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Monday, 24 August 2015

Just Wow

Well this has certainly been an impressive move. I wrote a post yesterday looking at the stats for daily and weekly 3SD (three standard deviations from 20 period MA) punches, and the last time that a weekly punch through the 3SD lower band like the one we saw on Friday continued down hard was at the collapse of France before the German attack in May 1940. If we close down hard today then this decline will, in this respect, have done what the declines in 2000 (Tech crash), 1998 (Russian crisis and LCTM failure), 1997 (Asian crisis), 1994 (bonds crash), 1987 (no clarification required I hope), and others all failed to manage. You can see that post here.

That said, we are a long way from today's close and on the four equivalent punch closes through the 3SD daily lower band, three of those went lower the next day, with AM declines of 1.8% (equiv to 1934), 2.5% (equiv to 1920) and 3.7% (equiv to 1897). All four closed up with rises ranging between 3.2% and 5%.

However there is a serious implication for an significant RTH break below 1940 here as it is the 61.8% fib retrace of the rising wedge from the October low at 1820. Wherever SPX closes today after that it would open up a test of 1820 as potentially the next big target after the strong rally that is still likely here. I ran my 60min optic run charts this morning and there are already targets near those full wedge retracements on Dow and TRAN,  though the SPX double top only targets the 1954 target that I called on Thursday night. Scan 3x 60min SPX INDU TRAN charts:
I don't have a reversal pattern on NDX here really though I'd note that this hasn't stopped NQ (Nasdaq Futures) hitting limit down in overnight trading. I have an open H&S target on RUT into the 1120 area and NYA, as with Dow and TRAN) has a pattern target now far above the October low. Scan 3x 60min NDX RUT NYA charts:
With the open in 30 minutes it seems very likely that ES will break the 61.8% fib level at 1940 at the open. That has bearish implications but doesn't invalidate the very bullish historical stats for today and this week. Only the closes can do that so we'll see whether there will be a ripper rally or not today that will close SPX in the green. If not then perhaps the rumors of Hitler's death have been exaggerated :-)

A couple of things to add at the end here. I say them regularly but people really need to remember them. TA and historical stats can tell you what is likely to happen but they can never tell you what will happen. The market doesn't take orders from anyone and will do what it will. However accurate any analyst's forecast might be, they are never based on paranormal powers of precognition. They are based on historic data and these forecasts only ever deal in probabilities, never certainties. The stats for a green close today are VERY strong. Does that mean that SPX needs to close up? No. It means that if it closes down then next time we see 3SD punch closes the stats will be less bullish.

Everyone loves certainty, but there's no such thing in the markets, and not much anywhere else. That's just the way the world works.

We did a Chart Chat yesterday afternoon and you can see the link to that here. As I write ES has just gone limit down at 100 handles below the close on Friday. We'll see whether SPX can scrape itself off that floor today.

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