Testing Main Resistance

When I started to write about the prospects for a decent rally on the 17th and 22nd June I was somewhat apologetic about even suggesting that a rally might be possible, as the background looked so grim and people were so relentlessly bearish. I was looking for strong rallies on the US equity indices and on bonds and we have been seeing both since.

I think both may go a lot further, but SPX is now testing main downtrend resistance at the weekly middle band, with the other US indices close to important established resistance and possible IHS necklines, and there is a good chance that US equity indices may turn back down here either to form right shoulders on a series of large IHS patterns, or possibly to retest the 2022 lows, very possibly on SPX to make the second low of a double top setting up an attempt to retest the all time highs.

On the weekly chart, the close last week was slightly over the weekly middle band, now at 4098, but the close above wasn't clear, so I'm taking that as a close at resistance. A clear break above at the close this week, if seen, would look more significant.

SPX weekly chart:

It has been a while since I talked about the SPX 45dma, which I use for reversion to the mean calculations, as it is much less important in downtrends, but this move up from the low has been strong enough that SPX has broken back over the 45dma, now at 3924, converted it to support on retracement after the break, and was 5.63% above it at the high intraday yesterday.

In an extended uptrend that level would be eye-wateringly high, with the three highest levels apart from the move up from the 2020 low at 5.4% in 2018, 5.54% in 2021, and 5.2% in the last big rally in 2022. Could it go higher? Well I have two readings of over 8% in the months after the 2020 low, but this is very much an area to be looking for a possible strong reversal back down.

SPX daily 45dma chart:

In the short term all four of SPX, NDX, IWM and Dow are close to big established resistance levels that are also possible IHS necklines, and all of them have short term pattern setups that look promising for reversal here.

On NDX there is a very possible bear flag setup from the 2022 low, and NDX is testing double trendline resistance there, and that possible IHS neckline area. If we should see a right shoulder retracement here then ideally that would head back into the 11492 area.

NDX 15min chart:

There's no obvious overall bear flag setup on IWM as there also isn't an obvious overall bear flag setup on SPX either, but there is a decent shorter term rising wedge, IWM is at the possible IHS neckline and if we see a right shoulder retracement the ideal target would be in the 168.46 area.

IWM 15min chart:

There is a decent quality overall bear flag setup on Dow, which is close to a possible IHS neckline and is testing possible double resistance trendlines. If a right shoulder forms there the ideal right shoulder low would be in the 30.6k area. 

INDU 15min chart:

The historical stats are neutral leaning slightly bullish until mid August, but I'm actively looking for at least short term highs here or slightly higher. Those highs could deliver retests of the 2022 lows. Ideally we would see at least retests of the current rally highs today or tomorrow to set up divergence on the hourly RSIs.

I was saying back in June that a difficulty for bulls here was the grim economic backdrop and that remains the case. I have doubts as to whether the bull flag setups that have formed on the US indices so far in 2022 can make target in this environment but I've seen a lot of crazy things happen on the markets over the last twenty years, and predicted at least some of those. Retests of the all time highs remain on the table as a possibility here, and the prospects for seeing those from a TA perspective have only improved over the last few weeks.

We are doing our monthly free public Chart Chat at theartofchart.net at 4pm EDT next Sunday 7th August. If you'd like to attend you can register for that here or on our August Free Webinars page. It should be interesting. Be there or be unaware! :-)

I'll try to get another post out on Thursday or Friday but I'm waist deep in divorce paperwork and that may not be possible.