K.I.S.S.

The setup here on the last trading day of January couldn't be much simpler. SPX bounced strongly at the daily lower band and range support at the low yesterday and on the bull scenario SPX now breaks back above the daily middle band at 2031, and on a further break of 2064 we see a retest of the highs. On the bear scenario we see a hard fail here or at the middle band test and, on a break below yesterday's low, the next big support level is at 1957 at the 50% fib retracement and the weekly 50 MA. SPX daily chart:

On the bear scenario it is very important that the close today be below the close on January 6th at 2002.61. The reasons why are explained in my post on 7th January  and you can see that again here. The stats I collected then suggested strongly that on a close above that level the bulls have the edge at dominating 2015, and that on a close today below that level, the best that can be expected this year is a flat year. We'll have our answer on that stat by the end of today. SPX weekly chart:

My preferred scenario here is that we see a test of the daily middle band this morning and fail hard there. It's possible that SPX just trends down instead with no test, and bulls obviously want to break back over the middle band to open up higher targets. I'm leaning bearish here until we see a break with confidence (and daily close) back over the daily middle band.

Bearish Confirmation

Just a very quick post this morning as I needed to take my daughter to the orthodontist and only got back a few minutes ago.

A rare day yesterday with a strong decline sustained into the close, rare in itself but very rare on FOMC day. The wind may be changing. The bulls had to break back up over the middle band and totally failed to do that.

This break back below the SPX daily middle band delivers two downside targets. The first is possible range support in the 1990 area, with the daily lower band just below it at 1987. If that fails then the obvious next target is the 50% fib retracement of the move up from 1820,l and that is at 1957. SPX daily chart:

The close tomorrow is important. A weekly close at this level or lower would deliver a conviction break below the weekly middle band, which has acted as closing basis support for five weeks out of the last seven. That would open up targets at the 50 week MA at 1959, close to the 50% fib retracement, and the weekly lower band at 1911, within striking distance of the rising megaphone support trendline that is very much the obvious target for this move. SPX weekly chart:

I posted a very nice looking FTSE short setup on twitter yesterday and some of you might consider carving off a slice of this tasty looking morsel. This is the update on the FTSE chart I posted last Friday arguing that FTSE might well be signalling that the bull case wasn't going to deliver.  FTSE 60min chart:

I'm leaning strongly bearish here. I'm looking for an early rally today that should be sold through a break below yesterday's lows.

Technical Difficulties Today

I've been having a few technical problems this morning with my main computer, and currently have no ability to edit charts at Stockcharts and browser access only to my main broken. I should have these issues fixed later but for now I'll be using charts I did yesterday and a futures chart for CL.

There are clear bull & bear scenarios here and I'm leaning strongly towards the bear scenario, but with the strong awareness also that there is a huge wild card today in the shape of the Fed at 2pm, so I'm keeping an open mind.

The bull scenario is on the SPX daily chart that I posted on twitter yesterday afternoon, and that is showing that the low yesterday was a decent retest of broken falling wedge resistance  from the all time high. If that low holds we would now see a break over range resistance at 2064 and at least a test of the all time high. SPX daily chart:

The bear scenario is the same as before, with a break soon of the current retracement lows and an ideal target at weekly rising megaphone support, currently in the 1875 area but very possibly to be hit in the 1885-1910 range as it is rising quickly. That is supported by the conviction break yesterday below the daily middle band, currently at 2039, and would most likely only be killed by a conviction break back above that middle band today on a daily close basis.

On oil the small double bottom setup that I was looking at yesterday morning turned out to be a rising wedge, which in this context is a bear flag. That has broken down and the first of the alternate targets is just a retest of the lows. I'm expecting that soon. The second alternate target is a resumption of the downtrend, with an obvious flag target in the 42 area. In the context of the likely larger double bottom forming here I'm leaning towards the first target at the lows retest, but either would fit with the second low of that larger double top. CL 60min chart:

I'll be talking about bonds more in the near future, but for now I'll just post the chart below showing the large falling megaphone on TNX (10yr treasury yields) and add that after quite a bit of thought I'm now looking for a major high in the near future on bonds, after which we may well see all gains since the start of last year wiped away, and more. Something to bear in mind now and I'll be explaining my view in detail soon. TNX daily chart:

We could see a big move today. If that move takes out yesterday's low at 2019 then I would expect follow through to the downside on the bear scenario. if instead we see a break back over the last high at 2057 then I'd be looking for a retest of the highs on the bull scenario. I'm leaning bearish but with the Fed at 2pm today it could go either way.

Downtrend Resuming I Think

The rising channel that I showed yesterday morning didn't survive much past the open. The rally from the AM low was strong, though fitful but I was thinking that things might just e back on track for more upside, though I was concerned that the rally from the lows failed at each of the three retests of broken channel support. I closed the day thinking that the uptrend was fragile, but might just get past 2064 into the highs retest area.

Overnight though ES has fallen hard, and at the time of writing is a clear 25 handles under the close, and well below yesterday's intraday low, which on SPX is double top with a target in the 2016/7 area on a break below it. SPX 5min chart:

On a daily close basis the key support here is at the daily middle band, currently at 2042. Bears want a conviction break below this at the close today to confirm that the downtrend has resumed. SPX daily chart:

There is an interesting rally setup brewing here on CL. Risky but potentially very profitable. CL 60min chart:

My personal feeling here is that the downtrend is resuming and that we will see new retracement lows in the near future. There is a chance though that we may first see a retest of the daily middle band in the 2042 area from below, and if we see a rally near the open that would be my ideal target. I'm doubtful about seeing much higher and if we see that rally I'd expect the downtrend to resume afterwards.

Signifying Nothing?

The greek vote was convincingly won by Syriza last night and they are forming a coalition government with a mandate to try to renegotiate the terms of their debt relief package while remaining within the Euro. The news sent ES down hard but that decline has melted away overnight. Was that decline significant?

Looking at the ES chart it's hard to see that the overnight action was obviously bearish. The rising wedge from the low last week broke down and retraced 38.2%, which is routine in an ongoing uptrend, and the low retested broken falling wedge resistance, which leans bullish. we might see something more bearish happen today, but as it is this chart looks like a long opportunity rather than a short opportunity. ES 60min chart:

The action on SPX on Friday wasn't obviously bearish either. The retracement came down and almost hit the rising channel support that I had posted in the morning, and as long as that rising channel from last week's low holds, this is a bullish setup that may take SPX to a retest of the highs. SPX 5min chart:

On the daily chart there is now support at the 50 DMA at 2047 and daily middle band support at 2043, and it's going to be hard to get that excited about the short side until we see a break back below the daily middle band that holds into a daily close significantly below it. SPX daily chart:

My long term rising support trendline on oil from the 1998 low broke on a weekly basis on Friday. That is bearish and the next big support level is 40. Short term there is a possible double bottom in place that could deliver a significant bounce. Generally we would see a decent bounce before the main low, though not always. WTIC weekly main chart:

I'll be watching that rising channel today and a break below it would look bearish. If that breaks then bearish confirmation would come with a close well below the daily middle band.. Until we see at least a break of the SPX rising channel I'll be leaning long. 

Food for Thought

Just a very quick post today as my morning has been hijacked by traffic jams and an ill son, though he's not seriously ill.

I posted a chart on twitter last night showing that the rising wedge that I posted yesterday morning had evolved over the day's bullish break into a rising channel, and that the pattern formed from the morning low yesterday was a rising wedge, that is now, just after the open, breaking down.

Yesterday's high may well be retested now but the obvious next significant target is a test of rising channel support, currently at 2037 and likely to be in the 2047 area by the close. As long as that channel support holds then we should be looking good for a retest of the all time highs. If it breaks then the bears may get a shot at reversing yesterday's bullish break over the daily middle band:

Is there any reason to think that we might see a hard reversal back down here? Not on SPX but the FTSE chart this morning looks seriously toxic. This bearish rising wedge has overthrown and broken down and I'd generally expect to see a topping pattern form that might involve a retest of the highs, and then a retracement that might be as little as 1% but could easily be a full reversal of the almost 10% move up that FTSE has made over the last few days. This has been tricky tape and it's as well to keep one eye on the exit. FFIH 60min chart:

That was a strong bull break yesterday and bulls have a decent rising channel from the retracement low to work with. As long as that channel holds bulls are in the driving seat here, on a path to a retest of the all time highs. If that channel breaks I would note that once a twice a year or so we will see a daily break back up over the middle band that is then reversed with a strong red candle the next day. That could happen today if the bulls drop the ball so be wary.

The Battle of the Middle Band

I posted a couple of charts on twitter last night showing the very interesting setup here on ES and SPX. The setup on SPX is the falling wedge that I've been showing in recent days and the double bottom with a target at 2054. I mention on the chart that the target area would be a 61.8% retracement of the falling wedge and that might be the top of the rally there, if indeed this is just a rally. SPX 60min chart (posted last night on twitter):

The ES chart I posted had an almost identical falling wedge, which is remarkable given that ES tends to have different highs and lows, and traded well over double the number of hours over the period that the pattern formed. What is different though is that the rather choppy rising wedge from Friday's low on SPX is a perfect rising wedge on the ES chart. This gives that chart a rather more bearish cast as rising wedges are 70% bearish. ES 60min chart (posted last night on twitter):

Why is this more bearish? Because this rising wedge can overthrow, perhaps as high as the ES 2052 area, and that can just be a bearish overthrow before a break downwards begins. That the pattern from Friday's low is a rising wedge at all leans bearish here. These do break up 30% of the time though and if this breaks up then the wedge target would be back at the all time highs. ES 60min chart (capped before ECB):

At this stage a break below rising wedge support in the 2015 area would suggest at least a retest of Friday's lows. The main battleground today however is really the daily middle band. A fail at the middle band (2046/7 SPX area on daily close basis) today would favor the bears in coming days. a break back over it would favor the bulls for a retest of the all time SPX highs. SPX daily chart:

I'd expect a retest of the globex highs in trading hours today, though I could be mistaken. anything into the 2050-6 SPX area is fine for a bearish resolution. 2057-64 is no man's land. Over 2064 should be a bullish breakout. Under 2020 should be a bearish breakout. It may well get wild today so trade safe.

Tired Looking Bulls

Yesterday closed green but was nonetheless a significant technical fail for the bulls, as there was a very strong bottoming setup that needed the opening gap to hold, and it was filled within minutes with a strong rejection from the opening highs. Most of the subsequent dump was then retraced but it remains to be seen whether the bulls can recover back to that opening high at 2029.

If SPX can recover that far then the important resistance levels today are that high at 2029, falling wedge resistance at 2037, and main resistance is at the meeting of broken rising wedge support, the 50 DMA, and the daily middle band all in the 2045 area. SPX daily chart:

If we are going to see a fail into new retracement lows from here, then yesterday's action set up a double bottom that could deliver that on a break below yesterday's low at 2004.49. SPX 60min chart:

If the bears can break this below yesterday's low then I'd expect to see new retracement lows not long afterwards. If yesterday's high is broken with any confidence then the obvious next upside targets are 2037 then 2045. The 2045 test should be the key if we see it, a hard fail there should be the start of a new leg down, a conviction break up through it should deliver at least a test of the all time highs.

Apologies for the late post today. Intense morning. :-)

Likely Breakaway Gap Over Resistance Take 2

On Friday night I posted a quick review of the very bullish setup on SPX at Friday's close and the full post talking about that was posted yesterday. If you haven't read that yet you can see that here.

In the short term the possible opening gap over resistance that I was suggesting as likely is looking likely at the time of writing. If that persists into the open then the important thing to remember today is that the bulls most likely own the tape today unless the opening gap fills, in which case we might well see a very strong decline instead, and a new retracement low wouldn't be unusual. ES 60min chart:

CL has held long term rising support on a weekly close basis, though with a worrying intra-week pinocchio. The setup here looks pretty bullish and the next obvious target is main falling channel resistance in the 58/9 area. We would often see a retest of the lows at this stage and if we were to see that here then that might well set up a double bottom with a target in the right area for a falling channel test. I'd also draw your attention to the big RSI divergence which is suggesting strongly that a big low on oil is close or already made. CL daily chart:

With an opening setup like this the tape today is most likely going to be strongly dominated by one side or the other. With a strong opening gap up the odds will strongly favor the bulls, and if that opening gap fills the odds will favor the bears. I'm leaning bullish today unless the bulls drop the ball and allow the gap to fill. If we see that then the bulls may have a very bad day.

Sound and Fury

One of the first things that I mentioned on Friday morning was that it was important for bears to deliver a conviction break below the weekly middle band at 2014 to open up the next targets below. With the open at 1992 that didn't look that hard but the close at 2019 failed to deliver that important support break. SPX weekly chart:

On the daily chart the candle was a bullish engulfing candlestick, though Bulkowski doesn't rate these particularly highly, noting the high failure rate both the next day and over the next few days. In the context of the recovery over the weekly middle band though, it wasn't a good technical day for the bears.

There's more. I've mentioned before that when a rising wedge breaks down, the usual target of a full retracement only generally happens in the case of a substantial trend reversal. In the case of an ongoing bull trend the main targets are instead the 38.2%, 50% or 61.8% fib retracements, with the occasional 23.6%, and these are areas to look for signs of lows and combinations of these with other big support levels.

In this case we saw a very marginal new low on Friday, at the daily lower band and the 38.2% fib retracement, with a strong rejection at that marginal new low. It isn't pretty but there is also clear positive divergence on both the daily RSI 5 and NYMO, which on a strong enough further move up would trigger a daily RSI5/NYMO buy signal. SPX daily chart:

Are we going to see that strong further move up? Well there has't been much sign of that move since the globex open on Sunday but there are certainly reasons to think that there may be from a look at the 60min chart. The first thing I would note there is that I have now confidently identified the pattern for the decline from the high, and that pattern is a 68% bullish falling wedge, though I would note that stat also means that these wedges break down 32% of the time. The next obvious target within that wedge is wedge resistance in the 2041 area, and the wedge is mature enough that a break out from the wedge could be expected at any time.

Backing up the obvious next target is the W or double bottom that has now formed at the current lows. On a sustained break over 2021.35 this pattern would have a target in the 2054.58 area, and if that target was made then that would obviously be a break up from the falling wedge. SPX 60min chart:

Taken together what we saw on Friday was a combination of several things that I generally look for at a significant low, and that at least has to be taken seriously, even if I am highly sceptical about a substantial bull move starting from here.

Why am I sceptical? Well no-we one can know the future, and we could of course see a big break up, but the rising megaphone (called an ascending broadening wedge by Bulkowki) from 2011 (first chart in this post) is a 73% bearish pattern, and exactly the same applies in terms of targets after a break down from these patterns as I was saying above about rising wedges, so I'd expect a break down, then a retrace to the 38.2%, 50% or 61.8% fib retracement targets, with a possible fail in the 23.6% area. As the last hit of a megaphone trendline was the resistance trendline, the obvious next target is therefore wedge support, currently in the 1865 area. That is the obvious target for this retracement.

On the upside megaphone resistance, currently in the 2120 area, looks very solid. By itself it is a rarity to see a trendline like that break up, but this resistance trendline, shown on the monthly chart, goes right back to the 2009 low, having acted as support from the 2009 low to the 2011 high, and strong resistance since the 2011 low. I am very sceptical about seeing this solid and long term trendline break up, particularly with the increasing negative divergence on the monthly RSI 5 and 14 and the MACD threatening to cross bearishly for the first time since 2012. A break down through support would seem more likely. SPX monthly chart:

So what's the takeaway here? Well the immediate setup is bullish and the odds I gave for the four main scenarios here that I gave on twitter on Friday night were as follows:

20% - An immediate hard fail either without a break above double bottom resistance or shortly after that break. These fails are fairly common after bullish engulfing daily candles. A break down from the falling wedge would then target the 1880 area, which would be a good fit with the obvious retracement target at at megaphone support in the 1865 area.

40% - A break up to test any or all of falling wedge resistance in the 2041 area, the 50 DMA at 2046, the daily middle band at 2049 and of course the double top target at 2054.58. A break over falling wedge resistance can still just be a bearish overthrow under 2064.43, and on this option there is a hard fail under there at one of these resistance levels. A break down from the falling wedge would then target the 1880 area, which would be a good fit with the obvious retracement target at at megaphone support in the 1865 area.

20% - A daily close much over the middle band at 2049 or any break over the last breakout high at 2064.43 should deliver a retest of the current all time highs and possibly a marginal new all time high. There would then be a fail for there with a new slightly higher double top with a target that is again a decent fit with the obvious retracement target at megaphone support in the 1865 area.

20% - Divided between two options for a new bullish wave up, with half to a break over strong trendline and weekly upper band resistance in the 2120 area, and half to a slow crawl up under strong trendline resistance to a fail later in the year. The odds for this last option would be lower except for the reality that it has been a bad mistake to underestimate the bullish options in recent years. There is also the ECB meeting on Thursday, where it seems they may have found a way to do QE on a substantial scale without the Germans being on the hook in the event of further sovereign defaults in the Euro zone.

The strongest way to break up from the short term setup would be to gap over double bottom resistance and to push up strongly from there, That's not a guarantee of new highs of course though, as shown by the IHS that broke up in that way less than two weeks ago to make the 2064.43 high and failed either to make the full IHS target at 2069, or to hold the break over the IHS neckline more than a couple of days.

What Can't Go Up ....

Yesterday I was talking about the strong resistance overhead and what I was talking about was rising megaphone resistance from the 2011 low. That should be strong resistance now and in fact is even stronger than it looks, as on the monthly chart that resistance trendline is anchored at the 2009 low. I am not expecting that resistance line to be breached, with the possible exception of a bearish overthrow, until this rising megaphone has broken down and made target at a fib retracement in the 38.2% to 61.8% fib retracement range.

That's not to say that SPX couldn't rise further within this pattern, the pattern is rising by about 20 handles per month and would end this year in the 2350 area, I'm just saying that with strong resistance now in the 2120-30 area, and rising at only 20 handles per month, there can be no strong trend up move that would start here and last more than a couple of weeks. To get that sort of move SPX needs to retrace further to create some headroom, and ideally test or break rising megaphone support, now in the 1865 area.

We could see an important milestone in this decline made today if SPX can close well below the weekly middle band at 2014. If we see that conviction break then that would open up the 50 week MA at 1948 and the weekly lower band in the 1908 area as targets. SPX weekly chart:

There is a significant level on the downside today as well and that is that, while ES has made new retracement lows in globex, that new retracement low hasn't yet been seen in trading hours. As long as that remains the case the gently rising channel that was established at the low on Wednesday remains unbroken, and the scenario I mentioned yesterday of making another new all time within this topping process remains open. A break of that low in RTH will kill that scenario, which would be reassuring. SPX daily chart:

The move down from the 2056 high has resolved into a decent falling channel. Any rally would only really get serious on a break above channel resistance. I have that as key resistance in the 2000-2 area. SPX 5min chart:

Oil has finally bounced, just as I was reaching the conclusion that my strong support trendlines were breaking. The next obvious target is channel resistance, currently in the 60 area, We may see a retest of the low first. WTIC daily chart:

This is an important day from a technical perspective. If bears can make a new retracement low in RTH and hold the falling channel then the downside opens up and channel support is currently in the 1960 area and falling fast. If bulls can avoid the new retracement low in RTH and break the falling channel from 2056 then we could see a very strong rally that might extend this already interminable topping process another couple of weeks.

Psycho Killer

Apologies for the late post today. The wild pre-market moves were very tradeable and it has been a fun morning. Also Mike Vacchi has gone to the West Coast for the rest of the week and left me running the shop of our trading room at www.princetonetrader.com.

The overnight session was wild, with a 22 handle rise to test the ES weekly pivot at 2026, then 40 handle plunge on the news that the Swiss Franc would no longer be fixed to the Euro, then a rally up to 2018 etc. This is not tape for the faint of heart or inexperienced.

On the daily chart yesterday there was an interesting daily hammer, and that was interesting because these are often seen at the bottom of downward trends. Bulkowski has these signalling reversals 60% of the time. Might it do the same here?

I would say yes, but if we were to see a return to retest the highs here I'd expect that to be a marginal new high before this downtrend resumed. A number of people pointed out the perfect shallow rising channel that was formed at the low yesterday from the 1972 low and they're right, if that low holds we could see a return to channel resistance over 2100. If so though that should just be a better short entry. I think the odds that this downtrend is ending here are small. This consolidation/retracement may chop sideways through the whole of the first quarter. SPX daily chart:

I posted the chart below on twitter yesterday showing the possible triangle forming here. This is a decent fit with the bullish hammer and suggests that we might see a retest of triangle resistance and the daily middle band in the same area. At the time of writing though we are under triangle support again and the IHS setup has been lost. We could still form a double bottom at the low though. SPX 15min chart:

There has been some real technical weakness shown in recent days, but probably the biggest problem for bulls is that strong rising megaphone resistance from the 2011 low is just over 2100 and not rising particularly fast. . I've been mentioning that every time that we have approached it over the last few months and we've been seeing hard fails every time. If we were to make a low here then we could be jammed up against it again in just a few days. At the minimum SPX needs to test megaphone support to make some headroom for the next move up. That megaphone support is currently in the mid 1800s.

The Bottom Line

When I was presenting my mixed picture yesterday morning I wasn't really considering the possibility that both my bull and bear scenarios would then play out in sequence, but that's what happened with the bull scenario playing out and failing at the declining resistance trendline from the all time high, and then a hard rejection and break below the previous day's low. This was in effect an attempt to recover over both rising wedge support and the daily middle band and that attempt was crushed, again. SPX daily chart:

The wild action has continued overnight with a move to 1996.25 ES, then a 23 handle rally to 2019.5, and then a 34 handle plunge to the globex low at 1985.25. ES is rallying from there at the time of writing.

So where does that leave SPX today? Well obviously the bulls are having very serious performance issues and the fail at declining resistance yesterday gives two obvious trendline targets for the current move. The first is possible triangle support, and I have that in the 2000 SPX area. If that fails then the obvious target would be falling channel support, currently in the 1972 area at the retest of the December low. SPX 60min chart:

That 1972.56 low is also of course double-top support and on a sustained break below that the double top target would be in the 1851.50 area. That's a decent match with a test of rising megaphone support from the 2011 low and that is unfinished business, so I wouldn't be at all surprised to see the 1972 level break on a retest. SPX weekly chart:

We have actually seen much of a decline yet, but this tape is in full bear mode, with lower highs and lows, and powerful rallies which then fail hard. All rallies are sells until we see a break over declining resistance from the high and one of these breaks to the downside may accelerate into a decline comparable with the decline in October.

Mixed Signals and Oil Break

The bulls had a very bad day yesterday, and on the daily chart there was a conviction break below the 50 DMA and the middle band, as well as breaks of lesser support at the 100 DMA and already broken rising wedge support. Generally speaking after a break of this kind I'd be looking for a touch of the daily lower band before another break back over the middle band, and if we are to see that then that is currently at 1975, just above the December low (and double top support) at 1972. SPX daily chart:

Also lost was support at the 50 hour MA. That's now at 2036 and I'll be looking for some resistance there this morning. There may be a falling channel now from the all time high and I'll be keeping an eye on that. SPX 60min chart:

On the 15min chart, by contrast, I'm showing the also not unimpressive short term bull case here. The pattern from the last high is a nice looking falling megaphone, and a short term double bottom has formed that would target the 2049 area on a break over 2036. I have declining resistance from the all time highs now in the 2050-5 area and if that were to break up I'd be looking for a retest of the highs. SPX 15min chart:

Oil finally hit my main support trendline from the 1998 low yesterday, and broke it with some conviction. We may well see a bounce into the 46s today after yesterdays's epic 7% decline on CL, but I'd be looking lower after that. WTIC weekly chart:

The signals on SPX here should clarify in the first hour today. If we see SPX break back over 2040 then I'd be looking for 2050 and a possible retest of the highs. A hard fail in the 2035-40 area should deliver a move to 2000 and possibly considerably lower.

Seriously Whippy

A surprisingly bearish day on Friday and I've been reading a lot of bearish commentary over the weekend. I'm not convinced, even though the close on Friday was certainly weak. The main points I took away from Friday's close were as follow:

1. The high to low during the day was almost exactly a 38.2% fib retrace of the move up from 1992
2. The close was one point below the daily middle band
3. The close was on the 50 day MA
4. The close was three points above the 50 hour MA
5. The close was fifteen points above the 5 day MA

None of these look inherently bearish and while the bears may follow through and do some real technical damage today, I don't think they managed to do much damage on Friday. SPX daily chart:

If the bears can take out the big support cluster for the close on Friday, they can do some significant technical damage by closing today well below the daily middle band (now at 2046) but the main target below has to be the open breakaway gap at 2025.90. As long as that gap remains open that was a very bullish break that strongly suggests a retest of the highs. Until that gap is filled I will be working on the assumption that at SPX should get to at least the 2070-80 area before the next significant decline begins. SPX 60min chart:

I'm still looking for a possible low area on EURUSD to be a base for a strong bounce and I have a possible trendline candidate in the 117 area that is supported by similar trendlines on GBPUSD and AUDUSD. EURUSD has been a real falling knife however and with the Greek election on 25th January the geopolitical winds may be rough. EURUSD daily chart:

ES rallied up to 2048 overnight, having put in a higher low and then a higher high to do so. That gives the bulls an edge going into today. The daily stats are neutral until Wednesday. If we see a break over Friday afternoon's high at 2053.38 I'll be looking for at least a retest of the Friday morning high at 2064.42. 

So Now What?

SPX did an impressive breakaway gap up yesterday and almost made it to my IHS target at 2067. I have further targets in the 2084-6 area from the falling megaphone that broke up on Wednesday and the rising wedge from the low. SPX 15min chart:

On the 60min chart the obvious next move is to retest the high and if we see a failure there that would set up a double top targeting the 1880-90 area. Depending on the time taken to reach that target that might be a good fit with a hit of rising megaphone support on the main pattern from the 2011 low.

Alternatively what we could see is a break up over rising wedge resistance, now in the 2100 area. If that break was sustained then that would open up a rising wedge target in the 2380 area. I'm very doubtful about seeing that, but I'm bearing the possibility in mind. SPX 60min chart:

The reason that I'm very doubtful about seeing that break up is that there is very strong resistance in the 2120 area (rising fairly slowly). That is on a rising megaphone that has formed over the last three years during which time SPX has almost doubled. It would be rare to see this kind of longer term pattern break up rather than break down and retrace, and I can't see any obvious reason why it would. Is it possible that this resistance might break? Anything is possible so yes, but I'll be assuming it will hold until there is clear evidence to the contrary. SPX weekly chart:

I'm expecting to see the IHS target at 2067 made today, and SPX could make a run at the higher 2084-6 targets. Before we see those higher targets though I'd be wondering about retests of the 50 hour MA, now at 2048, and the daily middle band at 2045. Those should be strong support now.

If this move is destined to just be a retest of the highs or marginal new high then I'll be looking for a clear rising wedge or megaphone to be established in the next day or two to signal that, and I'm already considering options for those.

Likely Breakaway Gap over Resistance

This has been a strange week, particularly yesterday, but direction should become clear this morning, and unless the bears can dominate the first hour enough to fill the (currently +17) opening gap, then that direction is likely to be up to pattern targets starting in the 2067 area.

The situation here is unusually complex, but I'll break it down into the component parts to explain it. The bigger picture is of course the rising wedge from the 1820 low that broke down on Tuesday. Now the first thing I look for when a wedge like this breaks support is a topping pattern, generally either a double top or an H&S. I wasn't looking for one here because there is already a very decent quality double top formed here, but it seems that we may well be about to retest the highs in order to form another (smaller) double top here as well, or (less likely in my view but worth bearing in mind) to break up from this rising wedge with a target somewhere in the (cough) 2350 - 2400 area. SPX 60min chart

The bull setup here, as posted by me on twitter yesterday afternoon, is that a falling megaphone from 2086 has formed and broken up. An IHS has also formed which would target the 2067 area on a sustained break over 2028. At the time of writing ES is suggesting an open in the 2042 area so that would be a big breakaway gap over IHS neckline resistance, which as long as that gap is not filled, is the most bullish way in my view to break over a strong resistance level. SPX 5min chart:

However unusually there is also a very decent bear setup here, and I posted that on twitter a bit later on yesterday afternoon when the rising wedge from Tuesday's low broke down. The break spent the rest of the afternoon retesting, and if we were to see a fast fill of the opening gap, ideally from an open in the 2027-2035 area, this break would then be backed up by a decent double top looking for the 2010 area on a break under the 2020 area. If that were to happen then the break up on the megaphone might have been a bearish overthrow, and the pattern setup would start to look very bearish indeed. SPX 1min chart:

I'm not expecting that though, and I'd add that in the event of a break up here, then that break down from the rising wedge yesterday would be a bullish underthrow, and on a subsequent break over wedge resistance, now in the 2040 area, then that would target a retest of the current all time highs.

I'd call the odds as 75/25 in the bulls' favor this morning, and that would be higher for the bulls if this hadn't been such a strange week. If the overnight gap up holds then we may well see a trend up day and I wouldn't be that surprised to see the IHS target at 2067 SPX made today. In the less likely event that the gap fills and SPX breaks down then there is a very good chance that we would see a trend down day instead and might well then test or break Tuesday's low. I would say here that short positions are extremely high risk here unless the opening gap fills, and that long positions would become extremely high risk if that gap did fill. Anyone who isn't an adrenalin junkie might want to wait until after the first hour of trading to trade this, by which time I would expect direction to be clearer.