Out With The Old Year, In With The New

Today is the last trading day of 2023, and is the only significantly bearish leaning day this week. Historically the stats today indicate 38.1% stats for SPX closing green, and only 28.6% green closes on NDX. That doesn't of course mean that the day will be particularly interesting, but intraday at least the last couple of days have been more interesting than I was expecting.

On the bigger picture, I was looking for a retest of the 2023 high on SPX to set possible daily RSI 14 and RSI 5 sell signals brewing, and we saw that. The high this week so far is at 4793.30, just 25 handles below the all time high, and I'm still thinking that a decent retracement looks very close, and that SPX might make a marginal new all time high before we see that retracement.

Either way we appear to be setting up for an interesting January.

SPX daily chart:

On the bigger picture, I was looking for a retest of the 2023 high on NDX to set possible daily RSI 14 and RSI 5 sell signals brewing, and we saw that too.

NDX daily chart:

On the bigger picture, I was looking for a retest of the 2023 high on Dow to set possible daily RSI 14 and RSI 5 sell signals brewing, and we saw that too.

INDU daily chart:

IWM already had possible daily RSI 14 and RSI 5 sell signals brewing, so now we have these brewing on all four of the main US indices that I watch. I was trying to remember the last time I saw this and actually I can't recall ever seeing this happen before. Regardless it is a strong indication that a sharp retracement at minimum is likely in the near future.

IWM daily chart:

The main pattern from the October low that I've been watching is the rising wedge on Dow. That had just started breaking down when I posted that on Tuesday and looks like topping action since. We could see more short term highs but another test of the wedge resistance trendline is looking unlikely.

INDU 15min chart:

I still think that  a new all time high is coming on SPX in coming weeks and months, though we may see a strong retracement first. If we are going to see that all time high retest soon then my lean would be that we would likely see that latest in the first week of January. It's possible we might see that today, but with the historical stats leaning bearish at the last day of the quarter and year I'd be surprised to see that.

What are the news points that may influence the next year? Well it is a presidential election year, and it's worth noting that of the 32 presidential election years since 1896, only six have delivered declines for the year of more than 5%. Secondly the inverted yield curve is telling us that a recession is likely on the way as and when that inversion ends, though that may arrive too late in the year to affect it much. Thirdly the inflation numbers have been flattered in recent months by falling energy prices, and there are decent odds that significant lows are forming on both oil and natural gas, so that may have the opposite effect on inflation numbers for much of 2024. That may well affect the number of interest rate reductions we see this year, though I think the odds look decent that the interest rate cycle has topped out for now.

Altogether I think the signs are good that 2024 may be an interesting year and a fun year to trade. We'll see. Everyone have a great holiday weekend and be prepared for an interesting January on the markets, as I think that looks very likely. :-)

A couple of announcements today. Stan and I did our 2024 forecasts Chart Chat at theartofchart.net on Sunday 17th December and if you would like to watch that you can see that embedded on our December Free Webinars page, or directly here. Forecasts as usual on equity indices, bonds, energies, precious metals and other commodities & one of our best I thought.

We are also running our annual end of year sale at theartofchart.net offering an additional 20% off annual memberships in addition to the 20% of we usually offer. If you are thinking of signing up for an annual subscription you can check that out here.

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

Boxing Day

I hope everyone had a great holiday. I've had an enjoyable time at home with my three (adult) children. We're not religious, but it is always a good time to see and enjoy family.

One slightly strange thing to the Brit eye about Christmas is that over here and in much of Europe the day after Christmas is a significant holiday too, always a Bank Holiday and called Boxing Day here. The odd thing is that Boxing Day doesn't exist in the US and is an immediate return to trading the day after Christmas Day. That kind of works for me though, as I enjoy my work, and the days between Christmas and New Year are a good time to prepare for what is often a very interesting January. In my view the odds favor seeing an interesting January this time.

I haven't been writing much lately. A bit of writer's block, and for a specialist in reversals the last few weeks have been fairly uninteresting. However things are starting to look very interesting now as we close out 2023, and the prospects for a volatile bi-directional start to 2024 look very promising.

Hopefully some of you did catch my warning on the social media platform formerly known as Twitter that a significant low was likely close and might start an upswing that might last the rest of the year. We've seen a number of those significant lows in Octobers over the years and that certainly delivered this time.

Twitter low warning from Oct 26th:

What I was thinking might happen from the low into the end of 2023 is something I've been mentioning every so often as a possibility since the low in 2022, from a near perfect 50% retracement of the low move up from the low in 2020. That 50% retracement might of course have been a bullish retracement setting up a new bull move into a series of new all time highs or, a retest of the all time high might instead be setting up a very large double top that might deliver a retest of the 2020 low. That is the inflection point that is now close and, one way or the other, may well dominate 2024.

On the SPX daily chart you can see that the 2023 high is just 40 handles short of the retest of the all time high at 4818.62, that a retest of the 2023 high at 4778.01 would start possible daily RSI 14 and RSI 5 sell signals brewing, and that last week there was a volume spike higher than any previously seen on the chart below, suggesting that a significant reversal may be very close.

SPX daily chart:

On my SPX daily 45dma chart below you can see that the highs last week were 6.174% above the 45dma, which is very much at a level where a mean reversion may be close. The 45dma is currently at 4483, and a 50% retracement of the move up from the October low would currently be in the 4451 area.

SPX daily 45dma chart:

The other two all time high retests that I was expecting to see in this scenario were the all time high retests on NDX and Dow, both of which have made new all time highs in the last few days. A retest of the current all time high on NDX at 16860.68 would also set possible high quality daily RSI 14 and RSI 5 sell signals brewing.

NDX daily chart:

A retest of the current all time high on Dow at 37.6k would also set possible high quality daily RSI 14 and RSI 5 sell signals brewing. I would note that both are already brewing on IWM so if the short term high retests are seen on SPX, NDX and Dow, then I should have high quality daily RSI 14 and RSI 5 sell signals on all four of the main US indices that I watch. That could certainly deliver a very interesting start to 2024.

INDU daily chart:

The best quality of the rising patterns from the October low on the US indices is on the leader for much of the move, the Dow Industrials index. The rising wedge there broke down slightly last week but may extend higher. There is a really nice resistance trendline on this wedge that I am not expecting to see broken unless there is a bearish overthrow on that as a significant high is made.

INDU 15min chart:

Do I think that  a new all time high is coming on SPX in coming weeks and months? Yes, though we may see a strong retracement first. If we are going to see that all time high retest soon then my lean would be that we would likely see that latest in the first week of January. The most bullish leaning day this week is today, leaning 71.4% bullish, so I am leaning towards seeing retests of the 2023 highs on SPX, NDX and Dow today and maybe SPX continues on from there to an all time high retest in the next few days.

Do I think a significant high is close and a strong retracement likely to start soon? Yes. Everything is lining up for that here. What happens after that strong retracement is harder to call, but on SPX, NDX and Dow particularly, this is a huge inflection point area to either be bulldozed on the way up, or failed at on the way down. What happens here likely dominates 2024 and perhaps also 2025.

Is the way forward clear for bulls with the improving inflation numbers? No. Energy prices have flattered the inflation numbers over recent months but both CL and NG are likely forming lows here. The yield curve is still inverted on bond yields and that is a strong indicator for recession when the inversion ends. It hasn't ended yet, but likely that inversion ends in 2024, and there is a strong chance of recession then. Recessions do not tend to be good for equity prices.

A couple of announcements today. Stan and I did our 2024 forecasts Chart Chat at theartofchart.net on Sunday 17th December and if you would like to watch that you can see that embedded on our December Free Webinars page, or directly here. Forecasts as usual on equity indices, bonds, energies, precious metals and other commodities & one of our best I thought.

We are also running our annual end of year sale at theartofchart.net offering an additional 20% off annual memberships in addition to the 20% of we usually offer. If you are thinking of signing up for an annual subscription you can check that out here.

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

Hitting Rising Support on SPX

I didn't really have time to fall much in love with the possible bull flag channel on SPX yesterday as it broke hard and SPX went directly to the main support level I was expecting to see tested later after a bounce. That level is rising support from the 2022 low in October which I mentioned yesterday morning as being in the 4240 area. The low yesterday was at 4238.63 and that was a solid test and reversal there. The low also established a possible alternate bull flag falling megaphone support trendline from the July high at 4606.097. So where does that leave SPX?

There is a clear choice here. Assuming we don't get yet another leg down now to break that rising support trendline, the bull scenario is that SPX has just made a swing low, heads up to break flag resistance in the 4495 area, then invalidates the H&S with a break over the right shoulder high at 4541.45, at which point the next obvious target would be main trendline resistance currently in the 4750 area, but rising steadily towards a level where a retest of the all time high at 4818.62 could be done within the channel. Channel resistance will be over the all time high by the end of November.

My main bear scenario is that we see a strong bounce here, with the obvious resistance for that bounce at a test of the weekly middle band, currently at 4397 and which needs to hold as resistance on a weekly close basis. The rally might go as high as a backtest of the daily middle band, currently at 4431 but falling fairly quickly, so by the time the weekly middle band is tested these two resistance levels may in effect be the same target in the 4400 area. After a fail at that resistance SPX breaks the channel support that held yesterday, and heads down to the H&S target and 50% retracement target both in the 4050 area.

There is a mountain of 15min, hourly and now daily positive RSI 14 divergence supporting the rally here, and most or all of that would be played out by a rally on SPX here back into the 4400 area.

SPX 60min chart:

On the SPX daily chart below you can see the clear positive divergence (and weak RSI 5 buy signal brewing) on the SPX chart. You can also see the new bull flag pattern option and the daily middle band now at 4430.83.

SPX daily BBs chart:

On the SPX weekly chart below you can see weekly middle band resistance now at 4397.28 (and still rising gently), and I would also point out the weekly 3sd lower band, currently at 4078.54 and close to the H&S target in the 4050 area. That may well be a match with that 4050 target if that is hit, and a hit of the weekly 3sd lower band at minimum tends to signal a strong rally, though in a crash situation like 2020 it can break hard and stay below for a couple of weeks before that rally.

I would also draw your attention to the larger pattern setup here. The move down from the late 2021 high to the October 2022 low was an almost perfect 50% retracement of the move up from the 2020 low to that late 2021 high. These retracements happen a lot in most tradeable markets. That retracement formed a clear bull flag falling wedge which has broken up with a target at a retest of the all time high at 4818.62. If yesterday's support at the rising support from the 2022 low holds then that retest target at the retest of the all time high can now be hit within the rising channel from the 2022 low.  If the channel breaks and SPX reaches the 4050 H&S target then that too would be an almost perfect 50% retracement of the move up from the 2022 low at 3491.58 to the July 2023 high at 4607.07, and that is again a very natural area to find support. We'd have to see then whether there was still a viable bull flag setup from the 4607.07 high, but that 50% retracement, if held,  would have natural next targets at either a retest of the 4607.07 high, or continuation to that flag target at the retest of the all time high. We'll see.

SPX weekly chart:

The flag channel on SPX broke yesterday, and the one on Dow too, and when channels break they can evolve into alternate patterns as the one on SPX has, but the channel, once broken, stays broken.  No high quality alternate established on Dow as yet.

The survivor though was the channel on IWM, which made it through the day just fine.

IWM 60min chart:

There is also a decent bull flag option on NDX that didn't look quite cooked yesterday morning, but it looks good today. That's a high quality falling wedge flag that underthrew slightly at the low yesterday.

NDX 60min chart:

I'm showing a rare sixth chart today, and that's to show what developed on SPX in the short term yesterday. On the (possibly mistaken) assumption that yesterday's low will hold for now and the expected rally back up into the 4400 area has finally started, there is a high quality setup for another leg up today that formed on SPX yesterday. If that breaks up this morning the IHS target would be in the 4345 area, (about 4390 on ES).

SPX 1min chart:

The short term low is probably in and we should have started the rally back up into the 4400 area as the next inflection point. On the bull scenario we would then see a break back up over the SPX daily and weekly middle bands, and then an obvious path back up that I'd expect to deliver a return to the retest of the all time high. I'm assigning this a probability of 35% to 40%. On the bear scenario the rally would fail in the 4400 area and SPX would return to break the main rising support that held yesterday and head to the H&S target in the 4050 area. I'm assigning that option a probability of 60% to 65%. If that 4050 target is reached there would be another big inflection point there.

I may well be starting another model trade at the high of this rally, but I only generally do those when the setup is really nice. I'll be planning a short there regardless, depending on how this rally develops and the patterns that form and we'll see how this plays out over the next few days and weeks.

TNX broke over channel resistance yesterday and the long on bonds doesn't look cooked yet. I'm thinking that may well change over the next few weeks as SPX heads to the 4050 target, and I'll be watching it carefully. If that sets up right I'd be planning a model trade there too for what should be an impressive rally on bonds.

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

Love And Marriage

I always try and keep an open mind, as too strong a directional view on any trading instrument can result in tunnel vision, where the analyst sees mainly or only the evidence that supports that view. That is an obstacle to good analysis, and for an analyst who trades, can get very expensive. In trading terms it doesn't matter whether any market goes up or down, as long as the trader is on the right side of the market. Nothing else matters. I can therefore love a market or trading scenario, but no good analyst should ever marry one.

I was talking last week about my preferred scenario on SPX with the H&S looking for the 4050 area, delivering a 50% retracement of the move up from the 2022 low, and potentially setting up another larger move up into a retest of the all time highs on SPX (and NDX). That is not the only scenario in play here however, and the odds of my main alternate scenario happening instead rose significantly yesterday at the swing low that I think was likely made at the low yesterday afternoon, barring retests and marginal lower lows as part of the bottoming process.

I was expecting to see a rally before SPX made it this far down, but one of the patterns marked on my SPX 15min & 60min charts last week was a falling channel from the late July high at 4607.07. This channel is a possible bull flag channel and the low on SPX yesterday afternoon was a test of that channel support. If that level is this swing low, and barring retests, I think it probably was, then that improves the odds for this bull flag scenario, in which a significant low is being made here on SPX, which would then deliver a move back up to retest the 4607.07 high, potentially setting up a further move to then retest the all time high at 4818.62, where I already have a fixed target from another, larger, bull flag that formed and has broken up from that high.

In the short term I would also note that there is positive divergence almost everywhere on the US indices, which 15min RSI 14 buy signals fixed on all of SPX, NDX, IWM and Dow, and hourly RSI 14 buy signals fixed on SPX and IWM, and brewing on NDX and Dow. It is rare for this level of positive divergence to fail to produce a decent rally.

SPX 60min chart:

This move down has been so strong that it has even produced positive divergence on daily charts, with daily weak RSI 5 buy signals now brewing on the SPX, NDX and IWM charts. If we see a decent rally and then a low retest, that may evolve into full size daily RSI 5 buy signal divergence on all of the US indices, ideally making that second low within weeks at the main rising channel support trendline from the 2022 low low, currently in the 4240 area, but rising of course.

SPX daily chart:

Are there corresponding bull flag candidates on the other US indices? Yes, this one on IWM is another possible bull flag channel, and also hit that channel support at the lows yesterday afternoon.

IWM 60min chart:

There is a further possible bull flag channel on Dow, with once more that channel support being tested at the lows yesterday afternoon. As a group these three matching bull flag channel setups make a compelling case both for a strong rally short term, and that significant lows may be being made here.

There is also a bull flag candidate on NDX, though that one would be a bull flag falling wedge. Did we hit the support trendline on that yesterday? Well the trendlines there aren't as clear, as a falling channel has parallel trendlines and wedges do not, but yes, a high quality candidate flag support trendline was hit there on NDX too. That chart not shown today as I try to keep these posts to a maximum of five charts where possible.

Now all these support trendlines may break later of course, and as channels do not under or overthrow to signal a break in the other direction that would damage the bull flag scenario here very badly, but the odds of a swing low here are nonetheless high, and given all these ideal trendline hits, the overall bull flag scenario here became a lot more likely at the lows yesterday.

INDU 60min chart:

Is there anything else here that would support this bull flag scenario on indices? Yes. Bonds and equities have been moving down together given the current economic situation, and I really like the setup for at least a decent rally on bonds, and possibly a very significant low. I'll just show you the shorter term term setup on the TNX hourly chart but you can see that the high yesterday was at channel resistance on strong hourly RSI 14 negative divergence. TNX (10yr bond yields) is inverse to bonds of course, but this short term high setup on TNX is in effect a short term low setup on bonds.

I have been talking for weeks at theartofchart.net about a possible very significant low forming here on bonds and the setup for that here is very nice. If that is starting now then that too would support this bull flag scenario on US equity indices.

TNX 60min chart:

What's the takeaway here? Until the bull flag channel setups here break down I am now seeing the overall bull flag setup here as equally probable to the downside scenario I laid out last week. I'm looking for a strong rally here of at least 100 handles on SPX that may deliver 170 handles or so if a significant low is being made here. The odds or a retest of this low after this rally are decent and, if seen, that may make the second low of a large double bottom that could start a bullish move to take SPX back to the retest of the all time highs.

If seen this scenario wouldn't be as fun or profitable (for futures traders) as the more bearish H&S scenario that I laid out last week, but would still be both and interesting to trade. As with any futures trader I prefer the Vix high for the big moves that delivers, but any extended trending move has decent short term trades. They're just smaller in a bull move. We'll see how it goes but either way it should be interesting. :-)

I may be starting another model trade for this scenario, but that would probably be at the retest of this low after the rally that is likely starting here.

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

A Modest Proposal

PUBLISHED AT THEARTOFCHART.NET ON FRIDAY 22nd SEPTEMBER

On Thursday night last week I posted a public model trade on my twitter taking a short on ES at 4561.75 looking for the 4350 area. That trade was in thirds, I posted all entries and exits in real time on twitter, and I took the last two thirds at 4399 yesterday for an average gain of 142.5 handles per third. It was a nice trade, and I picked the high area using the SPX 5min chart below on an impressively sweet setup shown below. This move was only a part of the overall scenario here however.

SPX 5min chart (from 14th Sept):

On the bigger picture SPX hourly chart a decent quality H&S has been forming for a few weeks now, and I was looking for the move back to the neckline, which we saw broken slightly at the low yesterday looking for a target in the 4050 SPX area. I think this H&S may well play out to that target over the next few weeks, ideally into a mid to late October low.

There is some decent support to be broken on the way and the H&S could fail of course, but the target area is a very attractive one, almost exactly a 50% retracement of the move up from the low last year. If that target were to be reached then that might also set up a very nice long, potentially into the open bull flag target on SPX at a retest of the all time highs. This setup may therefore be setting a sequence of moves that could take SPX far into 2024.

SPX 60min chart:

The H&S on IWM broke down a little earlier and has therefore broken down harder with a target in the 164.30 area. I can see no obvious reason at the moment to think that won't make target so that is supporting the H&S on SPX, broken down slightly at the low yesterday, and NDX, which hasn't broken down yet.

IWM 60min chart:

In the shorter term the FOMC high was at the backtest of the daily middle band, now at 4456.21, and I'd expect that to hold on any rally here. There are good odds of seeing a rally, which is a fairly normal thing to see just after an H&S breaks down, backed up by a lot of short term positive divergence here and the near miss of the daily 3sd lower band at the lows yesterday.

I would note though that a very strong trend can run through divergence and that if a strong daily lower band ride is starting then SPX might just rally back to backtest the daily 2sd lower band, currently at 4354, being tested as I write this.

SPX Daily BBs charts:

The main support on the SPX weekly chart was the weekly middle band, currently at 4391, broken hard yesterday and a better target for a stronger rally here. I'd like to see SPX close at least a few handles below that today to deliver a weekly break below to start establishing that as strong resistance.

SPX Weekly BBs chart:

There were some strong 15min RSI 14 buy signals brewing on SPX, NDX, IWM and Dow at the close last night and, at the time of writing, the ones on SPX, NDX and IWM have all fixed. These would normally all make it to the targets (minimum 63-66 on the RSI 14) and are strongly supporting a rally here.

SPX 15min chart:

My modest proposal here is that we see my favorite SPX scenario play out over the next few months. We'd likely start with a rally here into one of the 4390 or 4430 areas, then a strong move down into the H&S target at 4050, ideally bottoming out in the 4000-50 area in mid to late October, then a new leg up to make the fixed bull flag target at a retest of the all time high at 4818.62. That high would be an important inflection point that would of course set up a potential double top that could then retrace the entire move up from the COVID crash low in 2020, but that's something I'd be looking at harder as a possibility if SPX makes it that far. We'll see how that goes.

I may be starting another model trade at the high of this rally, but I only generally do those when the setup is really nice. I'll be planning a short there regardless and we'll see how this plays out over the next few weeks.

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

A Festival of Flags

SPX has seen a decent retracement from the highs, the reversion to the mean target at the 45dma has been hit, and a lot of decent looking bull flags have been forming on US indices. SPX may now be close to a retracement low, and a daily RSI 5 buy signal fixed a couple of days ago. The overall setup here is strongly suggesting that the next move on SPX may be a retest of the 2023 high at 4607.07.

SPX daily chart:

On ES there are a couple of options for a bull flag here, the first is a falling wedge, with the support trendline currently in the 4437.50 area, but that doesn't need to be hit, as the next obvious target within the wedge would be wedge resistance, currently in the 4504 area. The second option is a falling channel with support currently in the 4412 area, though that channel has no direct match on SPX.

ES Sep 60min chart:

On SPX the obvious flag pattern is a falling wedge with support about five handles lower than the currently day's low in the 4420 area. On ES that would be in the 4436/7 area.

SPX 15min charts:

On NDX the obvious flag pattern is a high quality falling megaphone, with the low retest today setting up a very nice looking double bottom setup.

NDX 15min chart:

On IWM the flag setup looks like a falling wedge that is underthrowing bullishly at the moment.

IWM 15min chart:

On Dow the flag looks like a falling channel or megaphone and Dow has been the strongest index during the retracement.

INDU 15min chart:

Bigger picture I'm leaning towards a short term low in the next day or two, and then at minimum a strong rally over the rest of August that may well retest the 2023 high on SPX, Dow and perhaps also NDX and IWM. After that there may be a larger retracement into late September or early October, but after the retracements are done, on the even bigger picture I have open bull flag targets at retests of the all time highs on SPX and NDX, and I'd be looking for a move into those targets.

We did our monthly free public Chart Chat at theartofchart.net at 4pm EDT on Sunday 13th August. If you missed that you can see the recording here, or on our August Free Webinars page.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

So What Next?

Pretty much everything I have written about in my last few posts on SPX delivered. The bull flag wedge from the high broke up. The IHS that then formed broke up and made target, and the bull flag made the target with a retest of the June high.

So what now? Well I was saying that I was expecting a retest of the high to form a topping pattern setting up a larger move down in a reversion to the mean move. The level I use as the mean is the 45dma and that is now at 4287. The last two such moves broke down through it and, if so, I would be wondering about a possible target at the main rising support trendline from last year's low, currently in the 4090 area.

SPX daily 45dma chart:

NDX delivered too. The small H&S that broke down and then failed set up a target at a retest of the June high there, and that target was reached yesterday. That means that, as with SPX, there is currently a very nice looking double top setup on NDX and a possible daily RSI 14 sell signal brewing. This is a very attractive double top setup.

What I would add though on this chart is that there was a much larger H&S on NDX which also broke down last year, and has now also failed. That has set up a bigger picture target on NDX at a retest of the all time high, and, until demonstrated otherwise, I'm expecting to see that retest in the next few months, so if we see that retracement that I'm expecting to see here, I would be looking for a larger impulse up to that target afterwards.

NDX daily chart:

On the NDX 15min chart you can see the H&S that failed and delivered the high retest. In effect this setup acts as another kind of bull flag. You can also see that the move up from the late June low has formed both a decent looking double top setup , and a rising wedge that is suggesting that NDX is close to at minimum to a retracement here that retraces 50% or so of that rising wedge.

NDX 15min charts:

All the targets to the upside have been reached. SPX, ES, NDX & NQ all made their upside targets. RTY/IWM didn't really have an upside targets but retested their June highs anyway. INDU/YM also doesn't have a clear target back at the high retest but pretty much also made that target yesterday on INDU, though YM still has a little further to go.

INDU 15min chart:

The high yesterday on SPX was at 4488.34, with the close just under the daily (2sd) upper band at 4475. The 3sd upper band closed yesterday at 4512.80 and that should be a bit higher today. I'm not expecting that to be hit, but if we see SPX go higher today then we should see HOD underneath it, and a retest of yesterday's high in RTH will also set high quality hourly sell signals brewing.

SPX daily BBs chart:

So what now? Well everything has made the short term targets I gave, but the timing was unexpected. This week is historically one of the most bullish weeks of the year, and the two most bullish days are today at 76% green closes and tomorrow at 71% green closes. I was therefore thinking that the upside targets would be hit today or tomorrow rather than yesterday. That leaves us with a very bearish looking setup today on what is historically one of the most bullish days of the year. The fact remains though that the big winners yesterday were equity indices and bonds, and the biggest loser was USD, and this morning I am looking at possible hourly reversal signals brewing on all of them. My lean for the rest of this week is therefore cautiously bearish, against strong resistance at the SPX daily 3sd upper band now not far above. We'll see.

We are doing our monthly free public Chart Chat at theartofchart.net at 4pm EDT on Sunday 16th July. All are welcome and it should be interesting. As usual we will be reviewing most of the major trading markets as well as equity indices. If you'd like to attend you can register for that here, or on our July Free Webinars page.

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Binary Decision Point

I was looking earlier this week on the very high quality falling wedge that had formed on SPX from the last high and considering the odds that it was a bull flag setting up a retest of the high.

Since then the wedge has broken up, retraced about 50% of the decline, and an IHS has formed with a target back at a retest of the last high.

At this stage there are only two main options. Firstly that the IHS breaks up, converts the neckline to support, and goes on to retest the last high, and secondly that SPX drops back through 4360, and likely then retests the last low at 4328.09, and then very possibly down further. It is very likely that we will see one of those two options happen next.

SPX 5min chart:

On the ES chart the setup is even cleaner. There is a near perfect quality IHS that has formed and broken up with a target at the retest of the last high. That has broken up slightly overnight and completed a close to exact 50% retracement of the move down from the last high. This is a near perfect setup to either retest the high or fail back into the lows.

A break below 4400 at this point fails the IHS and look for a retest of the current 3969 low. A conversion of 4430 sets up the high retest.

On the bear side I would note that a 60min sell signal fixed on ES yesterday.

ES Sep 5min chart:

On the bull side the H&S on NDX that had broken down and I was looking at in my last post failed at the high yesterday. That failure has a target at a retest of the last high so that was a significant strike in favor of the bulls here.

NDX 15min chart:

So what are the odds here? Well the setup is ambiguous, but there is still a decent argument for a high retest, and today leans 61.9% bullish. Tomorrow leans neutral to mildly bullish and Monday leans 85.7% bullish on SPX. With Independence Day coming up this is a holiday period, which generally favors the bulls.

I'd give the odds here at 65% in favor of this resolving bullishly but beyond that this is all about the breaks today. If support at 3960 SPX and 4400 ES is broken then it is very likely this resolves down. If 4390 SPX and 4430 ES can be converted to support then it is very likely this resolves up. We will see.

We are running our July 4th sale with deep discounts on annual memberships at theartofchart.com. If you're interested you can see the page and offer here.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

Hard Knocks

Over the last few days SPX has been retracing and is approaching the first big support level. That is the daily middle band, which closed yesterday at 4312, with the low yesterday at 4328. That is a target that may be reached today.

SPX daily BBs chart:

On the bigger picture, a reversion to the mean retracement may well be in progress here. If so, the obvious target for that retracement would be a hit and possible break below the 45dma, currently at 4212 and a decent match with the 38.2% retracement of the move up from the October low at 4205. If we were to see a move of that magnitude we might well first see a topping pattern form.

SPX daily 45dma chart:

The usual reversal pattern that forms on SPX/ES is some kind of a double top or bottom. Historically that happens about 70% of the time, with the next most likely option being an H&S. Is there a case for either here?

Well there is a well formed falling wedge from the last high on SPX. That may well be a bull flag, and on a break up over wedge resistance in the 4350 area could set up that high retest. There is also a decent looking H&S neckline in the 4338 area that was holding well for a day or two, but the move below it yesterday is weakening the H&S option. A test of the SPX daily middle band from here would weaken that significantly further.

There is a third option here. The falling wedge itself could break down, as they do 30% of the time, in effect becoming that topping pattern. I've included a close up view of the falling wedge on the 5min chart shortly after the open this morning. It is a very nicely formed example of a bull flag wedge.

All three of these options could yield targets in the 4200 area, satisfying the reversion to the mean target.

SPX 15min & 5min charts:

Are there any other decent looking bull flag setups here? Well there is a high quality falling channel from the high on IWM that may also be a bull flag. A small H&S formed at the high and has now made target, so this would be a natural area to reverse back up.

IWM 15min chart:

Is there anything supporting a move directly down from here? Yes, a decent quality H&S has formed on NDX and has broken down with a target in the 14290 area. That cuts both ways of course, a rejection back up over the right shoulder high at 15044 would make this, in effect, another bull flag setup with a target back at a retest of the last high, but a continuation down would support a further break down on SPX.

NDX 15min chart:

So what are we likely to see happen next on equity indices? Well the bull flag wedge on SPX is a very good example, and topping patterns on SPX lean about 70% towards double tops and bottoms. The second most popular type of reversal pattern is an H&S and wedges breaking against expectation are possibly a distant third.  There is a second decent looking flag on IWM and, in the event that the H&S on NDX fails, in effect a third. The odds favor a break up next here on SPX, we'll see whether we get that. In the event that we see a break down directly towards the 4200 area instead, the first clear signal will be a break and conversion of the daily middle band.

The historical stats for yesterday were very bearish and delivered, but the stats for the next couple of weeks are a different story, mostly neutral other than bullish leans on Thursday and a very bullish lean on Monday 1st July. The next strongly leaning bearish day is at opex on Friday 21st July. This would be a decent opportunity to see a high retest.

We are running our July 4th sale with deep discounts on annual memberships at theartofchart.com. If you're interested you can see the page and offer here.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

The Road Less Travelled

Two weeks ago I was looking at the stats for near misses of the 3sd daily upper band on SPX and looked at the twelve comparable instances going back to 2007. Eleven of those delivered some kind of short term high afterwards, so the odds leaned strongly towards that, but the other delivered a four day consolidation and then continuation higher, and that is what we saw here. There was a four day consolidation and then the daily upper band ride resumed, with the daily upper band tested again last Friday 9th June and then every day last week.

The daily upper band closed at 4436 on Friday and (finger in the air) I'd be expecting that to be in the 4450 area today.

As and when this upper band ride ends, and looking at the action over the weekend it may already have ended, then a backtest of the daily middle band will be on the table as a possible retracement target. That's a moving target of course, and closed Friday in the 4261 area.

SPX daily BBs chart:

On SPX there has been a strong follow through from May's closing break over the monthly middle band, now in the 4159 area. That is a possible backtest target.

SPX monthly chart:

NDX has also risen strongly towards the obvious next target at a retest of the all time high. No obvious reason at the moment to think that the target won't be reached in coming months.

NDX monthly chart:

Two week ago I was asked about reversion to the mean on SPX, and I replied that I wouldn't be thinking that looked urgent unless rose another couple of hundred handles. As SPX then rose slightly over 220 handles in the next two trading weeks that is now very much on the table. Friday's high on SPX was 6.2% over the 45dma, so that is now reaching the levels at which reversion to the mean (45dma, now at 4188) started in Q4 2022 and Q1 2023.

SPX daily 45dma chart:

One chart I don't post often but look at every day is the daily SPXADP (advance/decline) chart. When the 9dma on that chart reaches 30 it is time to be looking for a high to form for a retracement or consolidation and that level was hit last week.

SPXADP daily chart:

The historical stats this week are neutral but some serious overbought warnings are now flashing on SPX, and the volume spike on Friday is suggesting that the high may have been made then, or will be made in the very near future. A retracement looks likely, and if that is just a retracement, then the way that ends and turns back up should tell us a lot about whether we are likely to see all time high retests on NDX and SPX this year.

In the short term there is a decent amount of negative divergence across the indices, but there would be a lot more if last week's high was retested. We might see that retested this week.

We are running our July 4th sale soon on annual memberships at theartofchart.com. I'll post the link on a post and on my twitter when the page is up.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.