- This blog has a copy of all header posts that I publish anywhere, so that those interested in seeing what my thoughts are on the markets can find them easily.
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Monday, 30 November 2020

Thanksgiving Thoughts - Shorter Term

 November is about to end and SPX is likely at the time of writing to do something not previously done in the last twenty five years, which is to close a long way above the monthly upper band, currently 3566 area, only three months above the last strong punch close above in August. What does this mean?

Well on NDX this would give about 40-45% odds that the market would then deliver a series of closes at or above the monthly upper band in coming months, but while that is possible on SPX, historically there would be little precedent for it. The odds still favor a close at or below the monthly upper band at the end of December, at which point it would be unlikely to be over 3600.

SPX monthly chart: 

In terms of the SPX 45dma, the current all time high was made almost 10% over the 45dma, the highest of a lot of very high readings since the March low, and SPX is still very stretched to the upside by historical standards.

SPX daily 45dma chart:

In terms of pattern setups the best current pattern from the March low is on the Dow Industrials chart where that appears to be topping out in a high quality rising wedge. The action here seems to favor downside soon, with a daily RSI 5 sell signal already fixed on both this and the SPX chart, but that might need another high retest before reversal.

INDU 60min chart:

On SPX and ES retests of the all time highs were just missed on both and, together with a retest of the all time high on NDX, look like unfinished business above. That unfinished business could be finished later of course, but I'd expect to see those retests at most within a few weeks. SPX 60min chart:

In the short term the current retracement from  the high on ES looks like a bull flag, so we may be seeing those all time high retests in the next day or two, after which I'd be looking for at least some retracement back into the mid-3500s. A significant high may be forming here. ES Dec 60min chart:

The historical stats for last week leaned bullish but the stats for this week lean bearish including, unusually, the first day of the new month tomorrow. Looking for a retracement to start soon, ideally after those all time high retests.

I would also mention that we have been running our usual Black Friday sale on annual memberships at theartofchart.net until the end of November, and have extended that slightly until the end of Tuesday 1st December. During this sale we are offering four free months on an annual membership against normal monthly prices. We never raise subscription prices for existing members as long as memberships are renewed without breaks, so if you are thinking of getting an annual membership to theartofchart.net, then this is the best time to do that.

Our December Free Webinars page has been posted and I'd mention that our free monthly public Chart Chat is at 4pm EST on Sunday 6th December. We are also offering a free week this week on our Vega Options Service for anyone interested.

Friday, 27 November 2020

Thanksgiving Thoughts - Longer Term

I was going to do a longer post today but I've decided to split the post in two, covering the longer term in this post and looking shorter term in a follow up post to be published tomorrow.

In my last post I was looking, among other things, at the SPX monthly chart and noting that if there was a monthly close significantly above the monthly upper band (currently 3570 area) at the end of November, then that would be the first time in the last twenty five years that had happened less than six months after a recent strong punch close above the monthly upper band (in August). The monthly close for November is at the close on Monday, so that is now only just over a trading day away in regular trading hours. Could it happen? Yes, and this has certainly been a very strange year both in the world and on the markets so we'll see.

SPX monthly chart 25 Yr:

It isn't the case on every chart that monthly upper band punches deliver minimum consolidations lasting several months, there are three or so exceptions on the Dow Industrials chart in the last 25 years, and on the NDX longer term chart there are twelve similar punches over the last 25 years and five of those delivered monthly upper band rides going quite a bit higher. What I would say is that such a break would be bubbly looking action on SPX, given that this hasn't happened in the last quarter century, a period that includes at minimum two asset bubbles into the 2000 and 2007 highs.

NDX monthly (LOG SCALE) chart 25 Yr: 

One thing to add here is that I've said quite a few times over the years that in my view LOG scale charts are greatly overused and I only see a few charts where these are obviously a good choice. These tend to be the longer term charts and the NDX monthly is a good example. I would note that NDX is testing possible channel resistance on this chart and I have very much seen this kind of LOG scale pattern deliver before.

Where would that be you might ask, and one great example is below with the beautiful 26 year channel that captured the whole of the secular bull market on SPX from the low in 1974 to the high in 2000, so I'm watching that NDX channel with great interest. We'll see whether that candidate channel resistance trendline holds.

On another point of interest if you take the secular bear market low in 1974 to the secular bear market low in 2009, you can see that the 2009 low was slightly more than ten times higher than the 1974 low. Equally, looking at the chart it seems clear that a new secular bear market started at the 2009 low. If this was to repeat exactly with the current secular bull market, which is unlikely but simply for the sake of argument, that would suggest the next secular bear market high would be in about the year 2135 in the 21000 SPX area, with a subsequent bear market low in the year 2144 perhaps in about the 7000 area. Thought for the day.

SPX monthly (LOG SCALE) chart:

I'll be doing a post tomorrow morning looking at the shorter term setups on SPX and NDX particular, with a look at why I think that both are likely to at least retest the current all time highs before a serious reversal is seen. I would also mention that we are running our usual Black Friday weekend sale on annual memberships at theartofchart.com until the end of November on Monday night, and that during the sale we are offering four free months on an annual membership against normal monthly prices. We never raise subscription prices for existing members as long as memberships are renewed without breaks, so if you are thinking of getting an annual membership to theartofchart.net, then this is the best time to do that.

Everyone have a great weekend and look out for my follow-up post tomorrow. :-)

Wednesday, 11 November 2020

So Here We Are

 Firstly my apologies for the wait since my last post. I'm currently getting divorced, which isn't much fun, and the presidential election was so polarising in the US that I was getting the impression that if I mentioned that the weather was getting chillier as the season changed, then some would feel that was a comment on the election and get offended. The election is finally over....ish, and I think it's safe to start writing again about markets.

So in my last post I was writing about the bull flags that would likely deliver retests of the all time high as and when they broke up. Those evolved into larger bullish patterns, a bull pennant on SPX, a bull flag on INDU, a possibly still forming bullish pattern on NDX, and on Monday those broke up into new all time highs on SPX, Dow 30 and RUT, but not so far on NDX. Equity indices are still retracing from those Monday highs, so what should we expect next?

Well it has been a really crazy year on the markets, but the first thing I want to talk about is the SPX monthly upper band. At the end of August there was a serious punch over the upper band and these are rare. The chart below shows the last 25 years on SPX, including a couple of bubbles and four technical bear markets (declines of over 20% from the preceding high). In that time there have been strong punches over the monthly upper band in mid 1997, early 1999, mid 2007, early 2011, early 2017, late 2018 and late 2019. In none of those seven examples was there another close above the monthly upper band in the next few months, and that is currently in the 3548 area and rising at maybe 20 handles per month. Historically upside on SPX over the next few months is likely limited, and favors both November and December closes this year under 3550. Two of these punches delivered topping processes into full bear markets lasting longer than a year not long after, and a further three delivered retracements back to the monthly middle band, now at 3085, with retracements in the 20% area.

Bottom line is that the odds strongly favor SPX making a high here, and the high is possibly made, but more likely just close.

SPX monthly chart:

The exception to the new all time highs on equity indices on Monday was NDX, partly as there is now a coronavirus vaccine on the horizon and there is a consequent rotation out of the tech stocks that have been benefiting from the lockdowns. That said, this is a pretty obvious bullish flag setup on NDX from the all time high  and the obvious target remains a retest of that high. That looks like unfinished business above and we will likely still see that retest either soon or within a couple of months.

NDX 60min chart:

On SPX there was an excellent triangle that I was talking about in the free monthly Chart Chat at theartofchart.net on Sunday. If you'd like to see that recording then that is posted on our November Free Webinars page. We would usually see some daily negative divergence at a high so I'm leaning towards seeing a retest of Monday's high before a likely November close below the monthly upper band currently a hundred handles below.

SPX daily chart:

Here's the lovely bull triangle on SPX that I was looking at on Sunday. That has now reached the minimum target at a retest of the all time high. SPX 60min chart:

Here is the bull flag megaphone on Dow Industrials that has also made the minimum target at a retest of the all time high.

INDU 60min chart:

I was saying on my premarket video yesterday morning at theartofchart.net that I'd like to see another day or two of retracement to deliver a decent decline on the SPX daily RSI 5. That's posted on my twitter if you'd like to see it. After that I'm leaning towards a high retest so we'll see how that goes. I'm resuming regular posts now and the next post should be later this week to review progress.