It was a nail-biting top but SPX topped and turned where it was expected to on this chart and channel that I posted at the recent low at 1010. The bear scenario for the summer is still therefore my primary scenario with an expected interim bottom at 870 within eight weeks:
Looking at the recent top more closely on the SPX daily chart, as well as this rather sloppy looking channel, there are a couple of other things to note.
Firstly a sharply downsloping head and shoulders pattern is forming, which is yet another pattern indicating into the high 800s in the event that the neckline is broken and the pattern confirms. The main thing to look for on H&S patterns with sloping necklines is that the shoulders should nonetheless be of roughly equal height. That is definitely the case on this pattern, so I am adding it to the even larger main bearish patterns on SPX at the moment that are indicating towards the same target.
Secondly both RSI and MACD have formed clear support and resistance trendlines that signalled the recent top, and are worth keeping an eye as they may well signal the highs and lows over the next few weeks.
In the short term, Friday was a trend down day and we would normally expect to see two to five days of retracement after a trend day. I'm expecting two, and my target for the retracement is the strong range resistance level at 1084.5 ES. It may be that we only reach the resistance level at 1074 though.
On the ES 10min chart a short term rising support trendline has been established since Friday's low, and if it holds then the range support level at 1064 should hold. If it breaks I'm expecting to see strong support at 1054.5:
If the bear scenario for the summer plays out as I expect, then the next two days will most likely be the last really good opportunity to short it. I'm expecting to see a retracement to 1085 SPX and if so, then a short from there has 215 handles of potential downside, while a rise of only twenty points from there to above the recent high would signal that the bear scenario was in trouble, and would therefore be a good place to put stops.
That's a risk reward ratio of more than 1 to 10, and I'll be taking full advantage of that
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