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.
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