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Saturday, 3 June 2023

Knock On Wood

I was talking to a trader friend about resistance levels a few years ago and I remember him saying to me that the more often you knock on a door, the more likely it is to open. In effect what that means that however strong a resistance level is, and however often an index may fail there, if it keeps returning after each failure, then sooner or later it is likely to break up, and that may well be what we have been watching here on SPX.

We don't have a confirmed break yet, but SPX closed May significantly over the monthly middle band, and so far today has been pushing through the main support/resistance trendline from the 2009 low. If that breaks and converts to support, then the path would be open for a possible retest of the all time high.

SPX monthly chart:

Tech has been dominating this move up almost to the exclusion of everything else, so NDX has broken up hard over the monthly middle band and there is a decent case that it already has a target back at a retest of the all time high.

One of the NDX all time high retest targets comes from the large H&S that broke down last year and failed on the break back over the right shoulder high  at 13720.91. There are two more pattern targets there open now and shown below on the hourly chart.

NDX monthly chart:

On the NDX chart a large double bottom has now broken up and backtested that is looking in effect for a retest of the all time high. The even better pattern though is the rising wedge that formed from the lows last year that has broken up with a slightly lower target.

Altogether that is a solid pattern setup to reach the retest of the all time high on NDX and I'm taking that very seriously, though these patterns can fail of course. In that event we would likely see retests of last year's lows.

NDX 60min chart:

On SPX there is an even nicer overall rising wedge formed from the lows last year, and the move up today is now slightly overthrowing wedge resistance. This is a key inflection point. A hard fail here could take SPX back to last year's lows. A hard break up could open a retest of the all time high on SPX too, though if we were to see that, we would probably need to see this move up broaden beyond tech stocks into the wider market.

SPX 60min chart:

What is the SPX daily chart telling us here? There are two important things to note.

The first is that at the time of writing the 3sd daily upper band is at 4291, and the high so far today is at 4286. SPX is very stretched and at least a significant retracement is likely close. That could deliver a backtest of the daily middle band, currently at 4164, supported by the June monthly pivot, currently at 4153.

The second is that there was a strong volume spike on Wednesday, and that is something often seen at a significant high or low. There was no obvious significant low to be made here, but a significant high is very possible. We'll see.

SPX daily chart:

I was noting earlier this week that the historical stats for yesterday and today leaned very bullish. Those have delivered in spades. From here the rest of the month leans neutral to bearish, so we'll see how that goes.

In the short term there is significant negative divergence building on the ES/SPX and NQ/NDX charts here and a short term high is likely either close, or already made.

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