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Wednesday 20 January 2016

The Trend Is Strong In This One

Apologies for the late post today but there has been an international conspiracy today to keep me away from my charts that has so far involved Stan, my daughter, and my (wife's) dog. I hoping this won't be a regular thing.

So far today the ES low is at 1804.25. This is over 100 handles below the globex high yesterday morning so it has been quite a move. Is it over? Possibly, though we need more evidence before buying here with any confidence. What I will say though is that the high yesterday was at NQ falling wedge resistance, and the low today is at NQ falling wedge support. We'll see if that holds.

On the SPX 60min chart falling wedge support has been broken into the lows. This means one of three things. The first is that we are looking at a bullish underthrow of the SPX falling wedge, and that the long awaited but so far elusive strong rally is starting here. The second option is that the falling wedge is expanding into a falling channel or megaphone, which would be the fairly bearish option. The third and most bearish option is that the wedge is breaking down with a target in the 1580 area, which is in the main 1550-1600 target area for 2016.  That's a possible. We'll see. SPX 60min chart:
So what are we looking at on the bigger picture weekly chart here? Well at the moment we are watching SPX break major double top support at 1867. That pattern has a target at 1600 and I'm expecting to see that hit this year, possibly as soon as a major cycle low window due in March/April.

Shorter term I had a full wedge retrace target at 1820. I mentioned this on twitter shortly after the open and that has obviously now been hit.  I have possible falling trendline support in the 1800 area, and below that I have rising channel support from the 2009 high as a major target in the 1750-60 area. Below that I have very strong support at the retest of the 2000 and 2007 highs in the 1550-1600 (roughly) area. That retest zone is the main target area for this move IMO and has been for a while now. On the bigger picture this would retest broken resistance on a larger pattern looking for 2440 on the next move up. I looked at that pattern in a post in June 2013 that you can see here. SPX weekly chart:
Back in May last year I wrote a post entitled 'On the Road to 1820' and said that I had shorted almost the exact high at 2132 ES, and would hold that short for over 300 handles of decline until 1820 was retested (the full retrace of the wedge target that was hit today). You can see that post here. That wasn't an easy short to hold, and I had to roll it over three times, but I cashed it today at 1812 ES for a bit under 300 handles profit once the roll is taken into account. Tops generally take longer than expected to form and this one certainly did that. I'm hoping to repeat the trick if we see a strong rally from somewhere down here and take another 300 handles into the 1600 SPX double top target. We'll see if I get the chance.

The trade wasn't big, and the entry almost exactly at the high was lucky, so I won't be buying myself a private island with the proceeds or anything. The point of this trade was mainly just to challenge all the analysts who thought that the market could no longer go down, and to demonstrate that markets move up and down in cycles that are predictable to a significant degree.  That is what Stan and I do at theartofchart.net, and if you want to see more examples I'd suggest watching Stan's review of our 'Twelve Trades of Xmas' trades that were posted on our subscriber only twitter feed on 23rd December. We started doing this for our Chat Chat viewers before we launched theartofchart.net. We'll be doing these every Xmas but this one may be tough to beat next Xmas. You can see Stan's review here. If you end the (short) video thinking that our subscription prices are unbelievably good value, then I'd be inclined to agree. :-)

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