- WE'RE JUST RANDOM SPECKS OF DUST IN A TORNADO TO THE MARKETS .......
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Monday, 16 May 2022

Decent Looking Candidate Low

SPX rallied hard on Friday and so closed back well above my retracement target support trendline, so that has held on a weekly basis and may still hold as the retracement low here. So how is this low looking as a possible retracement low?

The first thing to say that my possible very bullish scenario that I was thinking might well be set up on this retracement is, if not dead, at best sufficiently badly damaged that the pattern target could not be relied upon even if the current all time high was next to be broken and converted. The pattern setup requires a fairly precise retest of the trendline and this didn't meet that standard. Given the economic background that scenario was perhaps too much to look for in any case.

Does that mean this can't be the retracement low? No, and on actually the setup that we have here the odds of that retracement low being made here are looking pretty good, having firmed up a lot in trendline terms particularly over the last two trading days.

SPX weekly chart:

One thing that doesn't look ideal here is the amount of positive divergence on the daily charts at this low, but that could easily be fixed with a low retest that holds. That may be setting up here as SPX broke back over the 5dma on Friday, and is therefore back on the Three Day Rule. If we see a clear RTH close back below it on either Monday or Tuesday this week, we will have another fixed target at a retest of the current retracement low at 3858.87. There are other options for a reversal pattern back up from here, but some seventy percent of significant highs and lows on SPX form with a double top or bottom, and SPX may be forming an overall more serious high here.

SPX daily 5dma chart:

If we are seeing a retracement low forming here, then that brings us back to my main retracement scenario, which is that so far this year bull flags have been forming from the all time highs on pretty much everything. You can see the bull flag falling megaphone option on the chart above, on the chart below is the similar one on NDX. NDX has been leading the declines this year, and has now retraced 50% of the move up from the 2020 low. That is the most obvious level to find a retracement low.

There are already RSI 14 and RSI 5 daily buy signals fixed on NDX, so there is no need for a low retest, though we might see one anyway to set up a reversal pattern.

NDX daily chart:

I tend to use the big five and key sectors for a general barometer of where the market is and was discouraged on Wednesday night that the setup for bull flags there was unimpressive. That changed in the next two days though, and when I looked again this weekend I saw that it was now pretty solid. 

On the AAPL chart below my initial flag support trendline broke, but another high quality bull flag channel support trendline was established at the last low, so there is a very decent quality bull flag there again. It is also hitting an important support level and possible H&S neckline.

That does leave a possible bear option here of course, as a right shoulder could form here with an ideal target in the 156.60 area, and I'll be watching for that, but until this flag channel support is broken, this is a clear bull flag from the high.

AAPL daily chart:

On TSLA the early April high established a beautiful three touch trendline from the all time high, which was strongly suggestive of a bull flag forming, but the support trendline was uncertain. That too was fixed at Thursday's low, which established another very high quality flag support trendline there, in this case a bull flag falling wedge.

These are two very good examples, but there are others, and on the six stocks and eleven ETFs covered in our FAANG stocks and Market ETFs Service at theartofchart.net, there is now a clear bias towards a low in this area, followed by bull flag breaks up into retests of the all time highs.

TSLA daily chart:

In my post of 6th August 2021 I was looking at the possibility that there would a retracement in the coming months to backtest the broken resistance trendline on SPX and then return to retest the highs, and I now think that having reached this area, the pattern setup now significantly favors a low here and then return to the high. While the market may of course go the other way, I think the odds here now are 60% or better that is the next serious move coming on SPX and NDX, with decent quality bull flags also on RUT and Dow.  The more bullish scenario I laid out in that post is likely dead in the water, and it may be that the high retests are just to make the second highs on much larger double tops, but until we see some clear support breaks below this area, that is my main scenario here.

I might be mistaken, but I am also thinking that these retests of the all time highs on equities may well be supported by a big rally on bonds over the next few months. That sounds a bit radical here, but when I called a target on TNX at 32 at the end of last year that too sounded radical, and since then TNX has almost doubled into the recent high at 31.67. That may need to go a little higher, but I was thinking that we might see a big rally on bonds here to set up a right shoulder on a larger reversal pattern that would then take bonds much further and TNX up into the 60 area.

I'll be doing a post on bonds and that and other possible bonds scenarios in the next week or so, but there are already decent buy signals in place on bonds that may deliver that rally.

In case you missed it in my last post, I'll also mention our free to follow service 'The Weekly Call' at theartofchart.net. It is now up 714% since the start in October 2016 and Stan does a post every week on it at our blog. If you wanted to follow the trades you can do that automatically in a trading account at striker.com where it is in the top 10 of the trading strategies used there. I think this may be the best trading service given out for free on the internet, and if you try it and disagree, you can have a full no-quibble refund of that free subscription. :-)

Friday, 13 May 2022

Friday The Thirteenth

In my posts over recent weeks I have been following on from my post of 6th August 2021 when I was looking at the possibility that there would be a retracement this year to backtest a major broken resistance trendline on SPX, and the possible very bullish setup that a good retest would partially confirm.

The trendline is the main resistance trendline on SPX on SPX from the low in 2009, shown on the chart below, and it was and is a really good trendline. The start was at the 2009 low, with touches at the lows in 2010, and highs in 2011, 2012, 2013, 2014, 2017, 2018 and 2020. It was so strong that I was expecting it to hold indefinitely until it broke in the wild move up after the 2020 low. This is the trendline I was looking to be backtested, and SPX delivered a visual hit of that trendline at the low early this week, and has broken below it slightly on Wednesday and Thursday, as you can see on the weekly chart below.

So where does that leave my very bullish scenario? At minimum significantly weakened and, if there is a weekly close below the trendline, broken entirely. You can't derive a statistical universe from a single trendline of course, but on the two occasions when this trendline broke on a weekly close basis, SPX followed through on the break with force.

We'll see how it goes today. Fridays tend to lean bullish and there is an hourly RSI 5 buy signal on SPX. SPX is also badly in need of a rally after the steep declines over the last few days.

SPX weekly chart:

NDX has now reached the 50% retracement level of the move up from the 2020 low, and is showing a decent bull flag. I'm not seeing as much bullish divergence on NDX stocks as I would like to see here, but this is a possible support area and is the likely inflection point area where NDX can either find support and reject back up into the high on the bull flag scenario, or continue down into the H&S target in the 9200 area, still a long way below.

NDX daily chart:

So how is the bull flag setup looking on SPX? Well the move so far this year has very much formed like a flag, but I'm not happy that the support trendline is right. Maybe.

SPX daily chart:

In the short term SPX has been on a daily lower band ride all week, and if that is to continue today then SPX would likely need at minimum to retest yesterday's low at 3858.87. A break up from the band ride would set up a possible rally into a test of the daily middle band, now in the 4200 area. 

SPX daily BBs chart:

If SPX closes below the main support trendline in the 3950 area today, the case for an all time high retest on SPX this year will be badly damaged. I will be watching the close today with great interest.

I haven't recently mentioned our free to follow service 'The Weekly Call' at theartofchart.net. It is now up 714% since the start in October 2016 and Stan does a post every week on it at our blog. If you wanted to follow the trades you can do that automatically in a trading account at striker.com where it is in the top 10 of the trading strategies used there. I think this may be the best trading service given out for free on the internet, and if you try it and disagree, you can have a full no-quibble refund of that free subscription. Everyone have a great weekend :-)

Wednesday, 11 May 2022

Testing Ideal Backtest Area

 In my posts last week I was talking about my post of 6th August 2021 when I was looking at the possibility that there would be a retracement this year to backtest a major broken resistance trendline on SPX, and the possible very bullish setup that a good retest would partially confirm, and I looked at that in more detail in my last post.

The trendline is the main resistance trendline on SPX on SPX from the low in 2009, shown on the chart below, and it was and is a really good trendline. The start was at the 2009 low, with touches at the lows in 2010, and highs in 2011, 2012, 2013, 2014, 2017, 2018 and 2020. It was so strong that I was expecting it to hold indefinitely until it broke in the wild move up after the 2020 low. This is the trendline I was looking to be backtested, and SPX delivered a visual hit of that trendline at the low yesterday, as you can see on the monthly chart below.

SPX could still go a little lower on my possible very bullish scenario from here, but not much. Anything under 3930 would likely weaken that bull scenario, and a break below 3900 would likely kill it, though it wouldn't weaken the case that a bull flag has been forming so far this year that should naturally resolve into a retest of the all time high.

SPX monthly chart:

In my last post I was looking at the pattern setup here but I want to take a few minutes today to look at the trendline that is currently being backtested, which in my view must be a strong contender for the most remarkable trendline ever formed on SPX. Regardless of that I think this is likely the strongest trendline that I have ever drawn or seen on any trading instrument on any timeframe, and I have drawn tens of thousands of trendlines on hundreds of indices, bonds, commodities, currencies and stocks over the years. So what makes this particular trendline so special?

Well you see a lot of trendlines posted, and most of them aren't drawn that well in my view. If you are looking for a rough channel or just assessing wave structures then drawing rough trendlines can be ok, but when it comes to patterns I have always taken the firm view that the trendlines need to start at logical locations for the start of a move, and to be precise to avoid an an unacceptable risk that the chartist will draw what he/she wants to see, at the risk of missing what is actually there. I draw all my trendlines to be as precise as possible.

On that basis a three touch trendline is confirmed, a four touch trendline is strong, and a five touch trendline is a rarity. This trendline however starts at the 2009 low, was tested three times as rising wedge support for the first wave up from that low, broke down in 2011 and became the main resistance trendline from there through to late 2020, being tested nine times as resistance in that time, with a small intra-week spike through the trendline on the eighth test and a break up on the tenth. This current test is the first test since then, and will be the fourteenth test since the 2009 low, with two of those tests breaking through and converting the trendline first from support to resistance, and then from resistance to support (if it holds here on this test).

If this backtest is precise, then the bullish scenario I laid out last week is firmly on the table, with the next big inflection point after the retest of the all time high, at which point either the old all time high is converted to support, and the bullish scenario into 6560 becomes my main scenario, or the move up fails, in which case we may well be looking at a double top setup on SPX that on a subsequent break of this low would be looking for a target in the 3100 area.

Either way it should be fun to chart and trade on the way.

SPX weekly chart:

On the daily chart I have drawn in a very decent possible bull flag falling wedge support trendline that may hold for a start of the move back into the highs. One way or the other this is a likely bull flag setup from the high, so regardless of whether the main SPX trendline holds on this retracement, a retest of the all time highs in due course is likely. Not all bull flags break up of course, but some 70% of highs and lows on SPX involve a double top or bottom, so even if a major high or low is forming here, a retest after a large retracement would be normal.

SPX daily chart:

If we do form a low here then the first big resistance will be the daily middle band, now at 4259 and a decent match with the monthly pivot at 4283. Main resistance is at the weekly middle band now at 4404, currently a decent match with the annual pivot at 4412. 

SPX daily BBs chart:

In terms of the shorter term resistance the obvious first resistance levels are the 5dma, currently at 4112, currently a good match with the hourly 50 MA at 4116. A daily close would put SPX back on the Three Day Rule, so the next two daily closes would then need to hold above that, or SPX would likely need another low retest.

SPX 5dma chart:

SPX is making a possible low here at my target trendline, and if the low is at a precise test of that trendline then the very attractive bull scenario I laid out last week will still be in play. Regardless of that though the overall likely bull flag forming on SPX here favors a retest of the all time high in due course.

We are did our usual monthly free public Chart Chat at theartofchart.net on Sunday 8th May looking the usual wide range of instruments and markets. If you missed that you can see the recording here, or on our current free monthly webinars page.

Friday, 6 May 2022

Another Three Day Rule Target

In my post earlier this week I was talking about my post of 6th August 2021 when I was looking at the possibility that there would be a retracement this year to backtest a major broken resistance trendline on SPX, and the possible very bullish setup that a good retest would partially confirm, and I said I would look at that in more detail in my next post.

The trendline is the main resistance trendline on SPX on SPX from the low in 2009, shown on the chart below, and it was and is a really good trendline. The start was at the 2009 low, with touches at the lows in 2010, and highs in 2011, 2012, 2013, 2014, 2017, 2018 and 2020. It was so strong that I was expecting it to hold indefinitely until it broke in the wild move up after the 2020 low. This is the trendline I am looking to be backtested.

So what's the pattern setup? Well, the corresponding support trendline was only two touches at the point it broke down in 2020, so if that was rising megaphone support, then the 2020 crash delivered a decent 50% retracement of the move up from the 2009 low and that may have been be the resolution and end of that pattern. There is however a possibility that the 2020 move established a new rising megaphone support trendline, and that is supported by the way that the resistance trendline broke at the end of 2020, with first a monthly test, then another monthly test with a poke above and close below at the end of the month, and then the break and monthly close above on the third test of the trendline.

Why is this important? Well if that break was a break up from a rising megaphone, then that sets up a potentially very bullish move if that is confirmed by (first), a fairly precise retest of the broken trendline that holds then (second), a new high that converts the old high into support. If seen, that is then a confirmed break up from the larger rising megaphone target with a high probability target in the 6560 area.

These rising wedge or megaphone targets when they break up and backtest cleanly are rare, as these generally break down, and if there isn't a clean backtest then something else may well be happening, but when they break up in the right way I have found that they have a very good chance of making target, well over 80% in my experience. I have a past example that I called a few years ago on SPX that I'll look at to illustrate how these work.

SPX monthly chart:

This example is from a special post I published on 30th June 2013 called 'Brave New World Series: 3 - The SPX Rising Wedge Target at 1965'. Some of my long term readers may well recall it.

In that post I showed the chart below, with the rising wedge on SPX that had broken up and backtested perfectly though it had not yet made a new high and converted the old one to support. The backtest however was also a conversion of the 2007 all time high at 1576.09 to support. That target at 1965 was then made a year or so later in 2014, a move up of 25% from the backtest.

The current setup would be a larger move, with a 66% or so move up from the backtest, but with the last impulse up from the 2020 low having delivered a 125% increase on SPX, then that doesn't seem too far from the realms of possibility.

There is also a possibility of a substantial rally on bonds starting in the next few weeks that could last a year or more and that could be a good fit with this scenario. I'll be doing another post in the next few days looking at the setup there.

SPX weekly chart (from 30th June 2013):

In the shorter term SPX broke up hard on Wednesday on doveish noises from the Feb, but then gave that all back yesterday. In the process there was a clear break back over the 5dma, putting SPX back on the Three Day Rule, then a clear close back below it fixing a Three Day Rule target at a retest of the current retracement low on SPX  at 4062.51.

I've marked the six previous Three Day Rule fixes so far in 2022, and all six made target. After a small tweak to the way I calculate this on 2019, on the new basis there hasn't been a fail on this setup since the start of 2007, with the exception of two marginal higher lows when triangles were forming, so I am expecting to see that low retest.

SPX daily 5dma chart:

On the daily bands chart the lower band is in the right area to get tested on that retest, but I'm expecting to see SPX go at least a bit lower, probably to 4000, and potentially down to my major trendline backtest, now in the 3930-50 area, though I have some reason to think that might not be backtested fully until June.

SPX daily BBs chart:

On the 15min chart the current short term support trendline may be a target, and that is currently in the 4000 area, though there are other longer term alternatives below that in the 3900-50 area.

SPX 15min chart:

The bottom line here is that a new retracement low on SPX is very likely, and there are some attractive targets not far below when that happens, most likely next week.

We are doing our usual monthly free public Chart Chat at 4pm EST on Sunday 8th May. We'll be looking in more detail at our equities retracement scenario there, as well as covering the usual wide range of instruments and markets. If you'd like to attend you can register for that here. As always you can also register for this on our current free monthly webinars page.

Tuesday, 3 May 2022

Oversold Bounce

On 5th July last year I was updating my SPX monthly chart and added a scenario for a retracement that I thought might take place in the next few months, and talked about that in webinars at theartofchart.net. On 6th August I then wrote a post about that scenario looking for a backtest of a trendline on the monthly chart that was in the 3800 area at the time. That trendline is now in the 3930-50 area, and that is my main target for the retracement we have been seeing so far this year.

I'll be writing more about this scenario, and the potentially very bullish next move that this retracement may be setting up, in another post later this week, but I'm going to focus on the short term setup this morning. On the monthly chart below though, X marks the spot where I would like this retracement to reach, and end.

SPX monthly chart:

In terms of short term targets, I had two open targets below yesterday morning, and they we both reached in the morning so I have no open targets below.

The first target was the Three Day Rule target at the retest of the 2022 low on SPX, and we saw a new low made for 2022 this morning. The 5dma is currently at 4186/7 and, now the target is cleared, that is now important resistance on a daily close basis.

The second target was the double top target on Dow, and that was also reached and is shown on the last chart on this post.

SPX daily 5dma chart:

After the strong rejection at the test of the weekly and daily middle bands on SPX a few days ago, SPX has been on a daily lower band ride for seven trading days. The lower band is now at 4112 and declining fast, so if SPX is to remain on the lower band ride, that will need a test again today. If we don't see that SPX may be starting a bottoming process for another backtest of the daily middle band, now in the 4372 area.

SPX daily BBs chart:

Looking across the indices after the close yesterday there are two decent quality decline patterns from the last test of the daily middle band on SPX. The pattern on SPX is a decent quality falling wedge, with wedge resistance now in the 4230 area, and with the rally supported by an RSI 14 buy signal on the 15min chart, and a 60min buy signal on ES.

SPX 15min chart:

On Dow there is another equally nice falling wedge, also supported by an RSI 14 buy signal and a 60min buy signal on YM. Resistance on Dow is in the 33475 area. Both of these are the obvious initial rally targets and have a decent chance of being hit.

INDU 15min chart:

Both of these rally setups look good, and the odds of seeing the indices rally today look decent. That might be short lived though and I'd note that the historical stats for tomorrow are 67% bearish on SPX.

There are two webinars at theartofchart.net this week. The first is Trading Commodities - Setup and Approaches an hour after the close on Thursday. We'll be looking at the usual three prospective instruments and will be designing and outlining three options trades for those. If you'd like to attend you can register for that here.

The second webinar is our usual monthly free public Chart Chat which will be at 4pm on Sunday 8th May. I'll be looking in more details at my SPX retracement scenario from the top of this post, and we'll be covering the usual wide range of instruments and markets. If you'd like to attend you can register for that here. 

As always you can also register for either or both of these on our current free monthly webinars page.

Wednesday, 20 April 2022

Breakout Opportunity Here

The bulls delivered a strong rally yesterday and there is actually a decent looking setup for a break up here that might well then deliver a fast retest of the all time highs on SPX. A daily RSI 5 buy signal fixed on NDX at the end of last week, which I wasn't taking particularly seriously in the absence of a confirming signal on SPX, but at the close yesterday a daily RSI 5 buy signal also fixed on SPX. Both signals could deliver a sharp push up here through some key resistance levels.

On the SPX chart very strong resistance is in the 4500 area, with the SPX daily middle band currently at 4498.

SPX daily chart:

The SPX daily middle band is reinforced by key resistance at the the weekly middle band, currently at 4504, which has been tested a few times but not meaningfully broken since the first decline in January this year. A break (weekly close) of that and conversion to support would open a possible all time high retest.

SPX weekly chart:

On the NDX daily chart a daily RSI 5 has fixed, as I have mentioned, and there is also a decent quality IHS forming that on a sustained break back above the neckline in the 15250 area would look for a minimum target at a retest of the all time high. The daily RSI 5 buy signal would make target long before an ATH retest, but NDX is still also on the larger daily RSI 14 buy signal that fixed after the current retracement low in March.

NDX daily chart:

Is there a pattern setup that might look for an all time high retest on SPX? Yes, the initial H&S that broke down on SPX failed on a rally that took SPX back over the right shoulder high. That fail has a target at a retest of the all time high.

There is also a Three Day Rule target back at a retest of the retracement low at 4114.65, but there is a small exception to that rule that has only happened twice (so far) in the last fifteen years, where a marginal higher low (like the one made shortly after the Three Day Rule signal fixed) is ok in the event that a triangle is forming. This retracement could be a bullish triangle from the all time high, and this could be wave D. If so the ideal right shoulder high would be in the 4590 area, then I'd expect a shortish wave E before the break up into an all time high retest.

One way or the other there are plenty of indications that the retracement this year is forming a bull flag, and that triangle is one form that such a bull flag can take.

SPX 60min chart:

Is there anything else here to support a retest of the all time high on SPX? Well it looks at first glance as though an equivalent IHS to the one on NDX may be forming here but that isn't the case, as the pattern would be too large relative to the preceding trend. What SPX does have though is a possible rising megaphone from the March low that could be forming into that all time retest, and could allow that retest as soon as early May. The megaphone support trendline is only two touches, but the resistance trendline is an ideally formed and anchored three touch trendline. It is very nice and strengthens the case that there is an actively forming upward facing pattern.

There is one other thing worth noting on the SPX 15min chart, and that is the declining resistance trendline from the rally high at 4637.30. At the time of writing SPX is testing that for the third time today and that is a very obvious fail area. A break above opens a test of main resistance in the 4500 area.

SPX 15min chart:

In the absence of a break up here I'm expecting to see new retracement lows soon, and the news isn't really supporting a return to the all time highs at the moment, but this is the highest quality bullish setup I've seen so far this year, so it is best to be watching it. As always, we'll see.

We are doing our usual monthly free public Big 5 stocks & key sector ETFs  tomorrow at 5pm EST. If you'd like to attend you can register for that here. As always you can also find the registration link on our current monthly free webinars page.

Monday, 11 April 2022

Now The Support Test

On Friday morning I was looking at the short term bull and bear options on SPX and at support and resistance levels being tested. The main resistance level was of course the weekly middle band, now at 4518 and with the SPX close on Friday at 4488, just above support at the daily middle band, there was a complete failure to break back up over that resistance.

SPX weekly chart:

That has led into the test of key support that we are now seeing on SPX and NDX particularly this morning. The most important short term support level on SPX is of course the daily middle band, now at 4495, and SPX opened well below that this morning. A clear daily close below that today would be a significant strike in favor of the downside option here.

SPX daily BBs chart:

So what is the downside option? Well on Friday morning I was looking at the possible H&S forming on SPX here and that H&S has now completed and broken down at the open this morning. If SPX can sustain that break then the H&S target is in the 4265-70 area. If we see a rejection here then a break back up over the right shoulder high at 4521.16 would fail the IHS, looking for a retest of the previous high at 4637.30, and break up from a double bottom looking for a target in the 4600-10 area.

We should see a clear break up or down from this inflection point area on SPX very soon and that may well happen today, particularly if SPX breaks down.

SPX 15min chart:

On NDX the setup is messier. I have marked in the slightly more bearish H&S option that has broken down with a target in the 13420 area. A break back over 14630 should fail both of the H&S options here and would be a significant bullish break and likely look for a retest of the previous high at 15625. Conversion of the broken neckline at 14300 to resistance would strongly favor the downside.

NDX 15min chart:

The Dow is looking more bullish here, with perfect tests on Dow and YM of the possible bull flag resistance trendline on Friday. That would look bullish on a break up over that trendline and a subsequent break over that H&S right shoulder high at 35.1k would then look for a retest of the previous high at 35.4k.

INDU 15min chart:

Overall I'm still leaning towards the short side here. The news on Ukraine continues to be grim and there's no obvious sign that will be changing anytime soon. The news on sanctions is suggesting that those may intensify a lot in coming weeks, with a possibility it seems that most energy purchases from Russia by Europe may be ending soon, which may have a serious impact pushing energy prices up and very possibly equity prices down as inflation then rises further, the cost of living crisis intensifies, and western economies are pushed closer to recession. There is also of course still a Three Day Rule target at a retest of the 4114.65 low.

We'll see whether this current break down can be sustained into the end of the day. If so, and there is a confirming close below the daily middle band tomorrow, then the next likely move on SPX should be to 4270, putting SPX within striking distance of the 2022 low at 4114.65.

We did our monthly free public Chart Chat on Sunday at 4pm EST looking at the prospects for equity indices here as well as the usual wide range of other instruments and markets. If you'd like to see the recording you can see that here. As always you can also see the recording on our current monthly free webinars page.

Friday, 8 April 2022

Between Key Support And Resistance

In my last post I was looking for a retracement and looking at targets below for the likely backtest that was coming, and those initial targets have been hit, more or less. The main target was the mean reversion target at the 45dma, now at 4417, and the current low this week at 4450 isn't quite a hit, but came close.

SPX daily vs 45dma chart:

Another target was the backtest of the daily middle band, now at 4467, and that was tested Wednesday and yesterday, and is holding so far.

SPX daily BBs chart:

SPX is rallying from the daily middle band, and broken support on the way down is now resistance. The most important such resistance is at the weekly middle band. That is now at 4518, and a close above it would confirm the weak but definite close above at the end of last week. A close below would be a bearish failure to confirm.

SPX weekly chart:

Another important short term level of resistance is the 5dma, now at 4527. That's not important for a Three Day Rule break, as SPX is still on the Three Day Rule looking for a retest of the 2022 low at 4114.65 before a retest of the all time high at 4818.62, but it is still a significant short term resistance level.

SPX daily vs 5dma chart:

The second important short term resistance level is the 50 hour MA, now at 4546. A break and conversion to support of the 50 hour MA would be a significant short term bullish break, and might well signal that this short term retracement is over.

SPX 60min chart:

So what are the obvious options from here?

On the bear side the war in Ukraine is showing no signs of either ending soon or of becoming less brutal to civilians there. There is also a Three Day Rule target at a retest of the 4114.65 low.

On the bull side there is also a failed IHS looking for a retest of the all time high, though in the context of an overall bull flag forming from the all time high a lower low for 2022 would be perfectly acceptable before that retest of the all time high.

Overall I'm leaning towards a break down here but it may as always go the other way. We should have a clearer view by the close on Monday.

In the short term the failure to quite make a lower low on SPX yesterday means that there is no hourly buy signal on SPX here, and possible H&S patterns are forming on all of SPX, NDX and INDU. In the absence of a definite break up in the next couple of days, these are setting the scene for a possible hard break down instead next week.

We are doing our monthly free public Chart Chat on Sunday at 4pm EST and we will be looking at this further then as well as the usual wide range of other instruments and markets. If you'd like to attend you can register for that here. As always you can alternatively register for those on our monthly free webinars page.

Thursday, 31 March 2022

Looking For A Backtest

I was looking at resistance at the weekly middle band in my post on Tuesday, and SPX has broken up through that convincingly, though SPX still needs to close the week significantly above the weekly middle band, currently at 4531 to fix that resistance break. If seen SPX will then need to close next week above the break to confirm it.

I was also saying that a break on SPX over the H&S right shoulder high at 4595.31 would fail the H&S and fix a target at a retest of the all time high at 4818.62, and that has now definitely broken, so that is a very significant bullish break.

SPX weekly chart:

On the daily chart SPX returned to just under the daily upper band on Tuesday, but is not obviously resuming the upper band ride, which is as it should be, as SPX is looking very overbought short term and likely needs a retracement here.

SPX daily BBs chart:

The negative divergence on the daily RSI 5 was lost on this latest move up, but what really draws my eye is the 5.2% above the 45dma that SPX reached at the high on Tuesday. Apart from the recovery from the 2020 crash low this is the third highest reading against the 45dma achieved since the start of 2018, with the two higher readings at 5.4% in January 2018 and 5.54% in November 2021. SPX is overdue for a backtest of the 45dma, currently at 4408. The other key target would be the SPX daily middle band, currently at 4388 and rising faster than the 45dma, so they are becoming in effect a single backtest target over the next three or four trading days.

I'm expecting to see this backtest next, and what happens at the backtest is likely very important for direction. On a break and conversion of those levels, in effect likely to be in the 4400-20 range, then SPX can still retest the lows before retesting the all time high. If that support holds and SPX returns to the current level and higher, then there are decent odds that the next target will be the retest of the all time high on SPX.

SPX daily vs 45dma chart:

On the SPX hourly chart the RSI 14 sell signal survived this latest move up, and I'm expecting that to deliver over the next few days.

I would note that the retracement this year formed a falling wedge that is an obvious bull flag pattern, and that has also broken up with a target at the retest of the all time high, so we now have two setups targeting that retest, though we still have the Three Day Rule looking for a low retest first. It is still possible that SPX could do both while forming a larger bull flag, though if that is the case then the trendlines for that larger flag are not yet obvious.

SPX 60min chart:

On NDX the hourly RSI 14 sell signal also survived and I'd add that NDX is close enough to a possible IHS neckline that a pullback here may for the right shoulder on an IHS that on a subsequent break up would look for a retest of the all time high on NDX.

We'll see how this develops over the next few days, but without doubt the overall setup now looks a lot more bullish than it did on Tuesday morning. What happens next will be key.

NDX 60min chart:

Unusually we are doing two free webinars at theartofchart.net tonight, as they were delayed by my COVID this month. They are starting an hour after the close today. The first is starting an hour after the RTH close at 5.00pm EDT and is on the 'FAANG Stocks & Key Sectors'. If you'd like to attend you can register for that here. The second is starting half an hour later at 5.30pm EDT and is looking at 'Trading Commodities - Setups and Approaches', where we'll be looking at opportunities in commodities and designing three options trades to trade them. If you'd like to attend you can register for that here. As always you can alternatively register for those on our monthly free webinars page.

Monday, 28 March 2022

S&P Retesting Main Resistance

My apologies for the long wait between posts. I went out with some friends for the first time in two years on the first weekend in March and caught COVID, which has taken a while to clear. That wasn't too bad and I'm clear now though I'm still feeling low on energy. Hopefully that will pass soon too.

I did post one of my premarket videos at theartofchart.net on my personal twitter on 16th March looking at the very large amount of bullish pressure underneath the market and wondering whether we would see a strong rally and we have since seen that strong rally, which has taken SPX back to main resistance at the weekly middle band. So what now?

Well the first thing to mention again is that SPX is still on a 5dma Three Day Rule Signal, which is looking for a retest of the 2022 low at 4114.65 before a retest of the all time high at 4818.62. This is my strongest historical statistic that has delivered well over fifty times back to the start of 2007, so I am leaning strongly towards seeing that low retest. Is that a sure thing? No, every stat will fail sometime, and this could be that time, but the odds favor it delivering again.

SPX daily 5dma chart:

On the weekly chart the close last week was slightly above it but was in effect a close on resistance. A break and conversion of this level would open a possible all time high retest.

SPX weekly chart:

On the daily chart a possible RSI 5 sell signal is brewing, matching similar signals brewing on NDX and Dow, and with one already fixed on IWM. That is definitely what I would want to see here if we are to see a turn back down.

If SPX does turn down from this inflection point here I would note that the next inflection point would be at the SPX daily middle band, now at 3359. That would need to be re-broken and converted to open the low retest.

SPX daily chart:

On the SPX hourly chart I drew in an ideal falling channel resistance trendline a few days ago that might be a target if SPX should be forming a bull flag channel here. That may break later on today of course but the high so far today was a perfect touch of that channel resistance trendline, so a fail here would firmly establish that overall bull flag channel on SPX.

SPX 60min chart:

NDX is also showing a fixed hourly RSI 14 sell signal, as is Dow but not IWM. Again, there is significant pressure for a fail here on the hourly chart as well as the daily.

NDX 60min chart:

I'm leaning toward a rejection lower at this inflection point on indices, at least back into a daily middle band test. What is important if SPX breaks up instead?

You can see on my SPX daily and hourly charts that an H&S pattern formed and broken down on SPX with a target in the 3600 area. I was never expecting that to reach that target, but as and when that fails it would set a target back at the all time high retest. That fail would be on a break back over the right shoulder high at 4595.31, and if we see that directly from here, then that would be a significant bullish break suggesting that SPX may head to the all time high retest directly.

Now I am recovered from COVID, more or less, I'm planning to return to doing a couple of posts every week, so my next post should be on Wednesday or Thursday before the open.

Monday, 7 March 2022

Awaiting SPX Low Retest

In my post a week ago I was saying that SPX was back on the Three Day Rule, and on the third day SPX closed clearly back below the 5dma, triggering the rule. That means there is a very high probability that the 4114.65 low will be retested in the near future.

SPX daily 5dma chart:

After that break SPX backtested the daily middle band and rejected from there. That makes a very decent looking candidate rally high.

SPX daily BBs chart:

On the SPX hourly chart a decent quality double top has formed that on a break and conversion of double top support at 4279 would take SPX back most of the way to the low.

SPX 60min chart:

On the NDX hourly chart a smaller double top has already broken down with a target in the 13500 area.

NDX 60min chart:

The matching double top on ES broke down overnight but has rallied back strongly so far. We'll see if that follows through to the downside today.

ES Mar 60min chart:

We did our monthly free public Chart Chat at theartofchart.net looking at equity indices and the usual wide range of other markets yesterday and if you missed that you can see the recording here or on our March Free Webinars page.