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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. 

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