. On a sustained break below the double-top target would be in the 1938 area.

Short term the action late yesterday afternoon looks somewhat like a bear flag, but we may see a bounce to establish a decent falling support trendline or falling trend pattern. Resistance in the SPX 50 hour MA area held overnight on ES and if a strong trend down has now been established then it may well hold again as resistance today. Strong resistance is at the 50 hour MA in the 1998 area and the daily middle band in the 1999 area. SPX 60min chart:
The RUT chart wasn't a lot of help yesterday as there are almost equally weighted bull and bear scenarios formed on this chart here. On the bull side the (55% bullish) falling megaphone overthrew slightly to establish a falling channel and we are about to see a strong bounce into declining resistance from the high. On the bear side the (45% bearish) falling megaphone is breaking down and we should soon be testing double top support at the 1107 low. If we see a break below channel support that would boost the bear case considerably, though there is always a danger of course, with the RUT P/E getting down towards the 80 area now, that bears may be crushed by a stampede of bargain hunters. RUT 60min chart:
USD broke the 2013 high yesterday, and while there is increasing negative divergence on both the RSI 5 and the RSI 14, I'm thinking we see a test of declining resistance from the 1985 high somewhere around the 86 area before we see a serious reversal. Short term support is at current rising channel support in the 84 area. USD daily chart:
Silver has broken below strong support in the 17-18 area and unless we see a break over falling channel resistance, currently in the 20 area, then the obvious target is at falling wedge support, currently in the 12 area. Obviously precious metals are likely to struggle in a strong USD uptrend, and if USD can break over 90, then this USD uptrend may last for years rather than months. Silver weekly chart:
Looking at EEM there is a failure at triangle resistance and a double top has formed and broken down with a target in the 40 area. The obvious bigger picture target is triangle support in the 38 area. EEM weekly chart:
The key levels today on SPX are resistance at the 50 hour MA and daily middle band at 1998-9, and support at the daily lower band at 1985. I'm leaning bearish overall here on the pattern setups though with the caveat that it's really been a while since the bears have been able to deliver much of substance. Nonetheless, on a sustained break below 1978 SPX, I'd be expecting a move to the double top target at 1938, and there would be a real possibility that move might just be the start of a much larger correction.

Monday 22 September 2014

One Down, Two to Go

To the casual eye, nothing of great interest happened on Friday, with a larger than usual dip that was bought, and more than half recovered by the close. Superficially that was just a third day riding the upper band and if we see a very strong recovery into and at the open, it's possible that SPX could put in a fourth upper band ride day today. SPX daily chart:
But a look under the hood on Friday told a different story, as I mentioned a couple of times on twitter on Friday night. The low on Friday broke the first important support level of the three that I gave on Friday morning, and that level was rising wedge support from the 1978 low.

Now after a rising wedge breaks down there are two main options. If the uptrend is continuing then a retracement should start that would generally bottom near one of the main fibonacci retracement levels, the 38.2%, or 50%, or 61.8% retracement areas. If the uptrend is over, when that rising wedge is an Elliott Wave ending diagonal, then the retracement should retrace to the bottom of the rising wedge, in this case 1978 and the third of the important support levels that I gave on Friday morning. Either way a topping/reversal pattern should form if it has not already formed, usually a double top of some kind but sometimes an H&S.

After the rising wedge support break I had a look at the break low and saw that the target for a double top or H&S from that low should be in the 1994 area, close to the 61.8% fib retracement level at 1994.19. I was looking for the second high of a double top but SPX went slightly over the ideal H&S right shoulder high and failed hard there.  Looking at ES overnight, SPX may well gap below that H&S neckline at the open, triggering that 1994 area target. To get there it would need to break below the second line of support that I gave on Friday morning, which was the SPX 50 hour MA, now at 1997. SPX 15min chart:
Other indices with the exception of RUT and TRAN are all sporting decent looking short term double top setups. TRAN doesn't look particularly interesting, but RUT topped out first and has formed a falling megaphone that looks interesting and I'll be watching that today. RUT 60min chart:
What happens if all the the three levels of support that I gave on Friday morning are broken? Well at the least I'd be looking for a move on SPX to the (double top target in the) 1940 area, but there is a possibility that we could be looking at a significant interim top here at the end of QE3, to match the tops we saw at the ends of QE1 and QE2. There are large topping patterns part-formed on most US indices, but this DAX chart that I've been following shows eloquently where such a high might be headed. On DAX that topping pattern would be an H&S and at the least I'd be reluctant to be long any chart like this. The trigger level for the possible double top on SPX would be a break below the 1904 low, and that would current target the 1789 area for a retracement just over 10%. DAX weekly chart:
The first important support level that I gave on Friday morning was SPX rising wedge support from 1978, and that broke on Friday. The second important support level is the 50 hour MA, currently at 1997, and there is obviously a setup here to test that today. If bears can break that with any confidence that will break the uptrend from 1978 and open up a possible test of my third and last important support level at 1978. If that level breaks then the double top target would be in the 1940 area, and any decline into that might well open up a test of the 1904 low.

Meantime though bears still have a lot to prove. We'll see how they do today.

Friday 19 September 2014

Pavlov and the Three Little Bears

SPX made a new high yesterday and closed at 2011.36, only 0.13 over the daily upper band which closed the day at 2011.23. The bears had plenty of time to knock the market down after a new all time high was made in the morning, and failed to do so. The odds that we are starting an upper band ride on SPX improved sharply yesterday.

It's a struggle to remain objective at a time like this because the last couple of years have conditioned us all to dismiss any bear case at the first sign of trouble, and I'm struggling not to just do that here. The odds of a bullish resolution here are definitely improving, but that's not a done deal yet, and the stats from my SPX daily RSI5 / NYMO sell signal particularly are warning that we could still see a bearish resolution here, though if we are to see that we would need to see some significant weakness today or at latest on Monday.

For today on the daily chart I'm looking for a third day of riding the upper band. At the time of writing an open above the daily upper band looks likely. I would expect at minimum a touch of the daily upper band at some point during the day. The daily upper band closed yesterday at 2011 and probably won't close the day over 2015. SPX daily chart:
So how should we view the bear case here? Well there is an easy solution, as I have three support levels to watch on SPX here. If SPX fails to break any of them the bear case is dead in the water, and on a break of the third and last SPX will have broken down.

The first of those three support levels is at rising support from the 1978 low, and that is currently at 2004 and rising at about eight points per day. Until this is broken the bears aren't even on the radar really.

The second of those levels is the 50 hour MA, now at 1994. This should remain unbroken until the current uptrend is topping out, so a significant break below would cast very serious doubt about much further upside in the near future.

The third of those support levels is the last low at 1978.48. That is double top support here and a break below would currently target the mid-1940s. If we see that low broken then it should follow through to at least that double top target and possibly a lot lower. SPX 60min chart:
USD is approaching the first of my main resistance levels,and that is at declining resistance from the 1985 high in the 86/7 area. It's hard to give an exact number from this 34 year monthly chart but I'll be posting this chart often as that area is reached. A break above may signal the end of the huge secular bear market in USD since 1985, and would open up a test of major double bottom resistance at 88.71. USD monthly main chart:
I've been giving the precious metals market some thought. The nice looking bull setups at the start of 2014 never followed through, and if we are looking at a major bull run on USD that may extend forward for years, then precious metals are unlikely to prosper. I have a decent falling wedge on the silver weekly chart and if silver can break and hold below the very strong support at 18/9, then the next obvious target would be wedge support in the 12 area. Silver weekly chart:
So my solution to the conundrum of what to think of the bear case here is to disregard it unless bears can demonstrate that they are still in the game by breaking the three support levels listed above. Until we see that my working assumption will be that SPX is riding the daily upper band, and if SPX is doing that, then I'd be looking for early dips to buy and grinding upwards the remainder of the time.

Thursday 18 September 2014

Feeling the Pinch

SPX touched the daily upper band at the high yesterday and also tested the 50 hour MA at the low, so the two key targets that I gave yesterday morning were both made. So what now? Well I'm still looking for a (hopefully) marginal) new all time high, so I'm looking for at least one more test of the upper band, but once there SPX is at a fork in the road and I'm going to talk about the bull and bear scenarios there.

The daily bands are pinching sharply here and that means that there is a very high probability that SPX is shortly going to start either an upper or lower band ride lasting at least three days and possibly much more. I've marked the last four daily band pinches on the chart below. The direction is unknown though the odds I gave yesterday of a downward resolution here at 2 to 1 is where I see the odds of the band ride here as well. What this means in practical terms, given that SPX tested the daily upper band yesterday, is that if we now see a strong new high, then this is most likely resolving upwards.

Resistance on the bull scenario is currently at rising wedge resistance on the daily chart in the 2035 area, larger rising wedge resistance on the weekly chart in the 2030-40 area, and the weekly upper band, currently at 2031.

Downside targets on the bear scenario start at the 1940 area on a break below the 1978 low, then a possible test of the 1904 low, and then on a sustained break below 1904 main double top support, I would have a double top target in the 1795 area. SPX daily chart:
SPX weekly chart:
What would be a serious sign of weakness here? Strong rejection at a new high obviously, but also a significant break below the 50 hour MA, as in a strong uptrend that should be very strong support. If support there isn't holding, then the chances are that we are not in a strong uptrend, and the daily band pinch is telling us here that SPX will be in either a strong uptrend or downtrend within days, so we might well then be starting a strong downtrend. SPX 60min chart:
Oil reached my target and main double top support last week and so far is bouncing strongly there. I'm in two minds about what happens next, but if we see a test of 96 then declining resistance from the high will be broken, and if we see a sustained break over 96 then I would have a double bottom target in the 101.50 area. WTIC daily chart:
It seems likely that we will see the all time highs tested again today and if we see a new high I'll be watching for rejection there. If we see a daily close at or over the SPX daily upper band (currently at 2009) then the chances of an upside resolution here would increase considerably.

Wednesday 17 September 2014

Premature Exultation

SPX broke back over the daily middle band and the 50 hour MA yesterday, and just to underline the point, Dow broke over the 50 hour MA and managed a new all-time high. The falling channels on NDX and NYA also broke up hard. The retracement from 2011 should be over and we should see a retest of the SPX all time highs in the next few days. 

So has this RSI 5 / NYMO sell signal failed now? Not yet. Of the 29 previous signals back to the start of 2009, a full nine of them reversed back up to a new high before then making a lower low. One of those signals then failed and eight made the RSI target. As there were only four other failed signals, that gives better than two to one odds here that a new high on SPX would be followed soon after by a low under the retracement low at 1978. Given that nice looking double top setups are forming here, we may be looking at a marginal higher high coming, and then a deeper retracement into the 1940s and very possibly further. 

What could be the trigger for that? Well there's FOMC today, and I'm expecting Janet Yellen to confirm that she really wasn't kidding about QE3 being wound down to zero in October. There is also the possible secession of Scotland from the UK coming tomorrow. I find that a bit hard to take seriously as a trigger myself, but there has been much public talk from many who disagree with me. It would be a sign that the British Empire is ending, but as in truth the British Empire dissolved almost entirely into history some 50 years ago I'm struggling to see that as news. Even so, I could be mistaken, and Scotland may well vote to secede. 

On the daily chart SPX touched the daily lower band at the low yesterday morning, and then bounced hard, closing significantly above the middle band. As long as we don't see a strong break back down below the middle band on a daily close basis, the next obvious target is the upper band at 2009, in effect a test of the current high at 2011. SPX daily chart:
SPX broke above falling channel resistance and, more importantly broke back over the 50 hour MA with confidence. I was saying a week ago that a break like this should signal that this retracement was over (or at least that new highs were likely soon), and given that the rally fail on Friday was at the 50 hour MA test, this looks very bullish short term. Again, I'd expect to see at least a test of the highs from this break, though we may well first see a retest of that broken resistance level today, and that's currently in the 1992 area. SPX 60min chart:
Dow broke over resistance at the 50 hour MA there yesterday morning and spiked into a marginal new high, so the upside target for the falling wedge I posted last Friday has now been made and that pattern can be disregarded. Obviously there is currently a nice looking double top setup on Dow, and the chances of that playing out are improved by the failure of the last double top to make target, as a late fail on these patterns often means that a larger reversal pattern is forming. The same observation also applies on SPX. INDU 60min chart:
Today the odds would normally favor some consolidation / retracement, and the obvious target for a retracement would be a retest of the SPX 50 hour MA in the 1992 area. We may well do that today but obviously there is a big wild card here in the form of FOMC today. That's at 2pm and while the message from the Fed may be predictable, predicting the market reaction is tougher. If we see a sudden spike to an new all time high on SPX that would be an interesting short entry area in my view. 

Tuesday 16 September 2014

Unfinished Business

The SPX daily RSI 5 closed at 32.79 yesterday, and the retracement is now larger than two of the past 29 signals since the start of 2007. SPX has reached a level where a low wouldn't be an extreme statistical outlier. This isn't a false signal that is part of a larger sell signal forming however, so once I strip out the four of those, then 20 of the remaining 25 signals made it to the target level at 30 on the RSI 5. This retracement may well make it there as well.

There is something else to consider as well. SPX has broken below the daily middle band, and confirmed that break by holding below it yesterday. When this happens then there will be a test, most of the time, of either the daily lower band, or a significant moving average. My eye is drawn to the daily lower band at 1976.62, and the 50 DMA at 1972.56. Both of these are decent targets for any further move down. SPX daily chart:
The falling wedge I posted on Dow on Friday broke up yesterday. An IHS may be forming and I'll be watching to see how that develops today. INDU 60min chart:
NDX was very weak yesterday and, significantly, broke down from a double top with a target in the 3998 area. Big round numbers tend to be price magnets and the 50% fib retrace level is at 3999, so the odds of a hit there look pretty good. Short term I'm looking for a bounce into channel resistance. NDX 60min chart
The setup on NYA looks very similar to the setup on NDX. Same open double top target near the 50% fib retrace level, same falling channel. That strengthens the case for some more downside on these two at least. NYA 60min chart:
I've been considering the case for a bounce on EURUSD carefully. There is a strong argument that the initial targets from the topping patterns, H&S and falling wedge, have been reached, and the daily RSI 14 is impressively oversold. I'm watching the current falling channel, and the consolidation at the recent low which looks like a bear flag but could yet be a small IHS. EURUSD 60min chart:
The odds are that the retracement low, if this is a retracement and not the start of a larger move down, isn't in yet. I like the odds for a bounce today on SPX, NDX and NYA. That should be a shortable rally followed by a (limited) further move down with the obvious targets in the 4000 area on NDX and the 1972.5 area on SPX.

Monday 15 September 2014

Breaking Glass

I was saying on Friday morning that the bear case shouldn't be written off yet and, well here we are. The bounce failed at the 50 hour MA and SPX made a new low, closing well below the daily middle band.

In terms of past RSI 5 / NYMO sell signals the situation is improved as the decline is now larger than two of the 29 sell signal declines back to the start of 2007, and I'd also note that SPX and Dow also made the 38.2% fib retracement levels at the low on Friday, if this turns out to be a wave 4 retracement.

Looking at the US indices, the one that springs to the eye with a very decent quality pattern is the Dow, and I posted the Dow falling wedge on twitter on Friday night. This is a model pattern, and it overthrew slightly at the low on Friday to touched the 38.2% fib retracement level. The obvious next move within this pattern would be to wedge resistance in the 17025 area, and if it then broke up this retracement would most likely be over. This is a 70% bullish pattern, but of course that means that these patterns break down 30% of the time. On a break down the target would be in the 16750 area. Dow 15min chart:
I don't have as good a read on the SPX 60min chart, but I said last week that the downtrend should only break above the hourly 50 MA after it had bottomed out and that remains the case after the failure there on Friday morning. There is a possible double bottom setup in play that would target the 2014 area on a break back over 1998. SPX 60min chart:
On the SPX daily chart I would note the clear break of the daily middle band. If we see more downside today then that opens up the 50 DMA at 1972.5 and the lower band at 1968.5 as targets. SPX daily chart:
TLT gapped under rising support from 99.16 on Friday morning and that breaks the 2014 uptrend. I have a double top target in the 111 area, and possible H&S necklines in the 112.8 and 109.8 areas. I'll be doing a follow-up post on bonds later this week to look at the bigger picture on bonds. TLT daily chart:
Oil is retesting last week's lows, and more importantly is testing double top support on a pattern that would target the 70 area. Given the strong bull run on USD this is a possibility to watch. WTIC daily chart:
For today I'm mainly watching the falling wedge on Dow. The obvious next target is falling wedge resistance and if that pattern breaks up then this retracement is most likely over. If it breaks down then this retracement may well then extend into the 1940s on SPX.