Hitting Wedge Resistance

I was saying in my last post on Friday afternoon that the low made that day looked nice, with touches of the daily middle band and shorter term (from Nov low) rising wedge support on SPX. I was leaning towards seeing a retest of the all time high, which we have seen and more.

Now the rising wedge support touch on Friday was confirmation that the obvious rising wedge resistance trendline was the obvious target on a break up to a higher high with any confidence, and that was tested in the last hour yesterday, and then retested at the high this morning. That second retest held the resistance trendline again and SPX reversed on a high quality 15min RSI 14 sell signal:

SPX 15min chart:

Is anything missing from a topping setup here that I would like to see? Yes, as I would like to see clear negative divergence on the hourly RSI 14 . That can be done with a retest of the a new all time high established on SPX today and at the time of writing it looks as though that may happen in the next few minutes.

If we see the reversal here the first obvious target would be this rising wedge support, now in the 3785-90 area. On a break below, main rising wedge support is now in the 3590 area.

SPX 60min chart:

The biggest support level here is the daily middle band, now in the 3765 area, and there has not been a daily close below that since early November. If we are to see a mean reversion to the 45dma, now at 3696, or main rising wedge support in the 3590 area, the we need to see a daily close below the daily middle band as the first step, and then conversion of that level into resistance. A weak daily RSI 14 sell signal is now brewing.

SPX daily chart:

We are have started the year's first Trader Boot Camp at theartofchart.net on 18th January and this is extremely competitively priced and covers a lot of territory. It isn't too late to join and if you are interested then you can read more about that here.

Stan and I are doing our monthly free webinar on the Big 5 & key sectors tonight an hour after the close today and if you are interested in seeing that you can register for that here, or from our January Free Webinars page.

Stan and I were doing a free webinar an hour after the close last Friday at theartofchart.net looking at interesting trades on commodities using (mainly) options strategies, but that had to be delayed a week as Stan's wife fell and broke a bone so if you'd like to attend that an hour after the close tomorrow then you can register for that here.

On SPX this is really a very nice setup for reversal as soon as we see the all time high retest. Pretty decent even without that. Could price just bulldoze higher anyway? Sure, any setup can fail, however nice, but I'm looking for at least a decent retracement here back into wedge support now in the 3785-90 area. We'll see if we get that.

Support Test and Inflection Point

The research I am doing on the 45dma over the last 25 years is a bigger job than I expected so I should have the post out on that next week.

In the short term though, equity indices have been looking pretty interesting and and are at a significant short term inflection point here. The first part of that is that the daily middle band was tested on SPX at the current low today, and that is the key short term support level. There have been a couple of breaks below that in the last few weeks but there has been no daily close below it since SPX broke back over it in early November. If seen, a clear daily close below it would be a significant technical break. Without that break, a retest of the current all time high would be the obvious next target.

SPX daily chart:

If we were to see a break below the daily middle band then the obvious next target would be the mean reversion to the 45dma, currently at 3684. That is a significant level for other reasons that I will be coming to further down.

SPX daily 45dma chart:

On the SPX hourly chart we are seeing a test of short term rising support, which I'll be looking at in more detail on the 15min chart below, and a break below would open a possible test of rising wedge support from the March low, currently in the 3570 area, and that would be the obvious next target on a break and conversion of the 45dma to resistance.

SPX 60min chart:

The SPX 15min chart shows the short term pattern setup here very well. You can see that the low today delivered a perfect test of the smaller rising wedge support from the early November low. You can also see that there is a part formed H&S that on a sustained break below 3750 would look for the 3670 area, not far below the 45dma level. If SPX continues back up here then an obvious target would be wedge resistance, now in the 3845 area.

Shoutout to my friend Suz Buckles who spotted the part formed H&S. Many trained eyes make light work. :-)

SPX 15min chart:

Looking at the NDX 15min chart there is a strong pointer towards a break up from this inflection point as while that wedge from the early November low has broken down, the pattern from the current high is a very well formed bull flag falling wedge, so I think the short term odds favor a break up into all time high retests.

NDX 15min chart:

If we do see that break up into all time high retests, what then?

Well there's a very interesting analog that I spotted on the SPX 1min chart on Wednesday and have been following since. I was noting on my premarket video at theartofchart.net yesterday morning that the rising wedge there was very similar in form to the rising wedge from the March low, and that patterns on every timeframe are the same, just obviously playing out a lot faster on shorter timeframes. I also noted that the wedge had overthrown so in exactly the same way as the hourly wedge, with a break over wedge resistance, a backtest of broken wedge resistance and then a lower high, and wondered if we might see the same on SPX on the larger wedge yesterday, which we did.

The 1min wedge then broke wedge support, retested the high, formed an H&S, made the H&S target and retraced the full rising wedge and more. That may or may not happen on the larger wedge but this is a good example of how a decent quality rising wedge behaves, with the proviso that these deliver fibonacci retracements in the 38.2% to 61.8% range when these form as continuation rather than termination patterns, and it is not yet clear which of those the larger rising wedge from the March low is, though it is very likely to be either one or the other.

SPX 1min chart:

The jobs and retail data this week was grim, which was not unexpected, and Joe Biden announced his intention to add $1.9 trillion of stimulus after his inauguration, which didn't have any significant impact on SPX, which was both unexpected and very interesting. Perhaps the flood of liquidity and stimulus is no longer having the impact that it has been having to date. If so, we could finally be topping out for at least a decent retracement here, which is certainly what the pattern setup is strongly suggesting.

In the short term though, on this pattern setup I'd give 60% odds of a retest of the all time highs from this inflection point on SPX and NDX. If we see a break down instead then the obvious main target below would be in the 3570-3600 area. If seen we might well still see a retest of the all time high from there as part of a larger topping process.

We are running our next Trader Boot Camp at theartofchart.net starting 18th January and this is extremely competitively priced and covers a lot of territory. If you're interested you can read more about that here.

Stan and I did two public webinars at the end of December looking at prospects across a wide range of markets and you can see both of those posted on our December Free Webinars page. We also did our free monthly Chart Chart on Sunday and if you would like to see that, it is posted on our January Free Webinars page.

Stan and I are doing a free webinar tonight at theartofchart.net and that is looking at interesting trades on commodities using (mainly) options strategies. If you'd like to attend you can register for that here, or on our January Free Webinars page, where it is listed for 5pm EDT yesterday, as we had to delay the webinar a day due to a conflict.

A Strong Start to 2021

 My daughter went back to university on Saturday and that was the end of the holidays for me. They were the most relaxing for me in years which was nice, but all good things come to an end.

The UK is back on full lockdown until at least March due to the new COVID variant and that may last into the middle of the year. This new variant is much more transmissible it seems and many UK hospitals are close to being closed to new admissions, so the impact on health infrastructure is considerably greater than it was in the first wave of infections. This is the second wave. There are some cases of this new variant in the US but hopefully it won't become widespread.

There were three waves in the 1918 pandemic, but with luck the new vaccines will allow us to skip wave three. It will of course take several months to a year to vaccinate everyone who wants a vaccination though. On to the markets.

On the SPX monthly chart there is now a clear monthly upper band ride and the monthly upper band is now rising strongly. The SPX monthly upper band is now at 3781 and could reach 3800 by the end of the month if SPX keeps rising.

SPX monthly chart:

On the daily chart the RSI 5 sell signal hasn't quite failed, but at this stage I'd like to see a secondary divergence set up. That would require a retest of last Friday's high which seems likely, as the current short term setup on SPX looks like a bull flag forming.

SPX daily chart:

No current negative divergence on the SPX hourly chart and the high last week was a sufficiently large overthrow of the rising wedge resistance from the March low that I am weighing the possibility of a break up as significant, but still unlikely. The rising wedge on Dow from the March low looks similar.

I've been doing some work looking at possible targets if SPX does break up and we see a spike comparable to the highs in June and early November and I'll be looking at that in my next post. In the meantime though I'd note that in that event, the likely target area would be 4000-4100.

SPX 60min chart:

NDX led the move up into the June high, but has lagged since. I don't have an overall pattern from the March low, but I have a high quality rising wedge from the November low that has overthrown slightly.

NDX 60min chart:

In the short term on SPX the high on Friday made the second high on a decent double top. That double top broke down at the lows today so we have the usual inflection point where price can either head down towards the double top target in the 3740-3 area, or reject back up into Friday's high. I'm leaning towards the rejection back into the all time high retest option and, if seen, will be looking for weakness there.

SPX 5min chart:

We are running our next Trader Boot Camp at theartofchart.net starting 18th January and this is extremely competitively priced and covers a lot of territory. If you're interested you can read more about that here.

Stan and I did two public webinars at the end of December looking at prospects across a wide range of markets and you can see both of those posted on our December Free Webinars page. We also did our free monthly Chart Chart on Sunday and if you would like to see that, it is posted on our January Free Webinars page.

Planning to do my next post tomorrow or Thursday and in that post I'll be looking at extreme upside targets on SPX if price breaks up from what remains the obvious topping area here. Until then :-)