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Tuesday, 13 June 2017

All Fall Down

The decline on NDX on Friday was over 4% high to low intraday, and that was the mot powerful one day decline that I've seen on an equity index in some years. I was talking on Thursday last week about the resistance trendlines on NDX and AMZN still being in doubt, and both were nicely clarified at Friday's high. I also mentioned in that post that before the swing high that we are expecting here Stan and I would ideally like to see new all time highs made on all of SPX/ES, NDX/NQ and RUT/TF, and we saw all of those made before the reversal on Friday. This is a high quality candidate swing high here, but I'm just going to talk about NDX/NQ today as that has been driving the equity bull bus this year, and is the most important place to see high quality highs being made.

On NDX the broken rising channel expanded into a solid rising megaphone and the NDX low on Monday morning was a near miss of rising megaphone support. This generally signals that the trendline will get a full retest in the near future and would usually break at that test. NDX 60min chart:
On NQ there is now a decent looking IHS that on a break back over and conversion of the weekly pivot to support (5774) would look for a retest of the all time high. That's the scenario I would prefer to see here, and if it delivers then that would likely make the second high of a double top. The alternate scenario is that the rising wedge that I have marked in is a bear flag wedge, which on a break down should quickly take NDX/NQ back to retest Monday's lows. NQ Sep 60min chart:
Stan and I do a service on five of the key tech stocks at theartofchart.net (called The Big Five service), so we chart these a lot, and these are updated versions of charts I did for that last Saturday. Those five stocks are AAPL, AMZN, FB, NFLX & TSLA, and I'll have a look at one chart for each of those below, updated to show this afternoon's prices of course.

AAPL has made a very decent looking high at a strong rising megaphone resistance trendline from the 2009 lows. AAPL broke shorter term rising support and reconfirmed an RSI 5 weekly sell signal on Friday. No sign of a strong rally on AAPL so far and on a break below the weekly middle band it may form an H&S at a neckline in the 138-40 area. AAPL weekly chart:
I was looking at three possible resistance trendline options on AMZN last week and as sometimes happens the one that fixed wasn't one of them. The AMZN high on Friday established an overall rising channel from the early 2015 low and  a shorter term rising wedge from the 2016 low. I've been watching the rising wedge on the weekly RSI 5 for a break as these produce very high probability targets back at the 30 level (on RSI 5) and that broke wedge support at the close on Friday and fixed that target. We could see a high retest on AMZN, though the rally so far has been thin. AMZN weekly chart:
FB broke 2017 rising support for the second time on Friday and tested a possible asymmetric double top support trendline at the low on Monday. This level is also a possible H&S neckline of course and the obvious read here is that FB is forming a right shoulder for that H&S that would have an ideal right shoulder high in the 152.5 area. Both RSI 14 and RSI 5 weekly sell signals fixed at the close on Friday. FB weekly chart:
NFLX was already on fixed weekly RSI 14 and RSI 5 sell signals at the start of last week, but broke rising wedge support from late 2016 at the low this week. Not much of a rally so far since then and it may be that NFLX is going to head directly to the possible H&S neckline in the 138 area to form a topping pattern there. NFLX weekly chart:
TSLA had me puzzled for a while last week when it broke up from a very decent rising channel. As channels don't tend to overthrow bearishly that was a concern but by the end of the week TSLA had just expanded the channel out to a higher alternate trendline. This doesn't happen that often but is something I see regularly and is not bullish beyond that expansion. TSLA is close to retesting that new high which is good, as a full retest will establish shorter term negative RSI divergence including setting a daily RSI 5 sell signal brewing to join the RSI 14 sell signal that has already fixed there. TSLA daily chart:
I was saying in my premarket video on Monday (posted on my twitter before the open), that I liked the case for an ATH retest on NDX/NQ. I still like that case and a decent, though not great, quality IHS has now completed forming that could deliver that retest. At the same time I would note that the rally from Monday's low so far has been within a perfect rising channel on NDX so far, and that obviously may well be a bear flag channel that on a break down would have a minimum target at a retest of Monday's low. NDX has reached the 50% retracement of the decline from Friday's high to Monday's low and this is an obvious inflection point. The likely options here are either that ATH retest or that low retest and I'm not expecting to wait long for that decision to be made.

I'd prefer the ATH retest, helped by the gentle showers of dove guano scattered by the Fed tomorrow as is their habit on FOMC days, but it could go the other way, particularly if the Fed raise interest rates from almost nothing to slightly more than almost nothing as many fear they may do tomorrow. As actual interest rates are set by treasury prices and yields, and these are already up 50% on the 10 year treasury from a lot more than either Fed number from the low last year, I find the interest in these Fed moves mystifying, but if enough people take these seriously then that is enough to move markets short term.

Stan and I are doing our monthly free webinar on these Big Five tech stocks at theartofchart.net on Thursday afternoon an hour after the close, and if you'd like to attend then you can register for that on our June Free Webinars page. I would also note that this week's edition of The Weekly Call is posted and that the model portfolio there is up 178% in the seven months to May 19th, obviously well on course to make our target minimum 200% return over the first year. As and when that target is reached we're thinking of making the strategy there a bit less conservative. That's a free weekly service and if you trade futures I'd suggest adding it to your reading list.

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