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Wednesday, 9 September 2020

First Retracement Target Hit

 In my last post a week ago I was remarking at how very stretched SPX was and how near it should be to a mean reversion move, and the mean reversion high was then made within a few minutes of my publishing that post. The minimum target for that mean reversion move, last reached after the June high, is a backtest of the 45dma, and that target was reached at the low yesterday. That may of course be the low for this retracement, and I'll be looking at the setup for that today.

SPX daily vs 45dma chart:

Now a majority of mean reversion moves extend past the 45dma, and many of those reach the larger mean reversion target at the 200dma, which closed yesterday in the 3094 area. There is a setup for getting there and if that target is to be reached, then I'd be looking for resistance at the daily middle band, currently in the 3432 area.

SPX daily chart:

There isn't a clear overall pattern for this retracement and that is a possible argument for going lower. There is a termination falling wedge at the end of the move but that might just be the end of wave A, with a possible C wave down still to come. There is however a decent quality nested double bottoms setup that may deliver a retest of last week's highs, and the smaller double bottom has broken up today with alternate targets at either 3420 or 3430. With the daily middle band now just above 3430, that is a very attractive short term target. On a subsequent sustained break over larger double bottom resistance at 3455, the double bottom target would come close to a retest of last week's highs.

SPX 5min chart:

On the SPX hourly chart there are two things of interest here. The first is the decent quality H&S that broke down yesterday with a target in the 3110 area. At this point there are two main options, either that SPX continues down towards that target, or that the H&S fails on a move back over the right shoulder high at 3455, in which case I'd be looking for a retest of last week's high. The second is the hourly RSI 14 buy signal that fixed this morning, boosting the case for that rejection back into the high.

SPX 60min chart:

So what happens if SPX retests the high, bearing in mind that over 60% of SPX highs and lows involve some kind of retest. Well last week I was looking at the huge long term resistance trendline that SPX was spiking over then, and noted that if that break over resistance was to fail, what I'd want to see would be a fast and hard rejection, which we then saw immediately afterwards. If that high was now to be retested I'd be therefore leaning strongly towards that being the second high of a double top, which of course would have a target fairly close to the 200dma. SPX weekly chart:

Overall this all looks like topping action for last week's high, and often topping action involves a high retest, which may be next. On the bigger picture I was looking back at highs which were even more stretched that the June and August highs this year and the only two I located quickly, so there may be another on closer inspection, were the slightly more stretched highs in June 2009 just after the bear market low, and the 2000 bull market high. Last week's high may be a very significant high and I'll be watching any high retest with that in mind.

Wednesday, 2 September 2020

Nosebleed Highs

 The high earlier this year was at the main resistance trendline on SPX, starting at the low in March 2009, support at the low in 2010, broken as support in 2011 and then backtested as resistance then and several times since. The high yesterday was just shy of a full test and that has broken on the move up today, with visible breaks on both the weekly and monthly charts. That may just be a bearish overthrow on the bigger picture but it is still a huge break.

In the short term SPX is now about 8% over the 45dma, approaching the 8.7% over the 45dma reached at the June high, which was the most extreme high on SPX relative to the 45dma since 2013, though there may possibly have been more extreme highs before that I haven't identified yet. This is a very extreme level and a retracement to the mean high must be close, and could be forming now.

SPX daily vs 45dma:

I was watching another much shorter term trendline on SPX for the move up from the March low. That is overthrowing slightly as I write and unless SPX retraces a bit before the RTH close the RSI 14 divergence on the SPX hourly chart may be lost.

SPX 60min:

On the SPX monthly chart there is now a clear break over the main SPX resistance trendline. If that is a bearish overthrow a clear and strong rejection would be best in the very near future.

SPX monthly:

On the SPX weekly chart there is also now a clear break over the main SPX resistance trendline. If that is a bearish overthrow a clear and strong rejection would also be best in the very near future.

SPX weekly:

The main driver of this move is of course NDX with the SPX equal weight chart finally managing just to retest the June high at the highs today. The Russell 2000 has also barely participated in the rally over the last couple of weeks.

NDX is on a massive tear, on a monthly upper band where the monthly upper band has acted as support since the start of July. Until there is a significant high on NDX, SPX might continue to be dragged up with it.

NDX monthly:

As I've been writing SPX has continued higher. If this high was to reach the same level of extreme as it did in June that target would be at 3597 today. Stan and I are doing our monthly public Chart Chat on Sunday and if you'd like to attend you can register for that on our September Free Webinars page.