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Monday, 20 November 2017

The Falling Megaphone on RUT

A very key pattern that I've been watching here for direction is the likely falling megaphone on RUT.This has been a slow developer and has now been forming for an impressive seven weeks. Assuming that this is indeed a falling megaphone then the next target within the megaphone is megaphone resistance, now in the 1511 area, with the main remaining obstacle on the way at the monthly pivot, at 1500 even and tested at the highs today. 

Assuming that this is that falling megaphone, then that falling megaphone is a high probability bull flag pattern, and when that breaks up the minimum target will be a retest of the all time high at 1514.4.If that retest can be kept to a marginal higher high then that is the bears' next decent shot at a larger retracement, though seasonality makes it questionable that we would see that retracement in what remains of 2017. RUT 60min chart: 
A bull flag channel has already broken up on SPX and has backtested broken flag channel resistance on Friday and Monday. The retest of the ATH is a high probability target, supported as well by the falling wedge that has broken up on the RSI 14 with a high probability target at the 70 level on the RSI 14. I'm expecting the ATH retest on SPX close to the ATH retest on RUT on the performance of each from last week's low. SPX 60min chart: 
On the daily chart SPX has also been backtesting the daily middle band as support and that's holding so far. As long as that remains the case on a daily close basis then the next target is the daily upper band, currently slightly above the all time high at 2597.02. SPX daily chart: 
This is likely to be a low volume holiday week and we may not see a lot of movement, but the next main targets should be these all time high retests, and any dip on the way there should be a buy. When we see those retests we'll see what happens, but I'd note that the only remaining days in 2017 with a significant historical bearish bias are the last trading days of November and December. 

We are running a Black Friday sale at theartofchart.net through this week with 20% off the usual prices for annual memberships. If you're interested then the coupon code is BlackFriday. 

Friday, 17 November 2017

Janus Flags

The Janus flag setup I was looking at on Wednesday delivered yesterday and I'll talk a little more about these today as they are relatively common and worth remembering.

In this case on SPX what appears to be a high quality H&S has formed and broken down towards a target in the 2635 area. In truth though, as shown on the chart below, a perfect bull flag channel has also formed, which broke up yesterday with a strong minimum target at a retest of the all time high.

What were the tells here? The RSI divergence buy signals and lack of topping patterns on the hourly NQ and TF, and the channel/wedge shaped decline on SPX. A classic example of this kind of continuation flag is a break below the reversal pattern support and then rejection from there breaking declining resistance from the high, and that is what we have seen here.

These are very useful patterns and I've named them Janus Flags after the roman god with two faces. Janus is the god of gates / doorways / transitions, and has two faces because he is always looking simultaneously backward and forward in time, not unlike a technical analyst actually, so he might well be considered the patron god of TA. :-)

SPX 60min chart:
On the SPX daily chart the RSI 5 sell signal made target and the RSI 14 sell signal has found support for the moment at the 50 level on RSI 14. What is often seen in this situation is a higher high on price with another lower high on RSI before another and probably stronger retracement. SPX daily chart:
The ES, NQ and TF futures charts below were done before the RTH open for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

ES broke up from the flag wedge yesterday with a minimum target at a retest of the all time high. The weekly pivot at 2579 was support overnight and is being tested as support this morning. On a break below the next support would be broken flag wedge resistance, now at 2573/4. ES Dec 60min chart:
The bull flag wedge broke up yesterday on NQ and reached the minimum flag target at the full retest of the all time high. I'm not seeing any obvious reason to expect NQ to reject hard there, but obviously this is a potential double top setup. NQ Dec 60min chart:
TF did pick up the pace yesterday and I still like this setup as an overall bull flag megaphone forming. If so the next target within the megaphone would be megaphone resistance currently in the 1515 area. If that isn't the case then the 61.8% fib retracement of the falling wedge that broke up there yesterday is obvious possible resistance. TF Dec 60min chart:
NQ and TF reached obvious resistance levels yesterday, but the ES/SPX target to retest the all time high is a strong target that I'd expect to see reached 90% of the time, so my lean is that ES/SPX reach that target after this small pullback and likely that also pulls NQ and TF through immediate resistance.

Support today on ES is at the weekly pivot at 2579.1 and broken flag resistance in the 2773/4 area. Support on SPX is at the 50 hour MA at 2580, being tested at the moment, and the daily middle band at 2578. A break with any confidence below the daily middle band today would add considerable weight to the bear scenario here.

Next week is a holiday week and I'd note that the only remaining days this year with a historically significant bearish lean are the last trading day of November and December. Everyone have a great weekend :-)

Wednesday, 15 November 2017

Waiting For A Break

The daily RSI 14 sell signal that I was looking at yesterday fixed at the close, and there are now fixed daily RSI 5 and RSI 14 sell signals on both SPX and ES, though the SPX RSI 5 sell signal may well reach target at the close today. SPX daily chart:
At the open this morning the H&S that I was looking at on ES yesterday broke down with a target in the 2532 area. On the chart below is the even higher quality SPX version, which broke down with a target in the 2535 area, before rallying back over the neckline. At this point there are only two high probability options. The first option is that SPX/ES head down to those targets, the second option is that the setup fails, and we see a fast return to the all time high, and that reversal would generally occur shortly after the pattern support break. SPX 60min chart
If we do see that reversal, then that would be something that I call a Janus flag, which is a kind of flag that looks like a topping pattern until that pattern fails, but is in fact something else. In this case there is a decent argument that all of ES, NQ and TF are in fact forming falling wedges that would normally be forming as bull flags. It may be that the reason that the only decent topping pattern is on SPX/ES is that all time high retests are needed to form topping patterns on NQ and TF as well.

The alternate option to that though is that the falling wedges are the topping patterns on NQ and TF, and that they will take the lower probability 30% option to break down delivering high quality targets below. That makes the setup here a simple one.

On ES wedge support is now in the 2555 area, slightly under monthly pivot at 2556.8. A sustained break below looks for first the H&S target at 2532, and then the wedge target in the 2515 area. Wedge resistance is now in the 2579 area, crossing the weekly pivot at 2579.1. A sustained break above looks for that all time high retest. ES Dec 60min chart:
On NQ wedge support is now in the 6230 area. A sustained break below looks for the wedge target in the 6110 area, slightly below rising support from the September low, currently in the 6125-30 area and the obvious target for a retracement here. Wedge resistance is now in the 6310 area, slightly above the weekly pivot at 6301.2. A sustained break above looks for that all time high retest. NQ Dec 60min chart:
On TF wedge support is now in the 1454 area, and broke down slightly in what may have been a bullish underthrow this morning. A sustained break below looks for 1390 area, where there is some established support at the early September low. Wedge resistance is now in the 1475 area, slightly under the weekly pivot at 1479.6. A sustained break above may looks for an all time high retest, though TF would need to pick up the pace a bit to deliver that. TF Dec 60min chart:
This should be a straightforward either/or scenario, and if it resolves up then the ATH retests on Es and NQ may well be the second highs of slightly larger double tops. We'll see how it goes.

Stan and I are doing a free webinar at theartofchart.net after the close tomorrow looking at AAPL, AMZN, FB, NFLX and TSLA. If you'd like to attend that you can register for it on our November Free Webinars Page.

Tuesday, 14 November 2017

A Lot Of Sell Signals

There are a lot of open sell signals on the SPX & ES charts here. On SPX there is still a strong RSI 5 / NYMO sell signal that could reach target today on a weak close. If we see that weak close the possible RSI 14 sell signal brewing here would likely fix. SPX daily chart:
On the ES daily chart both RSI 14 and RSI 5 sell signals have fixed. This has happened twice in the last year and on the first occasion delivered a retracement from 2390 to 2312.75, and on the second occasion delivered a retracement from 2486.25 to 2419.25. The obvious rising support trendlines on SPX are now in the 2520 and 2460 areas and this setup looks promising into at least a test of the first of those support trendlines. ES daily chart:
The ES, NQ and TF futures charts below were done before the RTH open for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

So is the short term high in? Well there's a very decently formed possible H&S forming on the ES hourly chart and that may deliver, though there are open shorter term 60min buy signals on all of the ES, NQ and TF charts that may need some more upside before a likely larger retracement. Key resistance on ES is at 2586/7 and the weekly pivot is at 2579.1. ES Dec 60min chart:
There is no obvious topping pattern on NQ and if the weekly pivot at 2579.1 can be converted to support then a retest of the all time high could establish a double top to take NQ lower. NQ Dec 60min chart:
TF has been retracing for over five weeks now but has the most potentially bullish looking chart, because the obvious read on TF is that a smaller falling wedge is forming within a larger falling megaphone that would likely be a bull flag on the bigger picture before an eventual retest of the all time high. This setup invalidates on a break down below trendline support, currently in the 1456 area. A retest of the weekly pivot at 1479.6 would mean that falling wedge resistance had broken up. TF Dec 60min chart:
One way or the other we should see at least a modest retracement soon.

Stan and I are doing a free webinar at theartofchart.net after the close on Thursday looking at AAPL, AMZN, FB, NFLX & TSLA. If you'd like to attend that you can register for it on our November Free Webinars Page.

Monday, 6 November 2017

An Inverse Correlation To Depend On

We did the monthly free public Chart Chat at theartofchart.net yesterday, and if you missed that the recording is posted on the November Free Webinars page here.

We were asked a question about a correlation there, and I remarked that I don't think most correlations are worth much. If you think USD is going down and therefore gold should go up, then it's best to cut out the middleman and just short USD. That's not to say however that there aren't some striking correlations around.

As part of her ongoing campaign to make me feel old and decrepit my daughter has found herself a job, and while she was going to that job on Saturday morning she was astonished to find a group of enthusiastic Flat Earthers sharing the ... um .... flat news in the city centre. It appears that Chester is a major centre for these hardcore traditionalists, meaning that there appear to be at least five of them,  and they have a website with reasonably grammatical sentences and so on here. It's certainly an interesting read and they seem very passionate about their beliefs.

This brought two things to mind for me. The first is that, as I have mentioned before, the search for intelligent life on Earth is at an early stage, and doesn't appear to be going that well. The second thing is that I've often noted before that there seems to be a strong inverse correlation between the passion devoted to a cherished belief, and the amount of rational thought that has gone into forming that belief. That at least is a correlation that seems fairly dependable.

This was their main leaflet that my daughter brought back from this interesting experience. It certainly evokes some thought-provoking insights about human psychology, if nothing else. Further details on this fascinating global conspiracy can be found here. I didn't get a chance to listen to the flat earth music but I have no reason to doubt that it will be at least as impressive as the literature.
Moving back to the markets SPX is at decent trendline resistance, with a strong daily RSI 5 / NYMO sell signal fixed and a possible daily RSI 14 sell signal brewing. Is it going to turn? Possibly, though the bear side really needs to show us something before they can be taken seriously. A break below the weekly pivot and conversion to resistance would be a start. On SPX that is at 2580.80. SPX daily chart:
Trendline resistance has been broken on NDX and the next obvious trendline resistance on the daily chart is in the 6400 area. NDX daily chart:
RUT has been in a likely bull flag retracement for five weeks now and this should end with at least a full retest of the all time high. It may be that no meaningful retracement on the indices can be seen before that happens. I first said that about three weeks ago I think, and it's still likely to be the case. RUT daily chart:
So could this market get any duller? Hard, but perhaps not impossible. We'll have to see. In the meantime this is a buy the dip market until that stops working.