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Thursday, 16 July 2015

Inflection Point Test

On Tuesday last week I put forward a favored scenario for a strong rally that would make a high in the 2115-20 area. The following day I noted the strong daily buy signal that had fixed, and on the Thursday I called the double bottom with a target at 2123. Looking at ES that 2123 target may be made at or near the open today.

Quite a few of you will have read those posts as SPX was testing the 2040s, and those of you that didn't think that I was having bullish delusions most likely thought that was a credible bearish scenario. Fast forward to today and almost everyone is seeing this as a bullish breakout that will likely result in new highs. That was always a possibility of course, but has anything actually changed in the interim apart from the big rally that I predicted having now happened? I drew the arrows on the daily chart below on Wednesday last week and as you can see, SPX is pretty much where I was expecting then. SPX daily chart:
Looking at my optic run indices they are ambiguous about a big fail here, which does improve the chances that the high will be retested. Most of them were also showing clear flaglike setups after the retracement yesterday afternoon so the gap up today isn't unexpected. Scan 3x 15min SPX INDU TRAN charts:
Scan 3x 15min NDX RUT NYA charts:
What are the odds of rejection/breakout here? Well any higher high 30 minutes after the open will set up a 60min RSI 14 sell signal that would then fix on a decent move down. That's just as well as the 60min RSI 5 and 15min sell signals that I mentioned yesterday morning both made target at the afternoon low. The pattern setup across the optic run indices leans short, but not with great conviction. The strongest card the bears have here is the triangle thrust retrace stat at 90% odds that we see a retrace to at least the 2080-5 area, but we do need to remember that the odds of not doing that are still 10%.

The three most likely scenarios here are, in my view at least are:

  1. Rejection at the double bottom target area 2118-27. Bearish H&S scenario. 
  2. Rejection at a retest of the all time high 2134.72, with the daily and weekly upper bands strong resistance at 2136/7. Bearish double top scenario. 
  3. Break up towards the monthly upper band 2178 area. Bullish breakout into September, still part of overall topping scenario. 
I'm favoring the first then second options, but the odds of the third option will rise a lot if bears can't get rejection from these levels today or tomorrow. I'm not concerned about the increasingly universal assumption that this will break out, that's just recency bias. People were expecting a bearish breakout last week for the same reason. The odds of a bullish breakout here have increased slightly since I laid out this rally scenario nine days ago, but not by a lot. As always, time will tell. 

I posted a chart yesterday on theartofchart.net forecasting a major inflection point test on USD in the 97.7 to 97.8 area. USD is testing that level now and while Stan and I are looking for rejection and a move to the 90/1 area, it may go the other way towards new highs. Watching with interest. USD daily chart (from yesterday):
Some of you may be wondering why Stan and I went with Wordpress rather than Blogger for theartofchart.net. The reason is that any blog followers on Blogger receive posts by email after a few hours, on Wordpress they receive them within a couple of minutes. If you want to see these updates by email follow there and you will get those as soon as they are published. 

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