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Friday, 19 August 2022

Rolling Over

SPX has reached a peak of 9.57% over the 45dma on this run. That's likely to be the highest reading as the 45dma is now rising significantly every day, and has risen 40 handles this week. We should now see a retracement that reaches at least close to the 45dma, now at 3971, and may go below it. Depending on the time taken to deliver that retracement I'd be leaning towards a target area 4000-50 as a very rough guide.

SPX daily 45dma chart:

I was talking about the possibility that we would see a small retracement first, then a rally high retest to re-set up the daily negative divergence on SPX and that's looking promising, with decent looking bull flags now formed on the equity indices. As these have made lower lows overnight, I'm showing you this on ES.

ES Sep 60min:

Not all the daily negative divergence was lost on the last move up last week. A possible RSI 5 sell signal is still brewing on NDX and one has fixed on IWM.

IWM daily chart:

There is a possibility that we don't see a high retest, and that H&S patterns have been forming here instead. That's best shown on the IWM 15min chart. I'm leaning towards the high retest about 70/30, but there is a possible setup to head down directly.

IWM 15min chart:

The RSI setup is also mixed on the FAANG stocks & sector ETFs. The chart below is AMZN where both RSI 14 and RSI 5 daily sell signals have already fixed. Others like AAPL could still use a high retest to re-set up daily negative divergence, but some look ready to go now. 

AMZN daily chart:

Equity indices are likely making at least a short term high here, so the question is how far that will go. If we are in fact setting up for a high retest playing out the bull flags all across the indices then we would likely see a fairly modest retracement into the 3900 - 4100 area before continuing higher.

Purely on the pattern setup here I am leaning towards at least an attempt to retest the all time highs, but the economic backdrop isn't promising and that may fail. If we do see that high retest I would be leaning towards that being the second high of a large double top before a likely move lower than the low made so far in 2022.

Is it possible that SPX is starting a big new bull move here? I'm doubtful but anything is possible in the markets. I would note that the big bull run in 1970-3 took place in a stagflationary economic setting. Overall in the 1970s though the market was heading sideways, and dropping significantly in real terms, so any big bull move would likely be short-lived.

We are doing our monthly free public Big Five & Key Sectors webinar at theartofchart.net at 5pm EDT next Thursday 25th August. I will be looking at the bull flag setups on most of these as well so that should be interesting. If you'd like to attend you can register for that here or on our August Free Webinars page.

My next post will likely be on Monday or Tuesday before the open.

Monday, 15 August 2022

Air Getting Very Thin Here

I was talking on Friday about how every so often we see market moves that make no sense, but are technically sound, and go ahead and happen despite making no sense.  I was calling these grey swans and as it happens there was a very good example of this that day.

On my daily 45dma chart at the intraday high SPX reached a level 9.1% above the 45dma, higher than both of the highs made after the 2020 low at 8.7% and 8.4%. That was something I didn't expect to see, but here we are.

SPX daily 45dma chart:

So how unlikely was this reading of 9.1% above the 45dma on Friday? I had a look through my SPX charts back to 2000, and the reading on Friday was the highest so far this millennium, but when I looked back a little further I did find two higher examples in the late stages of the tech bubble 1998-2000.

The first example was where I expected to perhaps find it, and that was in the sharp move up from the low in 1998, that reached a high at 10.1%, as did the final spike at the bubble high in 2000. Those two are the only readings I found above 9.1% in the last twenty five years.

If we were to see that level matched here, then SPX might just be able to reach the 4325 area on this push, and that might then deliver a test of declining and possible bull flag resistance in that area.

SPX daily 45dma 1998-2000 chart:

On the SPX daily chart there was a fixed RSI 5 sell signal on Friday morning, as well as similar signals brewing on NDX, IWM and Dow, but the SPX signal failed on the latest push up, and divergence was lost on Dow. That still leaves possible daily RSI 5 sell signals brewing on NDX and IWM, but there is now a lot less bearish divergence than there was on Friday morning.

SPX daily chart:

In terms of the SPX daily BBs the upper band is now in the 4300 area and a move to the 4320-30 area is potentially in range.

SPX daily BBs chart:

On the 15min chart the bear flag setup is now looking somewhat ragged, and I'm increasingly doubtful about it being a bear flag, but there is still a very decent looking rising wedge from the first higher low at 3721.56, and if that is to continue to form then the next obvious target within the wedge would be wedge support, currently in the 4180 area. If we see that retracement and wedge support holds, wedge resistance would then likely be in the right area for a possible test of the 4320-30 area. 

SPX 15min chart:

We could just see a retracement start here of course, but if so, the the setup would still be improved by a retracement lasting a day or two and then a retest to set up the daily RSI 5 negative divergence again on SPX and Dow. We'll see.

In terms of the historical stats I'd note that the first three days of this week all lean significantly bullish, at 61.9% bullish today and Tuesday and 71.4% bullish on Wednesday.

If you're wondering where I get these daily historical stats from, I get those from the Stock Trader's Almanac 2022 by Jeffrey A Hirsch. I've been getting one at the start of every year for many years now and they are available from Amazon in the US and elsewhere.

We are doing our monthly free public 'Trading Commodities - Setups And Approaches' webinar at theartofchart.net at 5pm EDT next Thursday 18th August. As usual we will be looking at three actionable trades using options. If you'd like to attend you can register for that here or on our August Free Webinars page.

My next post will likely be on Thursday or Friday before the open.