Testing Double Top Support

Interesting setup on SPX here as the holiday week begins. SPX is now testing the larger double top support that I was looking at last week and has broken slightly below double top support at the open. From here there are only two high probability options.

The first option is that SPX continues down towards the double top target in the 2661.50 area. A sustained break below 2690 from here likely seals that for the bears. The second option here is that the double top fails and rejects at the break. That's what I would call a Janus bull flag setup, and the target would be a full retest of the May high at 2742.24. A strong break back over weekly pivot on SPX at 2723.65 likely seals this for the bulls, though by that stage SPX would be most of the way back to 2742.24 of course. As a general rule I'd expect to see one or the other target reached this week.

Full Premarket Video from theartofchart.net - Update on ES, NQ and TF, and CL, NG, GC, HG, ZB, KC, SB, CC, ZW, DX, EURUSD, GBPUSD, AUDUSD, NZDUSD, USDJPY, USDCAD:

In the video I mention that the downside scenario is supported by the ascending triangle on ES having clearly broken down, though these aren't great at making targets, and that there are still open 60min RSI 14 sell signals on SPX, NDX and RUT. I have been assuming that these would make target after a test of 2760-70 on SPX, but they could do that now instead of course.

Overall the pattern and RSI structure here favors the bears at this inflection point, and the EW structure favors the bulls. May the best structure win! :-)

SPX 60min chart:

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Still Minding The Gap

SPX is still testing the open island top gap from the March rally high, and that has been solid resistance so far. My lean is that SPX will likely break up through that within a day or two, but there is now a clear alternate downside scenario shown on the SPX hourly chart below. Partial Premarket Video from theartofchart.net - Update on ES, NQ and TF:

The downside scenario here is a possible nested double top setup. A possible hourly RSI 5 sell signal is brewing and will fix on any significant further downside. In terms of the pattern setup the first serious support is rising channel support now in the 2726 area. As it happens the smaller possible double top support is also at 2726, and on a break below the first double top target would be in the 2710 area. That is a decent match with possible trendline support on ES is the 2712 area. The larger double top support is at 2701.9, and a sustained break below would look for 2661.5.

On the downside scenario, with ES and SPX trading at roughly the same level at the moment, support on the way is at the weekly pivot at 2718.9, and the daily middle band, now in the 2688/9 area. SPX 60min chart:

Mind The (Island Top) Gap

I was concerned on Thursday that SPX would fail to do the obvious second leg down on the likely overall bull flag forming here, and in all likelihood SPX has now broken up from that bull flag. Confirmation that SPX is going up directly comes on a fill of the open island top gap from the mid-March high at 2752.01.

I'm leaning against another leg down here but if the bears are going to have (yet) another try at that, then first support is at the ES weekly pivot 2718.25 (same area on SPX), then a break of rising support from the mid-May low, now in the 2712 ES area.

I uploaded the full premarket video this morning by mistake, so this is going to be the full version that I post this week, as I try to only post one of those each week. Full Premarket Video from theartofchart.net - Update on ES, NQ and TF, and CL, NG, GC, HG, ZB, KC, SB, CC, ZW, DX, EURUSD, GBPUSD, AUDUSD, NZDUSD, USDJPY, USDCAD:

One thing I look for in a situation like this, when a break up or down is happening earlier than expected, is whether a high quality pattern might be forming, and indeed a high quality rising channel has now been established from the 2594 low. Channel support is now in the 2714/5 area, and if that holds then I'd note that channel resistance is now in the 2790 area. SPX 60min chart:

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The Ghost of 2017

What is likely happening here is that SPX is doing an ABC retracement while forming a bull flag to go higher. Wave A was the first leg down and wave B was likely the rally into the lower high that we have seen so far. What we should see next is the C leg down below the wave A low, possibly extending as low as the daily middle band in the 2679 area, before the next leg up on SPX.

However last year that's not the way this worked. The uptrend was so strong that every time the moment came for a second leg down, SPX broke up instead. That was the 2017 playbook and I'm not expecting to see that here, but it's on my mind as a possibility.

Full Intraday Video from theartofchart.net - Update on ES, NQ and TF, and CL, NG, GC, HG, ZB, KC, SB, CC, ZW, DX, EURUSD, GBPUSD, AUDUSD, NZDUSD, USDJPY, USDCAD:

I've drawn in a possible flag channel, though obviously flags can also be wedges, megaphones or triangles. If this was to be a channel then SPX would likely find support at the retest of broken triangle resistance in the 2692 area. SPX 60min chart:

An hour after the close tonight Stan and I, and another friend of ours Matt, are presenting a webinar looking at strategies we have been trading on options based on the many futures that we analyse. This is part of a new service, Paragon Options, that we will be launching at the end of June looking for similar returns to the 200% or so per year achieved on our free Weekly Call portfolio so far, using complex strategies and tight risk management. If you are interesting in attending that webinar then you can register for that on our May Free Webinars page. If you'd like to watch the recording afterwards then that will be posted on the same page shortly tonight or tomorrow.

The Backtest Before The Retest

On SPX the retracement we have been expecting is in progress and, since I recorded the premarket video below, is now testing the first main target area at the ES weekly pivot at 2704/5. There is decent support here, but I was noting on the video that there are some decent looking hourly RSI 14 sell signals that have fixed on SPX, NDX and RUT that are suggesting a break lower, and as of now, none of those sell signals are close to even the possible near miss (RSI) targets. Partial Premarket Video from theartofchart.net - Update on ES, NQ and TF:

If SPX does go lower here, then the obvious next big target would be the daily middle band, currently in the 2676 area, and a possible match tomorrow for the 38.2% fib retracement of the rising wedge up from the early May low at 2685. That would be an ideal low for this move.

Wherever this low bottoms out, we are thinking that the next move up from this low may spike up to retest the SPX all time high over the next three to four weeks, so we are expecting this to be an important low to find for a very nice long trade. SPX 60min chart:

A couple of announcements today. We did our monthly public Chart Chat on Sunday and if you missed that you can see the recording on our May Free Webinars page. We are doing a free webinar on Thursday after the close looking at our new directional Paragon Options service trading options on futures, and if you'd like to attend you can register for that on the same page. We finished our first Academy Trader Boot Camp course last Friday and the feedback was very positive. If you'd like to see some of that then scroll down to the bottom of our Testimonials page to find those. We're planning to do these regularly and the next one starts next week so if you'd like a very reasonably priced and high quality four week course on TA, risk management and trading methods, you can register for that here.

Backtesting Broken Resistance

The NQ triangle broke up last week and ES broke up from declining resistance and back over the daily middle band. The short term low is likely made and ES/SPX has been backtesting broken resistance.

There is some scope to go lower, with the obvious support levels on ES at the weekly and monthly pivots, at 2645.5 and 2639 respectively, but these look like bull flags forming so far, and SPX has come close to a test of short term support at the 50 hour MA at 2653. That may be close enough. Partial Intraday Video from theartofchart.net - Update on ES, NQ and TF:

Not far above is declining resistance from the all time high, also triangle resistance, now in the 2710 area. A break and conversion of that to support opens the path to a possible ATH retest, but it's important to remember that has not been broken yet, and it's possible that it might not break when tested. SPX 60min chart:

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Waiting For The NQ Triangle Thrust

I was talking on yesterday morning's video about the triangle breaking down on NQ, saying that the classic triangle sequence would be for the initial break to find a low, then reverse back up into the NQ triangle, and then do the main triangle thrust down. So far NQ is following that sequence and should now be topping out on the backtest into the triangle to start the main triangle thrust down.

In the short term there is a case for ES to test a short term resistance trendline in the 2636 area before moving down towards double trendline support in the 2570-5 area, which ideally would be hit on Monday. We'll see how that goes.

On this scenario ES should not break over the monthly pivot at 2639 and the key bull/bear line is falling channel resistance now in the 2662 area. Partial Premarket Video from theartofchart.net - Update on ES, NQ and TF:

The double support hit on SPX that would ideally be hit on Monday is shown on the chart below. On the video I talk about the possible alternate scenario where that support is broken with conviction. SPX 60min chart:

Stan and I are doing our monthly free public Chart Chat on Sunday looking at the usual wide range of tickers over world equity, bond, commodity and forex markets. If you'd like to attend you can register for that on our May Free Webinars page. If you are following our new Paragon Options project then I do another post late yesterday which you can see here.

A Pivotal Moment

It is the first day of May today and ES, NQ & TF all started the day testing their new monthly pivots at 2639, 6596 and 1540 respectively. This is an important inflection point, and the historical stats for the first day of May lean bullish.

On a conviction break of these monthly pivots the next obvious target on SPX is triangle support in the 2570 area, with a possible shot at the open Three Day Rule target at the retest of the April low at 2553.

On a failure to break down with conviction through the new monthly pivots the triangle forming since the start of February may be complete. The obvious next moves would be a thrust up through triangle resistance, currently in the 2725 area, then a backtest from that high back into the triangle, and then a thrust up that at minimum retests the all time high.

The better odds move should be 2570 next, and the bears are starting the day strong so we will see how that goes. Premarket Video from theartofchart.net - Update on ES, NQ and TF:

Here is the bullish triangle shown on the SPX daily chart. SPX daily chart:

Tomorrow will be the middle of a low window on SPX and we are expecting some kind of significant low within a couple of days of that. The window for that low is therefore this week and this could be that low forming today. If not we will be looking again in the 2570 area, which we would expect to see tested this week.