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Thursday, 17 September 2015

The Last Chicken in the Shop

My house is a house of disease this week. My wife caught a virus, then my daughter, and I wasn't feeling great yesterday though I was hoping that I was just tired. Today however there is no doubt that I have this virus too, and I'm feeling like a million (zimbabwean) dollars. I'll be fine in a day or two but in the meantime I'm just struggling through.

SPX had a solid day yesterday and confirmed the break over the daily middle band. That's now in the 1961 area and should be support. Ascending triangle resistance also broke on both SPX and Dow near the close. Does this mean that the bulls are good to go? Possibly, though as a buy setup this is still very unappealing, as you can see on the charts below.

So what's the setup on my optic run indices? Well as I said, the ascending triangles are breaking up on SPX and Dow, but these are triangles and therefore prone to false breaks. Bulkowski actually has a page looking just at busted ascending triangles and how those behave on up to three false breaks. You can see that here. These breaks may not be sustained.

There is one symmetrical triangle on NYA, and that has broken up too. The same reservations about triangles apply here too though.

On both RUT and TRAN there are clear rising wedges. These break down 69% of the time and both RUT and TRAN closed at wedge resistance. They could overthrow a bit here and that should be bearish. There is a 31% chance that they could break up with the triangles of course, but in that event we'd likely be looking at a move up on SPX and Dow that would retest the all time highs. I really don't think that's at all likely, and unlike the triangles, I find these bearish wedges that break up to be solid performers. A very good example is the target I called in June 2013 at 1965 SPX. Made target like a champ.

The last of my six optic run indices is NDX, and there is no clear pattern there, with possible options for both an ascending triangle or a rising wedge. On NQ however the pattern is very definitely a rising wedge, and again that closed at wedge resistance. Scan 3x 15min SPX INDU TRAN charts:
 Scan 3x 15min NDX RUT TRAN charts:
Out of these six optic run charts I therefore have three unreliable breaks up from triangles, and three rising wedges that were all testing resistance at the close yesterday. As long setups go, that is really scraping the bottom of the barrel for attractiveness, and while these indices can go a bit higher without the wedges breaking up with confidence, the odds still favor a fail sooner rather than later. With the Fed in the mix today as well this looks like a good day to take off. If you are trading this be very wary of a hard reversal. I'll be watching and will call any serious signs of reversal on SPX on twitter.

Stan and I are doing some free educational webinars over the next few weeks at theartofchart.net and the first one is tonight on the subject of trading in volatile markets. All are welcome and it's free if you want to come. The link to the page our free webinars over the next month is here.

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