Bricks and Straw

SPX made a strong move into new all-time high yesterday at 1858.71 and then came off that high in the afternoon. So now what?

On 10th February I wrote that the next target from the bullish hammer on the weekly chart would be a test of the weekly upper bollinger band. That was at 1888 at the time and had fallen to 1866 at the close yesterday. Yesterday's high was close enough to qualify as a technical hit or very near miss, though we may well see a more exact hit shortly, particularly with the SPX daily upper bollinger band now at 1866 as well. I'm going to be treating that target as possibly made now. SPX weekly chart:

I've mentioned often before that the SPX weekly upper bollinger band is strong resistance on a weekly close basis, and punches over the weekly upper band (weekly closes well above), are both rare and bearish. With the weekly upper band so close there is no room for a fast move up from here, though we could perhaps see a slow move that might crawl up under the weekly upper band at the 10-15 points per week that the upper band can manage on average in an uptrend.

If we are to see a faster move up however we would need to see some retracement or consolidation soon to make some room for that move, and there is now clear short term negative divergence on the daily RSI 5 and the 60min RSI 14. We could see that retracement/consolidation from yesterday's high, or we could see a higher high to test the daily and weekly upper bands in the 1866 area, but one way or another we should see it soon. Here is the SPX daily chart showing the negative RSI 5 divergence and the possible major double-top forming that I would start to consider seriously only on a break under 1800 area support. SPX daily chart:

The TRAN 60min chart backs up this scenario fairly well, though I treat this chart with some caution as TRAN tends not to track the other equity indices that well. The setup on TRAN is that an IHS has broken up targeting new highs, but in the short term TRAN has hit very possible rising channel resistance. This setup is arguing for a significant retracement or consolidation very soon, with considerably more upside later, and that is a decent fit with my thoughts here. I would note on the TRAN chart however that there is currently no negative divergence on the 60min RSI 14, though there is on all the other US equity indices. TRAN 60min chart:

If we are to see a retracement the first strong signal on SPX would be a break below the important hourly 50 MA, currently at 1838. That has been support on the last two small retracements and and hourly close much below it should deliver a move that could retest the weekly and daily middle bollinger bands, now in the 1802-4 area. Such a retracement would also deliver something that is currently absent for the move from the 1737 low, and that is a support trendline. There have been no decent retracements so far since the 1737 low, and without decent retracements there are no support trendlines, and without support trendlines there is no trendline support or pattern to define a strong move up. SPX 60min chart:

I would like to see a move up here into the 1860s for a better test of the weekly and daily upper bollinger bands in the 1866 area, followed by a decent retracement or extended period of consolidation to clear some room for the next move up. If the retracement started at yesterday's high then the support levels to watch are the 50 hour MA on ES, currently at 1841 and holding as the overnight low at the time of writing, and the 50 hour MA on SPX, currently at 1838 and support since SPX broke up from the falling wedge into the 1737 low. I would treat an hourly close at 1836 SPX or below as confirmation that a retracement was ongoing.

A short and early post today as I need to go out for a while before the market opens.