High Retests Likely

I mentioned in my post on Tuesday morning that the historical stats for the rest of this week leaned bullish, and that the stats for next week after the holiday all lean bearish, and after the low on Tuesday afternoon we've been seeing that deliver so far.

I capped the chart below after the close on Wednesday 14th with the very decent looking rising wedge that had formed from the low on SPX, and that looked as though that might break down on Thursday 15th, delivering a decent right shoulder high on a possible H&S right shoulder.

SPX 1min (after close 14th Feb) chart:

As it happened though the wedge continued forming on Thursday, with the support trendline finally breaking in the last hour, by which point there was not much space left between the support and resistance trendlines. So where does that leave us?

Well in terms of the wedge resistance trendline, that will be crossing the all time high at lunchtime of Friday, and the break down from the wedge support this afternoon may just be setting up and secondary wedge support trendline.

While the wedge may have topped out, the rally has taken us up close enough to the retest of the all time high that I'm thinking the most likely outcome is that this is hit on Friday to make a possible second high of a double top taking SPX into the bearish stats next week.

The overall pattern setup remains the same as the one I was looking at earlier this week, so you can see that in my last post on Tuesday 13th Feb.

SPX 1min (after close 15th Feb) chart:

I'm looking for topping patterns on the other equity indices too and if NDX failed right here then that might still be an H&S, but more likely we see a retest of the all time high there too, again setting up a potential double top.

NDX daily BBs chart:

Dow is also looking like an all time high retest is likely setting up a third possible double top.

INDU daily BBs chart:

IWM is an interesting one, as I was saying on Tuesday morning that I was looking for a break of the rising channel support trendline to kill off that bullish scenario on IWM. That didn't happen, so there is still an ongoing rising channel on IWM, which has rallied very strongly from Tuesday's low and might still be heading for channel resistance.

If that isn't what is happening here though, then this looks like another high retest setting up a fourth potential double top.

IWM 60min chart:

If all of these high retest are seen today, then there is a very decent chance that this will also set up decent negative divergence on the hourly and 15min charts, to go with the daily RSI 14 sell signals already fixed on all four. If it fails right here, writing shortly before the open, then there is limited negative divergence, and the double tops don't look great, but I've seen highs like this regularly before.

If we reach those retests today that will put SPX, NDX & Dow back at the top of all these inflection points and at any inflection point there is a chance that it will break in the direction that looks less likely. If we see a retest and fail though, then there will be a series of high quality double top setups that could deliver a larger retracement over the next couple of weeks. We'll see how that goes.

In terms of historical leans, as I mentioned, there is a holiday on Monday, and the four remaining days next week all lean bearish. If we are going to see any serious downside move, next week would be a great time to do that. For today the stats lean neutral to bullish, the day is Friday, which is not a good day to look for any serious downside move generally, and there are a lot of option expiries today, so the tape may be pinned after lunch at a level that doesn't change much the rest of the day. Everyone have a great weekend. :-)

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.

Taking Stock

One thing I always like to see on SPX the day after I call a possible high area is a big gap down and I wish that happened every time. Alas it does not, but it was nice to see that happen this morning.

In terms of the trendlines I was looking at in my post yesterday morning, SPX went a bit higher and hit the shorter term resistance trendline that I thought might need a hit. There was a nice rejection there that followed through hard this morning.

SPX daily BBs chart:

That delivered a very slight break over the main SPX rising megaphone resistance trendline though a break so marginal that I wouldn't call it an overthrow.

So if we are going to see the decline I'm looking for on SPX, what the the important levels to watch and key target areas?

Well the first important area on SPX is a double support level at rising support from the 4103.78 low, currently in the 4920 area, and the daily middle band, currently in the 4909 area. A break below the trendline should put us in a topping process for the move, and a break and conversion of the daily middle band to resistance opens the downside.

I'm looking for a topping pattern and that may require a high retest to set up a double top. An alternate topping pattern though might be forming with a test, and possible right shoulder bounce, of the possible H&S neckline in the 4850 area. That could set up an H&S that would look for the 4650 area.

In terms of downside targets there are two main target areas here if the wave up from the 4103.78 low has in fact now topped out. The first again is a double target and would be the bullish retracement option. By that I mean the obvious retracement option if SPX were to retrace to set up another leg higher into new all time highs and beyond.

That first target area is again a double target, and that is firstly a 50% retracement of the move up from 4103.78. I have that in the 4575 area, and that level is close to a backtest of the July 2023 high at 4607.07, an attractive target in the event that this is just a bullish retracement.

The second target is the bearish option, and that would be a test of the rising (megaphone) support trendline from the October 2022 bear market low, having just of course tested the corresponding resistance trendlines on all of SPX, NDX & Dow. That trendline is currently in the 4275 area. I'm a bit doubtful about reaching that but if we get a lot of bad news over coming weeks, then that target might be doable.

SPX daily 45dma chart:

NDX held the main resistance trendline nicely at the high yesterday, and declined to test the daily middle band in the 17478 area this morning. A break below opens a test of shorter term rising support in the 17425 area, and a break of that, and conversion of the daily middle band to resistance, opens the downside.

I'm keeping an open mind on downside targets, but would note that as with SPX and Dow, the obvious target would be at rising (wedge) support from the 2022 bear market low, currently in the 15300 area.

NDX daily BBs chart:

Dow also held the main resistance trendline nicely at the high yesterday and declined to test the daily middle band in the 38231 area this morning. A break and conversion of the daily middle band to resistance opens the downside.

I'm keeping an open mind on downside targets, but would note that as with SPX and NDX, the obvious target would be at rising (channel) support from the 2022 bear market low, currently in the 33375 area.

INDU daily BBs chart:

The IWM chart, very different to the other three, was the minority report I referred to in the title of my post yesterday morning. IWM has also been testing the daily middle band in the 195 area this morning, A break and conversion of that to resistance opens the downside there as well of course, but the level I am watching with particular interest is the support trendline on the rising channel on IWM that I was looking at yesterday morning. That is currently in the 193.5 area, and a clear break below that breaks the rising channel, which is what really opens the downside.

IWM 60min chart:

No  serious technical damage has been done on the US equity indices, but that is probably coming soon. The next big targets on the downside are the breaks and conversion of the daily middle bands on all four indices, so we'll see how that goes.

In terms of historical leans, the remaining days this week lean neutral to bullish, there is a holiday next Monday, and the four remaining days next week all lean bearish. If we are going to see any serious downside move, next week would be a great time to do that.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.

Minority Report

The SPX daily upper band ride finished a few days ago. SPX has gone higher in the last week, but not quite reached the upper band again, and there is no particular reason to think that the daily upper band ride might resume.

SPX hasn't quite reached the obvious trendline resistance from the October 2023 low and, if that is going to be hit, I have that now in the 5045 SPX area.

SPX daily BBs chart:

When I  was looking at upside targets on SPX in my last post a week ago, the main one was the rising megaphone resistance from the bear market low in October 2022. That was hit on Friday, and SPX is now therefore in a significant inflection point. If we are going to see a decent retracement of the move up from the October 2023 low, then this is the obvious place to see that start. We could still see an overthrow to hit the short term resistance trendline too, but topping out in this area seems more likely.

SPX daily 45dma chart:

Main resistance has not just been hit on SPX here. A very nice resistance trendline from the 2022 bear market low has now also been hit on NDX and again, this would be the obvious place to see at least a decent retracement.

NDX daily BBs chart:

Dow has also hit a very nice rising channel resistance trendline from the 2022 bear market low. Again, this would be the obvious level from which to retrace.

INDU daily BBs chart:

What I don't have here is a big resistance trendline being hit on IWM. That is the minority report that is mentioned in the title. There is a decent looking rising channel in place from the October 2023 low with a lot of potential upside in there until that breaks. Since I capped this chart at the weekend the shorter term resistance trendline has been broken, as IWM is the only index that has still been heading higher so far this morning.

IWM 60min chart:

SPX has gone up some 930 handles from the October low in what has almost been a straight line, and that is not a situation that tends to last long. SPX is likely to deliver a decent retracement of that move up soon, and this is the obvious place to do that from. We'll see how that goes.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.

Likely Retracement Coming Soon

I'm expecting to see a retracement of the move up from the October lows start soon, and there are some targets I wanted to see made on equity indices before that happened. The last two of those were made on Friday.

The first of those was a retest of the all time high on NDX, and we saw a new high there on Friday, with a very nice looking overall rising wedges from both the 2022 low and the October 2023 low. This looks ready to turn soon.

NDX daily BBs chart:

The second of those, less important but still significant, was a retest of the all time high on DAX, the main german index, and that too was hit on Friday. As with NDX that has set up a very nice looking possible short term double top.

DAX daily chart:

So is SPX ready to turn? I remember in a premarket video a couple of weeks ago I was asked whether SPX was stretched enough against the 45dma to suggest a retracement coming imminently, and I replied that SPX could easily do 5000 before that was the case. The high on Friday was at 4975.25 and that was 4.83% above the 45dma. It could go a bit higher as over 5% wouldn't be unusual.

SPX daily vs 45dma chart:

SPX came off the daily upper band ride last week and returned to make a high on Friday slightly above it. The upper band ride is probably not resuming but if the upper band is hit again today I'd be looking for that hit in the 4980-5 area.

What I'm mainly looking at on the chart below though is the rising wedge from the October low. I have been watching three higher probability possible resistance trendlines from that low and the first has now been broken in a way that does not look like a bearish overthrow. The next option is a very high quality one and SPX may well be heading there. I have that currently slightly over 5000 SPX, and that trendline may need to be tested before a retracement of the move up from the October low can begin.

SPX daily BBs chart:

Looking on the hourly chart, showing a larger view of SPX from the 2022 low, there is double trendline resistance in that area, and I'd be looking for a hit this week in the 5010 to 5025 area ideally. After this week we have a few days that are seasonally weak so that wouldn't be a bad time to see a short term high. If we do see that move and the retracement start my preferred target would be a backtest of the August 2023 high at 4607.07.

SPX 60min chart:

Whatever happens the tape has been looking more interesting over the last few days and this may well be a fun month or two to trade. On the bigger picture I would note that presidential election years tend to close green, and the January barometer has delivered a result also suggesting a green close this year. That's worth noting, and I'm planning a post looking at the January Barometer indicator later this week.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.

Daily Upper Band Ride - Day Seven

I was looking yesterday morning at the daily upper band ride on SPX which had been going for six days. That's not that long for one of these, the last three lasted six, seven and eleven days. Eleven days would be getting long in the tooth for one of these and I think I can only recall one offhand lasting as many as fifteen days, but this this one could potentially run another week. The close yesterday was on the upper band at 4929, and if we see this run again through today, then the upper band will likely rise about fifteen handles into the 4944/5 area.

SPX daily BBs chart:

On the hourly chart there is a possible RSI 14 sell signal brewing now and the high yesterday broke up slightly through the obvious rising wedge resistance trendline. If that trendline holds then that break above was a bearish overthrow, and then next move would be to reverse towards wedge support, currently in the 4815 area, and then to break down from it into a retracement of the move up from the October low at 4103.78 which would ideally deliver a 50% retracement of the move back into the 4500s, where I'd be watching the backtest of the July high at 4607 or the support/resistance level in the 4540-50 area.

This pattern scenario could take another day of the daily upper band ride, but any more than that and I would be looking at the two high quality alternative trendlines that I have marked in above in dotted trendline, and the first (wedge) of those is currently in the 4965-70 area, and the second (channel) is currently in the 5050-50 area.

SPX wouldn't have to respect either of those higher trendlines of course, but those are the three high quality resistance trendline options, and the odds are that one of the three is the right one.

SPX hourly chart:

NDX has been lagging SPX in recent days, but is also testing a high quality wedge resistance trendline. There won't be any hourly divergence there, but a retest (and fail there) of the current high at 17665.26 would set up some weak negative divergence on the daily chart.

NDX hourly chart:

I don't often mention past calls that did well, as it seems like boasting, but I understand that's called marketing nowadays, and some of those are pretty cool, so here is one today.

As the COVID crash was playing out I posted the NIKKEI chart below on 15th March 2020 talking about the possibility that the next big move would be to the IHS target in the 35000 area........

NIKKEI monthly chart (15th March 2020):

.... and a few days ago NIKKEI reached that target, having more than doubled from that low in March 2020. That really was a lovely pattern setup and was a pretty sweet call. .

NIKKEI monthly chart:

I'm keeping an open mind on direction here, and this really has been a strong trending move up, and it has been the kind of move that can just run over divergences, sell signals, trendlines and so on. These moves are hard to call and will find a high. There is decent trendline resistance and negative divergence here though, and it could end here. If so, the daily upper band ride would likely end today or tomorrow.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.

We Are Where We Are

Friday 19th January was a disappointing day for bears. SPX made a new all time high, which had been obvious unfinished business above, and when ES was in the 4850 area there was an hour or so when there were lovely little double top setups on SPX, NDX and Dow, hourly negative divergence on all of ES, NQ, RTY and YM, and a beautiful inflection point that could have delivered a significant high and a healthy retracement on SPX back into the 4500s and potentially a lot further.

Any inflection point is a choice for the market to make and can always go either way, the inflection point broke up, the hourly negative divergence was lost, and the lovely little double top setups vanished. I was sorry to see that happen but the market is never what we might want to be, it just is what it is. As analysts we analyse the market in front of us, and as traders we trade it. There is no such thing as certainty in the market and it is really important not to get married to any particular scenario.

So where does this break up leave us? Well, equity indices are certainly looking short term overbought, and there are some resistance trendlines that I had pencilled in as options on a break up that have been hit, so I'm watching the overall setup here with great interest to see what happens here.

On my SPX weekly chart a possible resistance trendline has been hit for the move up from the 2022 low, and there is a possible weekly RSI 5 sell signal brewing here.

SPX weekly BBs chart:

On the SPX daily chart there is also a hit of a decent possible rising wedge resistance trendline from the October low at 4103.78, so with the weekly chart this is a very interesting possible resistance area.

What I would note though is that SPX has now been on a daily upper band ride for the last six days. That could end here, of the last three of these they lasted seven, six and eleven days respectively, but as long as price tests the daily upper band every day that is ongoing, and could carry SPX higher. I would note that if price falls away slightly from the upper band for a day or two and then touches it again that does not end the band ride. An example of that can be seen in the eleven day upper band ride last June.

SPX daily BBs chart:

NDX broke up from a really nice rising wedge resistance trendline as SPX was breaking up, and has reached another decent resistance trendline option on the daily chart for the move up from the 2022 lows. This could be a bearish overthrow but equally may well not be.

NDX daily BBs chart:

Shorter term on the hourly chart NDX is also testing a decent resistance trendline for the move up from the October low at 14058.30, so trendline resistance here on both SPX and NDX looks pretty decent. We'll see if it holds.

NDX hourly chart:

There are two decent shorter term double top setups here, which I'm watching with particular interest today because this is the only historically bearish leaning day this week. On SPX (not shown below), that double top setup, on a sustained break below 4865.98, would look for a target in the 4826-8 area.

On the Dow Industrials 15min chart below the little double top setup, on a sustained break below the 37.8k area, would be looking for the 37.4k area.

I am wondering whether these two little double top setups on SPX and Dow might play out today and into tomorrow, setting up likely retests of these highs afterwards and in the process setting up some negative RSI divergence on their daily charts. We'll see.

INDU 15min chart:

What are the odds that a significant high is forming here? Possibly but, SPX and NDX went through the obvious areas to see that and, evidence suggesting a serious high here looks thin. That said, equity indices look short term overbought and I'm expecting to see some retracement in the not too distant future, but until that sets up more I couldn't put any targets on that yet.

Has a recession been avoided? Probably not, as the inverted yield curve has been a really good predictor of these in the past, but historically the recession starts near the time that the inverted yield curve uninverts, and that hasn't happened yet. It may not happen for several months yet.

Has inflation been conquered? Not yet though it does look promising. Interest rates are unlikely to return to the lows seen over the last decade though. Real interest rates hit a low then that as far as I am aware had never been seen before, and may well never be seen again. Normal interest rates are two to three percent over the rate of inflation so really interest rates have just reverted back to that long term mean over the last couple of years. I suspect that interest rates in the 4% to 5% range are here to stay, as long as inflation remains low, and as long as government spending across the western world can be brought back under control, which is a significant unknown here as that has been really out of control in recent years, with debt to GDP ratios in major economies that have never been seen before outside an ongoing world war. There will need to be some adjustment to that., particularly in the real estate markets, and if government spending does not come under control, interest rates will likely rise a lot further over coming years.

I'll do a post on the January barometer next week, which unless we see some real bear fireworks in the first three days of this week will be predicting an up year for SPX in 2024. This adds to my comments before Xmas that presidential election years tend to be positive for equities. We'll see how it goes but, so far in 2024 at least, advantage bulls.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

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.