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Tuesday, 31 March 2015

The Right Kind of Triangle

SPX broke back above the daily middle band at 2078 and unless we see a strong reversal candle today that negates that break up, the obvious next target is over 2100. ES has been very weak overnight and we could see that strong daily reversal candle today, so I have the odds of more upside here in the 75% area with 25% odds on a break back down. If we see a break back down that breaks the 2039.69 low, then we may well see a move to the double top target in the 1960 area. SPX daily chart:

The upside scenario is something I was discussing on twitter yesterday, and that is that SPX is forming a large triangle. Triangle resistance is currently in the 2112 area and I'd expect that to be hit soon. We'd likely see a retracement there and then a break up, as in this context that should be an EW continuation triangle for the move into the main spring high. I'll be talking more about the targets for that tomorrow but it would be a very nice setup for the next few months. This is one of the rare triangles that I very much like to see. SPX 60min chart:
On bonds I'm doing a post looking at the bigger picture but the quick summary is that we should be starting a move here that should wipe out all of the gains from the start of 2014. That sounds pretty wild I know but not as wild as my call for a big rally at the start of 2014 when everyone else expected a big decline. Chances are this will happen too. If the falling channel on my chart below holds then the next leg down of that move is starting now. If channel resistance is broken then I'd expect a retest of the highs to make the second high on a double top. TLT daily chart:
I like my triangle scenario here and if that scenario is right then it's going to be a seriously fun summer. Bulls are on must perform today though and they have to hold support this morning. If bears can fill yesterday's opening gap at 2061.02 then my larger triangle scenario will be in trouble and we may be going a lot lower. A break below 2039 would open up 1960 as a target. If bulls can keep that gap unfilled and hold the daily middle band on the close today then I'll be looking for a hit of triangle resistance in the 2112 area next, and new highs not too long after that. Let's see how the battle at support goes this morning.

Monday, 30 March 2015

Last Two Days of Q1

SPX closed within one point of the weekly middle band on Friday so that very important support there held. While I am looking for some more downside I'm expecting that to hold again this week. SPX weekly chart:
Equities have been strong overnight and it's clear that the triangles formed at the end of last week are breaking up. Nonetheless the triangles on all six of the indices below should be bear flags forming and I have sketched in the idea flag resistance targets on SPX, Dow and TRAN. Screen 3x 15min SPX INDU TRAN:
Screen 3x 15min NDX RUT NYA:
My stat that the 2039 low must be broken before new highs are made is still outstanding, and I'm not yet seeing any strong evidence that it won't be. The historical stats for the last two days of March are bearish. Let's see how this gap up fares today.

Friday, 27 March 2015

Chopping Around Near Support

SPX made a low at 2045 yesterday morning and has been chopping around since. There is much talk that the low is in but I doubt it. My 5 DMA stat is expecting a break below the 2039.69 low and we haven't seen that yet, and I still have possible bull flag support in the 2030-5 area. If that isn't the reversal area I'd be looking down rather than up for the next targets. SPX daily chart:
The move up from the low yesterday was a rising wedge which then broke down in the afternoon. I posted the chart below on twitter then with the comment that in this context that rising wedge would generally be a larger degree bear flag, with the target either a retest of the low / marginal new low, or an extension down to the 2000 area if the first target failed to hold. That remains the case. SPX 5min chart:
As it is Friday today the close is important on the weekly bollinger bands. The middle band is at 2061 and ideally today I'd like to see a test of the 2030-5 area and then a close back near or over 2061. That could be a tall order of course so we'll see how that goes. SPX weekly chart:
I'm leaning bearish until the 2039.69 low is broken. After that I'll be looking for a possible low, ideally in the 2030-5 area. There is a significant chance that SPX would run away to lower targets, though I think that's still unlikely.

I'll be doing a weekend post on bonds explaining why I think a very big move down has started that should at least reverse the entire move up since the start of 2014.

Thursday, 26 March 2015

Revenge of the Killer 5DMA Stat

Well I said it would be a big break if my rising channel broke and well, here we are. SPX broke back below the daily middle band yesterday and closed at the test of main rising wedge support. That has broken down at the open and we are back to the stats I gave at the break back below the 5 DMA a few days ago, when I said that every similar break since the start of 2007 had resulted in a lower low before a higher high. I'm expecting that lower low under 2039.69 this week and most likely today. I'd add that the daily lower band is at 2040 so that really is the next obvious target. SPX daily chart:
SPX closed yesterday at the test of the very important weekly middle band at 2061. Bulls really want that to hold at the close tomorrow and we have seen some wild rallies in recent months to recover back over that from intraweek moves lower. Whatever happens today that may hold as support at the close tomorrow so that needs to be borne in mind for any shorts here. SPX weekly chart:
Oil may be breaking back up towards falling channel resistance. On a break over 54.26 the double bottom target would be in the 66 area. WTIC daily chart:
My expectation here at that we are looking at either a double top or a flag forming on SPX. If it is a double top then a break below 2039 would target the 1960 area. If it is a bull flag then the low area would usually be in the 2030-5 area. I am expecting that break below 2039 soon and we'll see then which of these options SPX will take. Until we see a hard break below the 2030 level I'll be leaning towards the bull flag option, and if we take that option, then the close tomorrow may well be back over the weekly middle band in the 2061 area. Be alert for a strong reversal shortly after the (very likely) break below 2039.

Wednesday, 25 March 2015

Important Support Test Here

I posted the chart below on twitter last night to show that the channel support that I posted as a target on Monday morning was tested at the close. I was concerned by that test being on the low ticks of the day at the close, and we'll have to see whether that holds this morning. On my main scenario we see a strong bounce from that support into new highs, very possibly this week. If we were to see a hard break down then I'd be looking for a very possible gap under channel support at the open today and at the moment at least, that seems unlikely. SPX 5min chart:
So what if channel support breaks? Well that would be a significant break but bears would still have two strong support levels just below that would also need to be broken. The first of those is at the very important 50 hour MA. This is generally not broken until an uptrend is topped or topping and closed yesterday at 2090. Bulls need to hold that level on an hourly close basis, and any significant move below it would look bearish. SPX 60min chart:
The daily middle band closed yesterday at 2088 and that too is very strong support. Bears need a decent daily close below that to break that support and open up a possible move back to the daily lower band, currently at 2042. SPX daily chart:
I am concerned about a break down here as the 5 DMA stat I posted on 16th March was talking about the significant possibility that the 2039 low would need to be broken before we see a new all time high. That's in my mind today as SPX tests support and I'd note that the 2039 low is now a possible double top support level targeting the 1960 area on a break below it. I'm watching support today with great interest.

Tuesday, 24 March 2015

Parallel Lines

Apologies for the very late post today. I had an appointment that overran badly & missed the open. That was annoying as I was short from the globex highs and missed the very well signalled low, but that's the way it goes.

Was that the low for this retracement? Well it made the little double top target left over from yesterday, but fell well short of hitting rising channel support. That looks like unfinished business unless we see a strong break back up, and if that support is going to be hit on this retracement, then the ideal fib time/place hits would be the 2088 area at lunchtime today or the 2094 area tomorrow morning. If SPX breaks back up hard then this rising channel has evolved into a rising wedge and the next upside target is the same pattern resistance trendline, currently in the 2125-30 area, so already in the right target area to make the IHS target there. SPX 5min chart:
One of the real oddities of the last few months for me was the October low being in the 1820 area, rather than making the obvious target in the 1790 area at rising support from the October 2011 low at 1074. I should have realized earlier, but the reason was that the October low established the lower trendline of a perfect rising channel from the 1266 low. This means that there are two primary trend patterns from the October 2011 low rather than the usual one, and it also means that the next intra-channel target is at channel resistance, now in the 2170 area. The odds of hitting that target before the next big retracement are therefore higher than I had previously thought, though it was always in play as a target of course. SPX weekly chart:
Unless we see SPX break back over 2110 I am leaning towards seeing a lower retracement low at channel support on the 5min chart. Unless we see a break below that channel support that should be a very nice looking long entry, if seen.

Monday, 23 March 2015

Two Steps Forward, One Step Back

We saw a trend up day that petered out in the afternoon on Friday. We may see some retracement today in which case strong support is still at the daily middle band, now at 2089. SPX daily chart:
Might we a retracement that deep today? Possibly yes. Short term rising support broke down at the close on Friday so I would expect to see at least retracement today. If that gets going then I have a possible rising channel here with channel support currently close to Thursday's lows. We could see another test of support there. SPX 5min chart:
I'm expecting to see at least some retracement today and the obvious strong support level on a strong break down from from 2106/7 is the 2085-92 support zone. Depending on when that is hit, anywhere in that zone may be a match with the possible rising channel support that I've marked on the chart above.

Friday, 20 March 2015

Support Held, Testing Resistance

The bears had their chance yesterday. SPX retested the middle band and there was a knife fight there that lasted all afternoon, with SPX closing within ticks of the middle band. As SPX was testing it from above, that was a victory for the bulls, with key support holding there at the close. These retests can provide some great entries with superb risk/reward entries. I called this one in the Princeton Trader trading room at the low yesterday. Worth catching these when we get them. SPX daily chart:
On the SPX 15min chart I now have a possible rising channel from the IHS right shoulder low. Support this morning is at that channel support and at the daily middle band in the 2090 area.  As long as the daily middle band holds the next obvious targets are the retest of the all time high at 2119.59 and the IHS target in the 2125 area. That area is an inflection area and I'll be looking at the options from there in my Monday post. SPX 15min chart:
The bears had a shot at breaking support yesterday and failed. Now the bulls have to break resistance at Wednesday's high, and at the time of writing that test could be in the first hour today. If we see a solid break above then we might well trend up today. A hard fail would invite another test of the daily middle band. Everyone have a great weekend. :-)

Thursday, 19 March 2015

One Central Planner To Rule Them All

Yellen astounded everyone yesterday when she revealed herself as a dove, and made reassuring noises about the Fed's willingness to spoonfeed and change nappies for equity investors into the indefinite future. I just thank my lucky stars that I'm fortunate enough to live in the free market west where we have the world's best and most open-handed central planners.

SPX broke back over the daily middle band at the close yesterday, and and long as SPX can hold that as support now on a daily close basis, I'm expecting at least a retest of the all time highs. SPX daily chart:
SPX formed a perfect bull flag yesterday with a low just under the strong support at 2062 that I was talking about in the morning. SPX then broke up, made the daily middle band test at 2090, then the double bottom and flag targets 2093/4, and topped out at a possible rising channel resistance trendline that I've marked on the chart below. We are seeing some retracement today but as long as SPX can hold 2090 on a closing basis today, bulls are back in control. If we see a close back well below the daily middle band today however then all of the gains this week could unravel fast. SPX 15min chart:
The most interesting thing for me that happened yesterday was the more than 5% intraday spike down in the US Dollar. That is suggesting that USD may well reverse before reaching my 105 target and if so then we may well now see a retest of the current highs, and then a strong retracement back to retest broken resistance in the 88-90 area. This is an important factor in the significant lows that I'm expecting to see in oil, gold, silver, platinum, GBP and EUR in the next week or two. I'll be posting updated charts for all of these with my ideal targets over the next few days. USD daily chart:
Kudos to Mike Vacchi at Princeton Trader yesterday for going long just before FOMC at 2053.5 ES and then for his next trade shorting the FOMC high at 2099 ES. Very nice work. Anyone who wants to see Mike & the rest of the trading team at Princeton Trader (including myself) at work trading intraday can take a two week free trial to look around. Wild days a speciality :-)

Disclaimer: The reference to the ring of Sauron in the title is in no way meant to denigrate Lord Sauron by comparing him to the Federal Reserve. The reference is only meant to compare the ambition and ability to cause havoc of the Federal Reserve to that of Lord Sauron, rather than making the obviously absurd suggestion that there might be any equivalence in intelligence, knowledge, understanding, or in organizational, forecasting or planning skills. It is understood that all havoc caused by the Federal Reserve is unintentional.

Wednesday, 18 March 2015

Will She Won't She

The low yesterday was in the 2064 - 66.5 range that I gave in the morning, and as long as that holds this morning the bulls should test the daily middle band at 2090. The 5 DMA and 50 hour MA are at 2063 and 2062 respectively this morning and those are levels that the bulls really need to hold. On a break under 2060 I will be looking for a test of the 2039.69 low and we might well see a break lower into the 2020s. SPX 60min chart:
Oil is in a bottoming process here in my view, and could reverse back up at any time towards falling channel resistance, currently in the 73 area and dropping at about $4 per month. There is still room in the channel down to the 37/8 area so we may well still see oil go lower before this significant low is made. WTIC daily chart:
FOMC day today and the bonds charts are suggesting that interest rates will start rising soon, though I'm a bit doubtful that the Fed will announce much today. I was saying on Monday though that I was doubtful that a retracement low had been made and I'm still doubtful. I've now run the 5 DMA stats back to the start of 2007 and I still haven't found an instance where a break back below the 5 DMA like the one we saw on Friday was followed by new highs before lower lows. That's not to say though that this can't rally further first to fail at the daily middle band.

Tuesday, 17 March 2015

Important Retrace Here

SPX broke up nicely yesterday and the obvious next target is the daily middle band, now at 1991. At that test the bulls should have a chance to take control back and test the all time highs. SPX daily chart:
On the 15min chart I have a clear resistance trendline for the current move and I'm looking for a retracement today to establish the support trendline. I'm looking for support areas at broken double bottom resistance in the 2066.5 area and the 50 hour MA in the 2064 area. If reached I'd be looking for one of those to hold. SPX 15min chart:
If they don't hold then there is a bear scenario to be aware of here, and that is the possibility that SPX is forming a right angled and ascending broadening formation. If so the next target would be a retest of the lows and these patterns break down 66% of the time. SPX 5min chart:
My strong lean here is towards the short term bull scenario and a retest of the daily middle band this week. This bounce could easily fail there though and I'm hoping that the retrace low today will help assess how likely such a failure would be.

Monday, 16 March 2015

Uncertain Low

I was saying on Friday morning that in all of the three instances since the start of 2014 when SPX broke back below the 5 DMA within two days, then a new low has been made before new highs were made. I had a look further back and that was also true in 2012 and 2013, though in both instances there was one instance that went one to make short term higher highs before those new lows were made.

That's a concern for bulls here as SPX tested the lows on Friday but did not make a lower low. This low is therefore uncertain and the rally from it may fail, most likely at the open today, the test of the Thursday high, or a test of the daily middle band.

On the SPX 60min chart the rising wedge support trendline from the October low held again, although it's starting to look somewhat frayed. On a break over Thursday's high at 2066.41 the double bottom target would be in the 2093/4 area. It's worth noting that double bottom resistance at 2066.41 is a match with the 50 hour MA at 2067 and the double bottom target is a match with the daily middle band at 2092.  SPX 60min chart:
Friday was day three of a daily lower band ride. To make today the fourth day SPX would need to reach the 2036-9 area at some point to test the daily lower band. SPX daily chart:
The setup is pretty straightforward today. Bulls want to beat Thursday's high to open up a test of the daily middle band. Bears want to take this back down to the lows to test the daily lower band and try to break rising wedge support for the third time. The failure to make a lower low on Friday favors new retracement lows being made before a serious attempt at a test of the all time highs is made.

Friday, 13 March 2015

Bulls Need to Follow Through

A very solid bounce of main rising wedge support yesterday, and an IHS broke up in the afternoon with a target in the 2084/5 area. If the bulls can follow through today then that is the next big target. SPX 5min chart:
Once over yesterday's highs the next big resistance is the 50 hour MA in the 2074 area. If this is a rally in an ongoing downtrend then SPX should not sustain much trade over this level. If the retracement low is in, then it should break and turn into support until the new uptrend is topping out. SPX 60min chart:
SPX broke back over the 5 DMA yesterday and and I've worked up some stats from that break that should allow us to judge whether the bulls really have a good chance that the retracement low was at wedge support on Wednesday. The full stats are on the chart below but the gist is that we shouldn't see extended trade below the 5 DMA today (currently at 2060), and we must see a close above the 5 DMA today for the bull case, as every instance since the start of 2014 where the bulls failed to deliver that made new lows shortly afterwards. SPX daily 5DMA chart:
The other key support level to mention today is the weekly middle band at 2056. A break below at the close today would look very bearish. SPX weekly chart:
Looking at the action so far today the bull case is getting into trouble. SPX needs to recover back over 2060 quickly and not return. If we see SPX break under 2050 then the odds will favor new lows in my view.

Thursday, 12 March 2015

SPX Tests Rising Wedge Support

All of yesterday on the 5min chart was spent forming a descending triangle which broke down slightly near the close. There are often false breaks on these and if we see a decent break over triangle resistance this morning then we should make the triangle target at 2055. Falling megaphone resistance is currently in the 2063 area and falling at about ten points per day. SPX 5min chart:
 There is increasing positive divergence on all of the 60min, 15min and 5min RSI 14s and the low yesterday was a test of serious support at rising wedge support from the October low. This is a very real candidate for a retracement low here, and at the least there is a very good case for a rally into falling megaphone support in the 2060 area before any more downside. If that megaphone breaks up then the chances are that the retracement is over. SPX 60min chart:
If we do see a further drive down today then this would be day 3 of a daily lower band ride. In that case the lower band should close no lower than 2042 today and if rising wedge support is broken then targets lower down into the 2000 area open up. SPX daily chart:
Nice start for the bulls today. The main upside target here is falling megaphone resistance and bulls really want to break that. Bears want to reverse back down at that test.

Wednesday, 11 March 2015

Rally On The Cards Today

I posted a slightly earlier version of the chart below on twitter yesterday afternoon talking about the falling megaphone from the H&S right shoulder high. SPX dribbled down for the rest of the day SPX but as long as megaphone support holds this morning the next obvious target is at megaphone resistance, currently at 2072 and falling at about 11 points per day.  5min chart:
There is very strong support not far below now at rising (wedge) support from the October low. I have that in the 2037 area and ideally that shouldn't be tested yet. If it is tested then it's important for further upside that it holds, as a break below not only opens up lower targets but also eliminates wedge resistance as a target. SPX daily chart:
Worth mentioning again today is weekly middle band support in the 2055 area. That is strong support and to hold it SPX needs to close Friday at or over that level. A break below on Friday's close opens up the weekly lower band as a target in the 2000 area. SPX weekly chart:
The SPX lower band closed at 2057 yesterday and as the middle band isn't yet pointing down I'd expect that to close no lower than 2050 today. At the minimum we should see a test of that from below today though unless we see a break of rising wedge support I'm expecting a rally to test falling megaphone support, target to be hit today or tomorrow. At that test SPX will have a chance to break up.

Tuesday, 10 March 2015

Bad Bull Fail Overnight

I had a great looking setup in play last night, and I did the chart and saved it with some confidence that we would see an extension of the rally into the 2090 area today, and then fail into the H&S target at 2054/5. That setup was supported by an IHS that broke up yesterday morning, and clear declining resistance from the highs at the IHS target. That chart is below. SPX 15min chart:
Alas it was not to be, unless we see a rally back to yesterday's close by the open, which looks unlikely. Instead we now have a new declining resistance trendline, and the same strong support trendline that will be in the 2059 area at the open and the 2052 area by the close. Unless that trendline breaks then further downside today will necessarily be limited, though the 2054/5 H&S target will be above that trendline by this afternoon. SPX 15min:
This unexpectedly determined overnight decline has left me less certain that SPX is going to reverse back up after the H&S target has been made, but there is decent support at the daily lower band at 2058, stronger (but weekly closing) support at the weekly middle band at 2057, and I have main rising wedge support from the October low in the 2038 area. On my scenarios where SPX makes new all time highs this year, it would help a lot if that wedge support wasn't broken, or ideally tested, in this move down. A break below would open up more bearish options. SPX daily chart:
We may well see an early rally today and if we make the H&S target at 2054/5 today, I'd be expecting that to be this afternoon.

Monday, 9 March 2015

A Compelling Case for 2050-7

The H&S on SPX broke down on Friday and that has a target in the 2054/5 area. SPX 15min chart:
That target is backed up on the daily chart by the daily lower band being in the 2053.6 area. SPX daily chart:
That target is also backed up on the weekly chart by the weekly middle band being in the 2057 area. SPX weekly chart:
There is a very clear support cluster in the H&S target area and that strengthens the already high probability pattern target at 2054/5. I think that target will be made, possibly today, and that we should see at least a decent bounce at that support. We may of course see a bounce on the way as well, but that should just be a rally to sell.

Friday, 6 March 2015

Inflection Point Test

The ability of the media to weave together news and the markets has a strange inverted genius to it. If ES has risen strongly on the decent NFP number this morning then the explanation would have been that the market was responding to the increasing strength of the US economy. As ES has fallen instead the explanation will be that the increasing strength of the US economy is making further QE less likely and bringing forward the prospect of increasing interest rates. We should never underestimate the power of a good rationalization:
Personally I wonder whether the news was actually important here at all, as a retest of Wednesday's low was always a strong possibility. The bear scenario requires it to complete and test the H&S targeting the 2055 area on a break below Wednesday's lows. The bulls need it to set up a double bottom that would target a retest of the all time high on a break over yesterday's highs. SPX 5min chart:
The really key support here today however is the SPX daily middle band. That needs to hold on a closing basis and is starting today in the 2094 area. A decent break of that and the H&S today would target the IHS target at 2055 and the daily lower band at 2052, and I'd expect those targets to then be made.
I'm leaning towards the short term bull case into 2130 as long as the daily middle band holds.

Thursday, 5 March 2015

Keeping It Simple

As I was suggesting in my morning post yesterday SPX tested the daily middle band and found support there. As long that support holds (daily close basis) then I'm still looking for a touch of rising wedge resistance on the chart below and that is currently in the 2130 area. SPX daily chart:
The short term pattern setup here is pretty clear. The falling megaphone from the 2017 rally high was tested yesterday afternoon and SPX gapped over it this morning. On the bull scenario SPX pushes up hard here, and pushes through in the next couple of days to that 2130 target. On the bear scenario the high on this rally would be capped in the 2105 area and then at some point in the next 24 hours or so SPX would return to the H&S neckline and break it, on the way to the H&S target in the 2055 area. SPX 5min chart:
My lean is the bull scenario as that is the better technical scenario, though of course it would also be a lot more fun as that 2130 hit would be a great short entry. As long as the bulls can hold the daily middle band they have the advantage. If we see a break back over the 50 hour MA at 2108.5 (hourly close basis) then I'd be looking for that 2130 test.