Another Day, Another Inflection Point

I was saying yesterday that I was expecting the decision in yesterday's inflection point to be made fairly quickly and so it was. The smaller NDX H&S pattern I showed broke down at the open this morning and has now made target.

NDX 5min chart:

That has completed the larger H&S pattern on the hourly and daily charts and that has broken down slightly with a target in the 13840 area. The important rising support trendline from the March 2020 low has broken this morning so the way to that H&S target is now open although ........

........ as my longer term readers will know every time one of these H&S or double tops breaks down there is a new inflection point where the market can reject back into the previous high. The marker on an H&S is at the right shoulder high, so a break back over 15345.90 at this stage would trigger a high probability target at a retest of the all time high. Something to be aware of.

NDX 60min chart:

On SPX the next obvious trendline support is at possible falling wedge support, currently in the 4285 area. A break below opens the possible H&S neckline target in the 4250 area, which would be my preferred target area for this move.

SPX 60min chart:

On the SPX daily chart possible support at the daily middle band at 4345 is being tested at the time of writing and I would note that the daily 3sd lower band is currently at 4297 which tends to be a strong support level and may mean that the 4250 area is hard to reach before next week. If we see a punch below it into the ideal target area, then then would normally be followed by at least a strong rally.

SPX daily chart:

On the SPX bigger picture today has seen the weekly middle band, currently at 4361, tested for a second week, making this the second time that has been seen since the March 2020 low, with the other instance being in October 2020 just before a serious low. That is possible support, and adds to the NDX H&S inflection point here.

SPX weekly chart:

There is a possible inflection point here but it will likely break. The next big inflection point on SPX looks likely to be in the 4230-50 area. If that target is reached this week we would likely see at least a big rally start there. If that larger H&S on SPX is forming, then the ideal right shoulder high would be in the 4470 area, which therefore may be tested again in the not too distant future.

An hour after the close on Thursday we are holding our monthly free public webinar on on the big five and key sectors at theartofchart.net and will looking at the usual six big tech stocks and eleven sector ETFs, many of which are looking particularly interesting here. If you'd like to attend you can register for that here, or on our September Free Webinars page.

There is another thing I forgot to mention in my post yesterday, and that is that every few months we run a Trader's Boot Camp trading course at theartofchart.net, and the next one is starting next week. In my view this both one of the best and cheapest online trading courses available anywhere and if you're interested you can look at that here.

Nasdaq Setting Direction Here

I haven't written a post since 1st September as I've been immersed in divorce paperwork again. That should all be finished within a few days, and that should be the last serious work that needs to be done in my quest to be single again, which will be a relief. This should therefore be the last long gap in my posts.

In my last post I was talking about the likely retracement to the mean move that I was expecting to see soon, and we have seen that move. The level I am using for that, the 45dma, is currently at 4462 and SPX is backtesting that from below at the moment, having delivered one of the only four retracements in the last eighteen months to deliver a retracement significantly below that.

Is there more coming and could this be the first really significant retracement since the March 2020 low? Maybe, but bears will need to jump through a few more hoops to really open the downside. There is a decent possibility here though that what we have seen in the last three weeks may be the start of a larger retracement that could deliver a move back to the 3800 area that I was looking at in my post on Friday 6th August.

In the short term SPX has rallied back to test the daily middle band as resistance and there is a decision to make there. A break and conversion to support of the daily middle band, currently at 4469, opens a retest of the all time high. A break and conversion of 4400 to resistance opens a possible next leg down into the next big support level at the July low and possible H&S neckline in the 4233 area.

SPX daily chart:

It has been a while since I've mentioned the SPX 5DMA Three Day Rule, and that is because retracements in the last eighteen months have been infrequent and muted, but SPX broke back over the 5DMA on Thursday and today is the third and last day on the rule. A clear close back below the 5DMA (currently 4421) by the close today signals a very high probability that the current retracement low at 4305.91 would then be retested soon afterwards.

SPX daily 5DMA chart:

I would say though that one reason that this retracement looks so promising to deliver the first decent retracement since March 2020 is that NDX has, after a slow start, been leading the way down. On the hourly chart below you can see that NDX may be making a right shoulder on a large H&S pattern. A break down below the neckline could therefore trigger a much larger retracement than we have seen so far.

I would note though that the retracement low was a high quality test of rising support on NDX from the March 2020 low. If that support holds then the obvious next target on NDX would be that rising wedge resistance, currently in the 15,950 area.

NDX 60min chart:

Looking at the structure of the rally on NDX from the current retracement low, there is a second, smaller possible H&S forming that may also currently be forming a right shoulder. A sustained break below the H&S neckline in the 15215 area would look for a retest of the current retracement low, which would in turn complete the larger H&S pattern and test the neckline on it.

NDX 5min chart:

The big H&S forming on NDX isn't the only one though. There is another forming on the Dow Industrials supporting it, and until we see a sustained break back over the daily middle band on SPX I will be taking both of these patterns seriously.

INDU 60min chart:

As I was saying in my last post, the ideal time period for that larger retracement is into the end of October . That is only five weeks ago now, so if equity indices are heading lower, I would expect that to start soon.

An hour after the close on Thursday we are holding our monthly free public webinar on on the big five and key sectors at theartofchart.net and will looking at the usual six big tech stocks and eleven sector ETFs, many of which are looking particularly interesting here. If you'd like to attend you can register for that here, or on our September Free Webinars page.

Rising Wedges And Mean Reversions

I was looking at the tests of the main resistance trendlines on SPX and ES on Monday, and at the possibility that SPX might turn down there. Instead it broke through, dragged upward by tech stocks, and the very nice daily RSI 5 divergence on both SPX and NDX was lost.

On both SPX and ES, price is now slightly above the main resistance trendlines in what may be a bearish overthrow.

SPX daily chart:

In the short term there is now a very clear rising wedge from the mid-August low at 4367. The rising wedge support trendline was confirmed with a perfect third touch at the intraday low on SPX yesterday, and I posted it shortly after that on the private twitter feed at theartofchart.net shortly after that, with the observation that unless that wedge support trendline broke, I was looking for at least a retest of the all time high, with the intraday high today just short of that so far.

If SPX continues upwards then that wedge resistance is now in the 4560-5 area. If SPX breaks the wedge after a marginal new all time high then decent negative divergence will have been re-established on the hourly RSI 14.

SPX 60min 2Mo chart:

Is there a a decent case for getting as high as the 4560-70 area on this move? Well there is an argument that there is another target trendline up there. Breaking down the move from the low on SPX in March 2020 into the three obvious waves, the third one started in September 2020 at the second wave triangle low at 3209.45, with the current support trendline starting from the early November low at 3233.94.

From that low there is a decent looking possible rising wedge as well, and the most obvious resistance trendline for that wedge is currently in the 4570 area.

SPX 60min 13Mo chart:

I was looking at mean reversions on SPX a year ago, and was noting that the usual levels reached above the 45dma before a reversion back to it historically tended to be in the 3% to 4% area, but had expanded after the March 2020 low as high as the 8% to 9% area.

Since the September 2020 high that has reverted back to normal and of the six retracements back to the 45dma this year, all were in the 3% to 4.25% range above the 45dma at the preceding high. At the current all time high that would be towards the bottom end of that range in the 3.1% area. If we see a move to the 4570 area that would be close to 4%, still in that range. The 45dma is now in the 4410 area, effectively at rising wedge support from the November low, making that the key level that has to be broken and held to open a larger retracement.

I've drawn a draft elliot wave structure in patterns on the chart below. The first wave was a rising wedge from 2191.86 to 3588.11. The second wave was a clear triangle and the third wave is a likely rising wedge from 3209.46 to 4537 so far. All decent patterns and suggesting that we may need to see a fourth wave (non-triangle as wave 2 was a triangle) retracement soon, and then a wave 5 up before we see the strong retracement that might deliver the 3800 area backtest I've been looking at. We'll see.

SPX daily vs 45dma chart:

Right now there is a case for a reversal from a full retest of the SPX all time high, not quite hit so far today, as there would then be a decent possible small double top setup and possible hourly RSI 14 sell signals brewing on both SPX and NDX. If not, then we may see a move directly up to the double trendline target in the 4570 area later this week.

The free public webinar scheduled for last Thursday had to be delayed a week and is now scheduled for an hour after the close tomorrow on Thursday 2nd September at theartofchart.net and will looking at the usual six big tech stocks and eleven sector ETFs, many of which are looking particularly interesting here. If you'd like to attend you can register for that here, or on our August Free Webinars page.