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Tuesday, 21 October 2014

1920 SPX Rally Target In Sight

Last Wednesday night, after some seriously wild action had settled down a bit after hours, I made some educated guesses in my trading room about what ES/SPX might do over the next few days. Some of these I also talked about on twitter then and the next morning, and reviewed the status of all of these on Friday morning. They were as follows from ES 1842-3 at the time:
  1. ES was making the second low of a double bottom targeting the 1855 area (topped at 1857)
  2. That move should make the second high of a double top (target 1821 area) (bottomed 1815)
  3. An (Thursday) AM low would be made on SPX in the 1830-40 ES area (low was 1828)
  4. SPX would then break up from an IHS with a target in the 1920 area (to be hit today?)
  5. That 1920 area would be reached on Thurs/Fri this (now last) week (rally too slow)
  6. SPX would reverse back down hard to hit the 1789 double top target (pending) 
  7. That double-top target would be hit Tues - Thurs next (now this) week (ambitious)
Janet Yellen wasn't as much help as I had hoped on Friday morning and while it seems very likely that my 1920 SPX will be hit in trading hours today, this is obvious a solid two days later than I had expected. Does that make the outlook here more bullish? Possibly yes. I'm looking for a test of my 1920 SPX target in trading hours this morning and then I would like to see a very hard rejection from that high. We'll see whether I get that.

I gave three levels to watch on the upside in my Friday morning post. The first was the 38.2% fib at 1898 SPX, and that was the high on Friday. The second was the 200 DMA at 1905/6, and that was the high yesterday. The third is the 50% fib retracement at 1920 and that should be hit today. If SPX breaks that target with confidence there is a fourth level to bear in mind, and that is the daily middle band that closed at 1936 last night and that I'm expecting to close in the 1932 SPX area today. SPX daily chart:
I'm posting the SPX 60min chart just to show the fib retracement levels and to show also that SPX converted the 50 hour MA into support yesterday. That closed yesterday at 1886 and if we see a strong reversal at my 1920 SPX target, then that will be an important level to break on the way back down. SPX 60min chart:
I ran the 15min charts on the main US indices last night to look at the patterns from the lows and three of those, WLSH, NYA and (unusually) SPX, have no clear support trendline established here and therefore no clear pattern. The other four however all have clear patterns and, as is the case with all seven of these indices, have not yet reached their double-bottom or IHS targets from the lows. I will be watching these four with particular interest today as the first sign of serious weakness will be when the support trendlines on these patterns start to break.

On Dow there is a rising megaphone with a high quality support trendline. INDU 15min chart:
On RUT there is a rising megaphone with a high quality support trendline. RUT 15min chart:
On TRAN there is a rising channel with a high quality support trendline. TRAN 15min chart:
On NDX there is a rising wedge with a decent quality support trendline. NDX 15min chart:
Do I have any bullish scenarios here where the low has already been made? Yes, a low that came close but failed to hit pattern support or the double-top target wouldn't be untypical in a situation where a larger reversal pattern was now forming. In that scenario we would see new highs to make the second high of a much larger double top and then a fail with a target in the 1580-1620 area that, as I was noting last Friday, would be an ideal technical target for any more significant retracement from this area.

I'm not expecting that yet though. There wasn't any serious positive divergence on the daily RSI 14, or daily RSI 5, or hourly RSI 14 at the low and while I am certain that there must be previous examples where a 5%+ retracement made such a divergence-free low, I can't recall seeing any in recent years. Until I see strong evidence to the contrary I am expecting at minimum a retest of the current lows.

Ideally I am looking for a hit of my 1920 SPX target in trading hours this morning and then a very strong rejection from there over the next couple of days.

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