Oversold Bounce

The first thing to say this morning that despite the very impressive showing from the bears on Friday, neither of the double-top targets on SPX or ES has been reached yet, and I can't see any reason at all to think that they won't be reached in the next two or three days.

ES is bouncing at the moment, and I'm expecting the bounce to go further, but it will top out today or possibly tomorrow and then turn back down, so if you went long near the close on Friday don't stay in the trade too long. The resistance levels that spring to the eye on ES are declining resistance in the 1809 area (and declining very rapidly) and the 50 hour MA in the 1807 area. I'm expecting the ES daily lower bollinger band to end the day in the 1795-1800 range, and I'm expecting this bounce to top out somewhere in the 1795-1805 ES range. ES 60min chart:

On the SPX 15min chart I have declining resistance from the high in the 1807 area, again declining very rapidly, and that is an obvious target for this bounce that may well hold. The positive divergence on the 15min RSI that was building for much of Friday should be resolved with the bounce in regular trading hours (RTH) today. SPX 15min chart:

After the very impressive decline of Friday there has been a lot of discussion of the possibility that we may see large further declines, and that is certainly possible. However, the bull case I have outlined into April/May has not yet been compromised at all, and until it is I am working on the assumption that this is just a powerful retracement before the next big move up. What then might change my mind?

On the SPX daily chart the support now not far below is at possible rising channel support in the 1770 area, and the possible H&S neckline at the December low at 1767.99. This is decent support to bear in mind, and even if a substantial top has just been made, the obvious next thing to happen would be to finish forming that H&S at the 1767.99 neckline, which would have an ideal right shoulder in the 1813 SPX area. SPX daily chart:

If that H&S was to form now, the likely downside target would be in the 1690 area, and that brings me to the SPX weekly chart. In terms of support not far below I have trendline support and very decent support at the weekly middle bollinger band, now at 1773. Between the daily and weekly charts there is therefore very strong support in the 1768-80 area. If an H&S should form here then the next big support levels would be the weekly lower bollinger band, now at 1670, and the 50 week moving average, now at 1678. On a strong break below the weekly middle bollinger band the weekly lower band is the obvious target and that is normally tested at least once a year.

I would add though that of the three examples of SPX weekly upper BB punches in Q4 that I posted on 19th November with the comment that all those three had seen a sharp 4% area retracement soon afterwards, the largest of those three retracements was 4.5%. The statistics for those weekly upper band punches strongly supported this current move into the support levels that I have been looking at today in the 1768-80 area, but don't support a move any further, though on a sample size of only three over the last twenty years, it doesn't definitively rule it out either.SPX weekly chart:

On other markets I'll just look at oil today, as that is at the most immediate inflection point. On 15th Jan I gave the key inflection point for oil at declining channel resistance and that was tested at the high last week. If oil breaks up through then the pattern setup starts to look impressively bullish. If it breaks down we could be at the start of a major decline, with the next support levels at declining channel support, now at 86, and overall triangle support, now in the 80.5 area. On a break below triangle support the triangle target would be in the 45/6 area, with my long term support trendline from the 1998 low also in the 45/6 area. Just sayin'. WTIC daily chart:

On the CL 60min chart the reversal at declining channel resistance was on decent negative 60min RSI divergence. A rough H&S may be forming to punch CL down through rising support from the last low. If that happens I'll be looking for a likely retest of 91/2 area support. CL 60min chart:

Leaning cautiously bullish for the open today, reversing bearish again somewhere in the 1795-1805 ES area.