Smoke Signals

I was asked a very good question on Friday, namely why I had looked so carefully in the morning at a bear setup that was likely to be demolished at the open. There are two main reasons for that and they are first that my role is to look at the market and interpret what I see in terms of patterns and setups. It's not for me to ignore anything I see that doesn't fit what I am expecting to see, and I did qualify the bear setups with the comments that my overall lean was strongly bullish, seasonality and the GDP figures were bullish, and that the setup might well just break up into new highs, as it then did. The second reason is that seeing these patterns form and be steamrollered by bulls is of itself a strong signal that we are back in a strong wave up, and after these patterns broke up into new highs on Friday any remaining doubts in my mind about that were put to rest.

Anyone who has been reading my work for a while knows exactly where I think SPX is headed, and that is to the rising wedge target in the 1965 area that I looked at in detail on 30th June when SPX was at 1606. You can see that post here. That wasn't the first time I have posted this target, but it was the post where I considered the merits of that target in detail and in the historical context.

On the SPX 60min chart there's nothing to suggest that a reversal back down is imminent and I have a possible rising channel in play that would target a hit of channel resistance in the 1840s. That would be a decent fit with main resistance overhead at the weekly upper bollinger band, currently at 1847. SPX 60min chart:

On the daily chart the daily upper bollinger band was hit on Friday and until the next retracement the upper band should act as a kind of daily anchor for SPX to trade around, with a likely test from above or below at least once a day. In a strong uptrend the daily upper band can rise at 5 to 7 points per day, and that would put that in the 1828-30 area if we have a strong day today (as seems likely). The daily upper band isn't strong resistance and SPX punches through it regularly to trade above it for one to three days (or so). SPX daily chart:

Unlike the daily upper band punches above the weekly upper bollinger band are rare and this acts as strong resistance. That closed on Friday at 1847 and could go as high at 1855-60 by the end of December. SPX weekly chart:

The stats are bullish for today, somewhat qualified by ES already being up ten points from the close on Friday. There may not be much further upside available today, participation will most likely be low, and the bulls should be wary of a possible gap fill.

Over the Xmas period I'll be aiming to do at least a short post every trading day, but will most likely take much of the rest of the time off. I'm not expecting to do much trading this week, but should be able to get a post up tomorrow and on Friday morning.