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.