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Friday, 28 November 2014

The Day After Thanksgiving

I hope everyone had a great Thanksgiving, and that none of you were long enough oil-related instruments for OPEC to upset your digestion. We are seeing a weak looking open today and in part that may be due to the break below $70 on oil, though on all three trading days so far this week we had a significant move down either from or before the open, which then wasn't followed through. .

I'm skeptical about the prospects for the bears today. This will be a holiday half-session on low volume, and the stats for the last trading day in November are impressively bullish, with SPX closing up 6 of the last 7.

The close on Wednesday delivered another close above the 5 DMA, and another new lifetime high on SPX of 29 consecutive closes above the 5 day MA. If the bullish historical stats for today deliver then we will see SPX make another lifetime high at 30 above today. It wouldn't take a big move to end that run here though, as the 5 DMA is now at 2065. SPX daily 5 DMA chart:
If we do see a move up today, and SPX makes another all time high, then there is an obvious target and resistance level at the daily upper band, which closed on Wednesday at 2079. SPX daily chart:
Just next to the daily upper band is the weekly upper band at 2080. We shouldn't see a close above that today. SPX weekly chart:
On the downside the 5 DMA at 2065 is closing support of course, and main uptrend support is at the 50 hour MA, which last closed at 2059.5. Until that can be broken with confidence this uptrend is still going strong, though you can see on the chart below that each move up has been weaker and shallower than the one before. SPX 60min chart:
I haven't got time for a detailed look at oil today but the sharp move down in oil on Friday is prompting me to post again my lowball target for oil on this move, which I haven't been taking particularly seriously but is now coming into view. I posted this chart on 8th July 2013 talking about a possible move to a triangle target at the strong rising support trendline from 1998, and I have that currently in the $48 area. That's something for oil longs (and shorts) to at least bear in mind here. WTIC weekly chart from 1998:
I didn't manage to get my USD and EURUSD post out yesterday. I'll be trying to get that out at the weekend. Everyone have a great weekend :-)

Wednesday, 26 November 2014

The Day Before Thanksgiving

With Thanksgiving here I'll mostly be catching up with paperwork over the rest of the week. The globex action this morning has been very interesting and profitable, but my expectations for the rest of the day aren't high.

SPX turned in a 28th consecutive daily close above the 5 day MA, and though I've only been able to check this myself back to the beginning of 1962, I understand that is a new lifetime record for SPX since 1923, beating out the previous record of 27 closes above set in (cough) 1928. I'm certain that this move here is at least as much a sign of a healthy bull market as the 1928 record was, and would note that SPX doubled in value in the months after that last record was set, though there was some bearish action after that. At some point this record-breaking run will have to end, but this being Thanksgiving week might extend the run a couple more days. The 5DMA closed yesterday at 2060. SPX daily 5 DMA chart:
If this wasn't Thanksgiving week the short term outlook would be bearish, with a broken rising megaphone and two nested double tops in play here. It remains to be seen whether bears can make any headway in this slow tape, but if they can I'm keeping an eye on the open ES gap at 2061.75 and strong support at the weekly pivot at 2055.3 ES and last Friday's low at 2054.75 ES. As I have the SPX 60min moving average currently at 2055/6 (SPX), this is the key support area short term. SPX 5min chart:
If we see equities go higher on low volume holiday tape, and the stats for both today and Friday are bullish, then I have both the weekly and daily upper bands at 2079, and would be looking for strong resistance there. As both the pattern setup and the stats next week lean bearish I'd be seeing a hit there as a decent short entry. SPX weekly chart:
Today may well be very boring to trade as so many people are taking the day off. This might be a good day to finish early. I'll be doing a holiday post on the US Dollar and EURUSD tomorrow, and a morning post as usual on Friday.  Everyone have a great Thanksgiving! :-)

Tuesday, 25 November 2014

Unquenchable Exuberance

SPX closed above the 5 day MA yesterday and that took the number of consecutive closes above the 5 DMA to 27, which is a record as far back as my decent daily data goes back to the end of 1961. I was saying yesterday that this might be an all time record and Zero Hedge posted an article after the close yesterday confirming that, and adding that it equals a 27 day run in 1928. If we see another close above today then that would beat even that into a new SPX lifetime record.

There have been five previous runs of 20 or more closes above the 5 DMA going back to the end of 1961, and I've noted the stats on all of those for what happened after the end of the run in the short term, and also what happened over the next year. Those stats are on the chart but in summary the end led into a retracement of between 2% and 7% with the median retrace at 3.5%, and all of the previous five were up over the following twelve months, though as Tyler Durden noted, that wasn't the case in the case of the run in 1928. Even in that case however the market doubled again before it halved, so regardless history is telling us to expect more upside after some retracement. SPX daily 5 DMA chart:
The weekly upper band rose slightly more than I expected to 2079 and that is likely to be strong resistance this week. SPX weekly chart:
The daily upper band is at 2077, under the weekly upper band and now in easy range. SPX daily chart:
The CL chart is looking interesting here. Declining resistance from 93 has been pinocchioed a couple of times in recent weeks, but CL only closed above it for the first time yesterday. CL may have bottomed now but should at least be in a bottoming process. After a reversal pattern has developed I'll be looking for a move to falling megaphone resistance, currently in the 83-5 area. CL daily chart:
We may well see a hit of both the weekly and daily upper bands today and I'll be looking for resistance there. We may well then see a retracement that then breaks this amazing run of closes above the 5 DMA, which closed yesterday at 2057. This is Thanksgiving Week though and as we were seeing yesterday, it may not be possible to get a significant move down, or at all, this week.

Monday, 24 November 2014

Running The Numbers

I've done more work on the daily closes over the 5 DMA stats this morning and taken these back to 1970, during which time there have been only five previous examples. On Friday SPX closed above this for the 26th consecutive day and matched the longest previous example during this period which was in 1986. As and when we see SPX close back below the 5 DMA we can expect a minimum 2%+ retracement there but otherwise the historical stats were not at all bearish and I will be talking about these more tomorrow. Meanwhile the stats are on the chart below. SPX daily 5 DMA chart:
SPX hit the weekly upper band on Friday. This can only rise at 7 - 10 points per week and tends to be very strong resistance on a weekly closing basis. This is likely to limit upside over the next few weeks though SPX may well ride the band upwards. It just isn't likely to be that fast. SPX weekly chart:
If we see more upside today the daily upper band is at 2077 and that is an obvious target. Given that it is 11 points above the weekly upper band close on Friday, that would be a nice looking short entry. SPX daily chart:
The low on Friday was at rising support from 2040 and that is short term support today. that was in the 2060 area at the close on Friday. SPX 60min chart:
We may well see a retest of Friday's high today. If so then I'd expect decent resistance in the 2070-80 area and a likely move back to at least test Friday's low afterwards.

Friday, 21 November 2014

Here There Be Dragons

Yesterday morning ES tested the weekly pivot at 2035.5, and then SPX tested the 50 hour MA and then SPX was off to the races again. That 50 hour MA has held on five tests out of the last six trading days and until we see a break below it this uptrend is still very much intact. That first break below would normally also precede the main high, so that main high still doesn't look close here. SPX 60min chart:
I posted a chart on twitter last night showing pattern targets in the 2062-4 area and ES has exceeded that by quite a margin at the time of writing. If we see weakness on ES into the open the rising megaphone resistance trendline may yet hold as resistance. If (more likely) that ES gaps over it at the open then that's unlikely to be important today. SPX 5min chart:
Supporting the possible bull case is the bull flag I posted on RUT yesterday morning which broke up in the afternoon. The first target for that is a retest of the recent 1188 high. There is a possible further target if this is a mid-trend channel in the 1300 area but I'll not be considering that seriously unless RUT can at least make a new all time high. RUT 60min chart:
I'm not taking the short here but I posted the very nice looking rising wedge on AAPL yesterday and in a different market, and perhaps with a different company, this would be a very nice short setup. AAPL 60min chart:
I mentioned yesterday morning that SPX was one day from matching the longest run since 1980 of closes over the 5 day MA. That record run has now been matched and and as I've only looked at this back to 1980, this could even be a record run of these for the lifetime of SPX. On another close today over the 5 day MA, which seems likely, then that will be a new record for these since 1980, far eclipsing anything seen during a QE period. Where will this end? Hard to say but what I would say is that for the next four of these down in length the first closes below the 5 DMA were all bull flag continuations that then at least made a new high. SPX daily 5 DMA chart:
The SPX weekly upper band closed at 2064 yesterday and might close as high as 2067/8 today. It is Friday today and any close much above the weekly upper band would be a bearish punch through it, Those are rare though obviously we may see that here. If we do then we should expect a 4%+ retracement before Xmas. That level is strong resistance may well hold today though, in which case upside over the rest of the day is likely to be very limited.

Thursday, 20 November 2014

Signs of Weakness

Yesterday was the 24th consecutive close above the 5 day MA. This has only been exceeded by runs of 25 days in 1991 and 1987, though in 1987 one close on the MA might have been a whisker below. If we were to see another daily close above the 5 DMA then that would match the record back to 1980, and possibly for the SPX lifetime, as I've only looked back as far as 1980. This has been an amazing run. One thing I would note from the four longest runs since 1980 is that they all failed into modest bull flag retracements before continuing upwards. We may see this break down below the 5 DMA today and if we do, that's worth bearing in mind. SPX daily 5 DMA chart:
If we do see a retracement today, and the open looks likely to be very weak, then the obvious target would be the daily middle band. That closed yesterday at 2015.5 and is likely to go as high as 2020 today. SPX daily chart:
 For the first time in a while the range yesterday broke under the range on Tuesday, which was a significant sign of weakness. Main support was the same as it has been for a week at the 50 hour MA. If that should break with any confidence this morning then I'd be looking for follow through in a likely bull flag retracement. SPX 60min chart:
RUT has been leading to the downside here and broke a small double top yesterday with a target in the 1130 area. The overnight action here looks promising to see that target made though I have put a caveat for that on the chart in the event that we see a strong open and RUT outperforms today. RUT 60min chart:
I'm looking for an initial move up today followed by a move down that might develop into a trend down day. The key to seeing decent downside today is a clear break below the SPX 50 hour MA.

Wednesday, 19 November 2014

The Path Less Travelled

Well the doji consolidation stats I posted yesterday gave 75% odds of a small retrace before (most likely) higher, but once again SPX took the lower probability path of the 25% chance of breaking up. It was a clear breakout candle so I have looked at the four of sixteen of these from the start of 2009 that broke up and the following days for these played out as follows:

  • Trend up day on day 2 for 1.5% gain. Short term high slightly higher on day 3
  • Modest gain on day 2. Short term high on day 4
  • Modest gain and short term high on day 2
  • Inside day in upper half of breakout candle on day 2. Short term high on day 4

Now this is only a sample size of four, but the lean is clear. These stats are suggesting that yesterday did not make a short term high, and that that a short term high should be made from today through Friday, and could be as much as 2% higher. Three out of the four closed green on day 2, and the fourth close was only slightly below the breakout candle close. The lean coming into today therefore needs to be bullish, though with the expectation that there should be a short term high this week that should then retrace into (75%) or near (25%) the doji consolidation area that SPX just broke up from.

What are the obvious targets above? Well my eye is drawn to the weekly upper band on SPX, which closed yesterday at 2064 and is within easy reach on any move over yesterday's high at 2056. Next big resistance is primary rising megaphone resistance, which I have in the 2080 area. SPX weekly chart:
Another possible upside target is the daily upper band at 2080. That's possible and would be a decent fit with rising megaphone resistance. Any higher on this move is most likely out of range. There was a clear break of the shorter term megaphone resistance trendline yesterday and that should follow through to the upside. I'm not treating this as a particularly significant pattern. SPX daily chart:
Something interesting that I saw yesterday and posted on twitter was a possible rising channel that has now been established on SPX using a low just before yesterday's break up. This channel may well not last long, as it is rising at about 9 points per day, and that is really very steep. It is bullish as long as it lasts however and gives a possible target at rising channel turns wedge resistance in the 2090 area. That would be within 2% of yesterday's close of course, even if it looks very ambitious for this week. SPX 60min:
That was a clear breakout candle yesterday and my stats are firmly leaning bullish on that break. If SPX gets back below 2045 then this might still go the other way but until then I'm expecting yesterday's high to be taken out today (75%) or tomorrow (25%) and I'll be looking for a short term high later this week that should then retrace back into the 2030-40 area (75%) or at least a retest of the 2050 level (25%). I'd note that either of those options would break trendline support on my freshly minted rising channel from 1820.

Tuesday, 18 November 2014

Price and Time

We saw SPX made the fifth straight doji or near-doji close yesterday, and all five of the last daily closes have been in the 1938 to 1941 range, which is a rare thing to see. How rare? I've had a look back and not as rare as I was expecting. I'm considering these as being a minimum three days tight range consolidation on the daily chart, with a minimum of three doji or near-doji closes in that period. There are sixteen instances from the start of 2009 and they break down as follows

9x - Modest retracement then into new highs
3x - Modest spike then full retrace back into doji area, then new highs
2x - Bear trend rally high
1x - Significant high
1x - Continuation

I've been looking for a modest retracement here before a move to new highs, and 75% of these previous examples saw a move down from the consolidation area. 75% of those then went to new highs and the other 25% went much deeper. Of the remainder three made a modest thrust up that was then fully retraced, before going to new highs, and just one of the sixteen continued straight up.

This makes sense as there is a price and time trade-off in consolidations/retracements and these five doji closes have been a retracement in time rather than price. It makes sense that any break down after would be the shorter for that. The odds are 75% for this resolving downwards and then 75% that we see a modest retracement followed by new highs, and 25% that a larger retracement has begun, though I'd note that two of the three significant highs made were rally highs in a bear trend, which isn't the case here of course.

On the daily chart resistance is holding and the obvious target for a modest retracement would be the daily middle band, now at 2004 and rising rapidly. SPX daily chart:
Short term strong support is still at the 50 hour MA, now at 2034 SPX. SPX 60min chart:
If this retracement ever starts, then the first sign would be a break of the 50 hour MA, and then next should be a break of possible double top support at 2030. On a sustained break below that the double top target would be 2015. SPX 5min chart:
The rally on CL is testing decent declining resistance. We may see another leg down on oil start here. CL daily chart:
I'm still expecting a modest retracement to start sometime soon, and then continuation upward after that. I am hoping that the wait won't be as boring as most of the last week.

Monday, 17 November 2014

The Pied Piper of Tokyo

The big news over the weekend is that Japan has moved back into recession. The country is a cautionary tale of what can happen when complacent central bankers/planners ignore dangerous asset bubbles and then assume that they can fix everything with stimulus spending, ultra-low rates and wallpapering the country with newly printed money. With GDP over 7% under the level in 1997, a debt at over 250% of GDP, and huge entrenched budged deficits the situation there looks hopeless without a major default to try to rescue an economy that arrogant and incompetent politicians and central planners/bankers have driven to ruin.

Fortunately nothing like that could ever happen in the developed economies of the west. :-)

Another day of grinding into a daily doji candle on Friday, making that the fourth doji close in a row and the fifth doji out of the last six daily candles. These candles are indecision candlesticks and show either consolidation or the topping process preceding a retracement. Given the stretched state of the market here I'm looking for retracement, though I'm doubtful about that retracement breaking below 2000. If SPX gets that far then the obvious target would be a test of middle band support, which closed at 1997 on Friday, up eight handles from the close on Thursday. SPX daily chart:
To get a retracement started SPX must first break below the 50 hour MA, which was strong support on both Thursday and Friday. If we see a decent break of that today (hourly close basis), then a retracement should be starting. SPX 60min chart:
In terms of a retracement target the H&S that I posted on Friday looks pretty good here and if the neckline breaks today the target would be in the 2013 area. SPX 5min chart:
I think the setup looks pretty good for a modest retracement today and I'm leaning short. Bigger picture though I'll be viewing this as a buyable dip and will be looking hard for the retracement low. I'll be posting any retracement pattern I identify on twitter.

Friday, 14 November 2014

Setting up House in Crazytown

SPX reached Mike Vacchi's Bet The House level yesterday, stayed there for minutes rather than hours, and then retraced seventeen points before bouncing. I had a really fun day after three days of dreary intraday tape this week, and it was great to have a two sided day. What had the bears actually achieved by the end of the day? Um ......... well .......

Not a great deal really. A marginal lower low was made on SPX for the day but while that might be interpreted as a downsloping H&S forming, it can equally be interpreted as a sideways megaphone forming here. We will need price to set direction today to see whether we are finished on the upside short term. If we get back to Bet The House, which is at 2043.50 ES today, then I'll be looking for short entries again. SPX 5min chart:
On the 60min chart the low yesterday was the first test of the important 50 hour MA support level since the break back up over it at 1890. That showed at least some sign of life on the downside, but wasn't inherently bearish. SPX 60min chart:
At the high yesterday SPX pinocchioed megaphone resistance slightly. If we spend much longer up here that trendline may start looking ragged, but I'm not expecting a sustained break over it before a more significant retracement. SPX daily chart:
I've mentioned a target at 88.80 on USD a few times over the last few weeks. DX has formed a triangle and broken up from that with a target in the 88.80 area, and I'm expecting that target to be made today or tomorrow. DX 60min chart:
We have now spent an amazing six days in Mike's Crazytown zone, and having made it through the first few hours in this area, which is generally all we see, ES is settling down, picking out drapes and checking out local schools. This won't last indefinitely and a retracement is likely to start soon. Meanwhile we should see two sided trading and I may get more opportunities to short from Mike's Bet The House level.

Thursday, 13 November 2014

From Crazytown to Bet The House

My main trading partner is Mike Vacchi, who I mention regularly. We trade every day in his room at Princeton Trader. Mike has a system that he has been using for ten years or so to identify levels where the market is either extremely overbought or oversold, and they are set at distances from the 45 day pivot. That is at 1962.13 today and we have now spent an unprecedented (in the last ten years) five days now trading around the 'Crazytown' level at 70 points over the pivot. At 80 points over it is the 'Bet The House' level and ES hit that overnight and traded there awhile. That level can be overshot, but rarely for more than a few hours without a significant retracement starting. I am short from Bet The House and actively looking for that retracement here.

The resistance trendline on the daily SPX I've been looking for as resistance was hit on Tuesday, and we might see a higher high over that today. If this trendline holds that high would be marginal and should be the second high of a small double top. SPX daily chart:
If we see that double top play out today the target would be a fairly modest pullback to the 2022 SPX area. It's worth noting that the ES weekly pivot is currently at 2017, which is a match with that level. SPX 1min chart:
Silver is looking as though it should bounce here short term. That's a decent fit with the toppy looking action in USD. Silver daily chart:
I'm hearing a lot of talk that we could spike up hard here towards 2100, and that is possible. Almost anything is possible. However the historical odds really don't favor seeing that move without a decent retracement. I'm positioned short waiting for it.

Wednesday, 12 November 2014

SPX Hits Megaphone Resistance

SPX hit my 1940-5 target range yesterday and at the moment seems to be failing there. That fail looks very bearish but I'll be assuming that this is a retracement only unless we break through the MA support cluster in the 1970-80 area to open up a possible retest of the 200 DMA at 1920, and then break hard through that on that retest. Until then I will be assuming that we are looking for a retracement before a move to new highs. SPX daily chart:
Immediate SPX support is at the 20 hour MA at 2035, and then the 50 hour MA at 2026. On a break below the 50 hour MA I'd be looking for a test of the 2001 low and the 2000 area. SPX 60min chart:
NDX broke the rising channel yesterday, which is encouraging, and I'm watching for a break below the 50 hour MA at 4162. On a sustained break below 4126 the double top target would be in the 4050 area filling the two open gaps that I have highlighted in yellow. NDX 60min chart:
I've been giving some thought to the setup on bonds here and I think I have the overall pattern on TNX now. That should be a falling megaphone. Short term TNX is consolidating/retracing and then I'd expect a move to megaphone resistance in the 25.5 to 26 area. TNX might reverse and swing down again there, but probably more likely that it breaks up towards a full retrace of the move in 2014. That might of course require a retest of the lows first so a break over megaphone resistance might not be immediately bullish. TNX 60min chart:
USD has rallied to a level which has retested rising channel resistance. This is the obvious level to start a retracement towards rising channel support in the 84.5 to 85 area, and lower if that should break. Negative divergence on RSI is very supportive of a retracement here and that is what I am looking for. USD daily chart:
I'm looking for retracement on equities here and given the strength of the uptrend into yesterday's high, that could be fast and hard. I'll be looking for support on SPX at the 50 hour MA at 2026 and if that breaks down hard then I'll be looking for a move to the 2000 area.

Tuesday, 11 November 2014

Another Day, Another All-Time High

SPX made another new all time high yesterday and is now very close to a hit of my megaphone resistance trendline. I'm expecting some resistance there. The daily RSI 14 is approaching 70 and the RSI 5 is extremely overbought, though the last move up killed off the negative divergence there. SPX daily chart:
There is negative divergence across the board on the USD equity index 60min charts. SPX is breaking the support trendline from 1926 and a move below the 20 hour MA at 2031 should signal a retrace has started. Until then the chart is just suggesting retracement sometime soon. SPX 60min chart:
Every so often I see a pattern that only becomes apparent at a late stage, such as this rising channel on NDX that established yesterday. This is a very toppy looking setup on NDX that just needs a push to get a retracement going. I'll be watching this today for signs of weakness. NDX 60min chart:
Is there reason for weakness on NDX? Well AAPL stalled at rising megaphone resistance a few days ago and isn't yet showing any sign of breaking up through it. At the least this is a natural area to see a pullback. AAPL daily chart:
We are likely to see a retrace soon that has a decent chance of retesting the 2000 level. When? When it's ready. I'm looking for resistance in the 2040-5 area and if SPX finds resistance there we may see that retracement start today. An hourly close below the 20 hour MA, currently at 2031, should be a decent signal that the retracement has started.