Max Headroom Today 1870-5

After a couple more exploratory pinocchios through 50 hour MA support at the open yesterday morning SPX took the green pill and broke back up through the ES 50 hour MA. I was grumbling on Wednesday morning about the lack of a clear support trendline for this move up, and even though the bears ended up getting their clocks cleaned (yet again) yesterday, my urgently required support trendline has now been established as I now have rising channels from the Feb low on both SPX and Dow. This will give us a clear marker for when this move is topping out, which as I have mentioned, may be very soon. SPX 60min chart:

The rising channel on Dow is another nice example. If we do see an big upside breakout on SPX there is room in this channel for Dow to test  or exceed the current all time highs. As with SPX there is now little point in shorting this uptrend seriously unless we see a hit of channel resistance or a break of channel support. INDU 60min chart:

Overnight ES retested broken declining resistance from the current all time high and has formed a nice looking bull flag. Unless we see a breakdown the bulls are starting off with the advantage today and I am expecting to see at least a marginal new all-time high. ES 60min:

If we see a move that extends over the current SPX high more than marginally today then I have two resistance levels overhead that should cap any move today, and possibly for some months to come, and the first of those is rising channel resistance from the October 2011, currently in the 1870-5 area. If this is indeed the primary pattern for the current bull market then that will be very solid resistance. There is a possibility however that I am mistaken and I'll look at this again if we see a clear break above there. SPX daily chart:

The second resistance level is the SPX weekly upper bollinger band. Punches over this are both rare and very bearish so I'm not expecting to see that here. The upper band was at 1868 at the close yesterday and if SPX has a strong day then that might close as high as 1870 today. With a wiggle room range of a further five points that again would put a likely ceiling today in the 1870-5 SPX range. SPX weekly chart:

On other markets the TNX double-top has now definitely broken down with a target in the 25.69 area. I will be looking for a possible low in that area to set up a larger double-bottom that would effectively target a retest of the highs at the start of January. TNX 60min chart:

After yesterday's breakup I'm still leaning long today and am expecting to see at least a marginal new high. If we see more than that then I have very strong resistance in the 1870-5 SPX range and I'd expect that to be a solid ceiling today. If we see a break over that at the close that would be a strongly bearish signal that would often signal that an important high has just been made, and should at minimum severely limit further upside for weeks to come. I will be doing a weekend post looking in detail at the 2011-1? cyclical bull market pattern setup as a follow-on to the charts I posted on Wednesday morning.

Testing the Water

Another day of consolidation yesterday with two more tests of key short term support at the SPX 50 hour MA. On the second test there were significant intra-hour pinocchios below it which was new, but the hours closed safely back above. The pattern setup on the SPX 60min leans bearish but could still go either way this morning. The triangle I was looking at yesterday morning broke up and was then retesting hard at the close. For today I would expect that either to break up to a marginal new high, or break down to test the triangle target and possible H&S or double-top neckline at 1824/5. The RSI and trendline setup are leaning towards the bear outcome, and I have mentioned many times before that triangles have a very nasty tendency to make a false break before the real move begins in the opposite direction. SPX 60min chart:

On my SPX vs NYMO and the RSI 5 chart there is clear negative divergence on both, which again looks bearish. The RSI 5 sell signal has not yet triggered by closing a day under the trough between the divergent peaks, but we are one bad day away from that happening. SPX daily chart vs NYMO and RSI:

On the SPX daily chart I have the daily upper band at 1876 though I'd be surprised to see any move over 1870 to make a new high. Daily middle bollinger band support is now in the 1808 area. SPX daily chart:

On the SPX weekly chart I have the upper bollinger band at 1866, and that should be very firm resistance into tomorrow's close. Weekly middle band support is now at 1805. SPX weekly chart:

On other markets TNX has finished forming the double-top I've been looking at and is trying to break down from it. If this plays out to target then TNX may well be making the second low of a larger double-bottom with a target at a retest of the January high.  TNX 60min chart:

On ES overnight the 50 hour MA, now at 1845.75 held well as resistance before a plunge as low as 1832.75 which has now mostly been recovered. What does this mean from a technical perspective? Not much, as what happens in trading hours is much more significant and ES is back near yesterday's close at the time of writing. . For today I'm looking at the 1846/7 ES area and the ES 50 hour MA at 1845.75 as strong resistance and if that double resistance is broken with any confidence then I'll be expecting at least a retest of the highs. Key support is at the SPX 50 hour MA, which closed yesterday at 1843.25 (approx 1841.5 ES), and if we see that broken with any confidence (on an hourly close basis) then I'll be expecting a move down to the triangle target and possible H&S/double-top neckline at 1824/5 SPX. Yellen is speaking at 10am and that could obviously push markets either way.

SPX Primary Pattern Update

I took some time yesterday night to consider the overall bull market pattern setup here from the 2011 low. There is something that has been concerning me seriously on my weekly charts, and that is that I still have no pattern from the 1343 low, and the last low of course was very clearly on a trendline from the 1560 low. Why is that important? Well I'm going to do a post explaining my thinking here in detail at the weekend but suffice it to say for now that my wedge target at 1965 is a wedge target regardless of degree, but the reason I have been expecting the target to be reached is because my assumption has been that the rising wedge from the 2011 low from which that target is taken is a primary bull market pattern. If that was the case, then the following primary bull market pattern should start from 1343, and I can only see a secondary (one degree below) pattern starting there. If that pattern is a secondary pattern, then most likely the rising wedge from the 2011 low was also a secondary pattern.

I did a post on 29th June last year detailing my theory about patterns in bull markets on SPX, and you can see that post here. For now I'll just say that there must be a primary bull pattern from the 2011 low that is a rising wedge, channel or megaphone, and if the first rising wedge from there was a secondary pattern, then that pattern from October 2011 is very likely to be a rising channel, with channel resistance already hit at the 1850 high last month. That would put SPX in a topping process here and we currently have a very nice looking double-top in place, though the second high could still extend a little higher.

I have charted the last seven years of bull and bear markets on the SPX weekly chart and have marked up this revised take on the chart. Primary patterns and trendlines are marked with the thick trendlines. If you love a great chart you should also take a moment to study the pure technical poetry of the 2007-9 bear market.  SPX weekly chart:

I have amended my daily chart to show this rising channel and you can see that channel resistance would still only be in the 1870 area. The SPX daily upper bollinger band is now at 1871 with the weekly upper band now at 1866. On this analysis I would be surprised to see SPX go significantly higher than 1870, and the next obvious target would be rising channel support in the 1660-80 area, depending on the time taken to hit it. As an aside I have had a few questions recently about how I use RSI divergences and I have marked up a clear explanation of how I do that at the top of this chart. SPX daily chart:

Back in the short term I posted a triangle that had formed on SPX yesterday afternoon and have marked that up on my 60min chart. I said yesterday morning that the most important support level to watch was the 50 hour MA and it was tested again, and held again. As long as that remains the case SPX may well retest the current high or make a marginal new high. The 50 hour MA closed at 1841.66 yesterday. SPX 60min chart:

I was looking at the TRAN chart yesterday morning and TRAN has now retraced halfway to channel support. That leans rather more bearish than ES does this morning. TRAN 60min chart:

There is a not that dissimilar setup on Dow, and again the obvious short term target looks a bit lower. As with TRAN Dow has been lagging SPX badly and is not close to making a new all time high. Dow 60min chart:

On other markets I've been reading quite a few comments that bonds are likely to reverse back down hard shortly. As yet I'm not seeing any sign of that on the (inverse to bonds) TNX 60min chart, where the very nice looking short term double-top that I've been looking at is continuing to form, and that has a target at a retest of the current 2014 low on a sustained break under 26.75. TNX 60min:

I won't look at gold today as I'm short on space and gold is heading upwards as expected. On oil we are seeing a retest of broken double-bottom resistance and as long as that holds the double-bottom target is eight hundred and fifty pips or so higher at 110.25. WTIC daily chart:

USD bounced at (70% bullish) ascending triangle support the other day and looks likely to retest that. It's always worth remembering that a 70% bullish pattern will break down 30% of the time. When you factor in the false breaks that are seen so often on triangles that figure may be higher than 50%, though in the latter case the break would be quickly reversed of course. USD daily chart:

The two important support levels to watch on ES/SPX today are the ES 50 hour MA, now at 1846.75, and the SPX 50 hour MA, which closed yesterday at 1841.7. If ES 50 HMA support breaks then bulls have to hold the SPX 50 HMA level on an hourly closing basis. If we see an hourly close under 1840 SPX I'l be assuming that SPX will go lower, and very possibly a lot lower.

Apologies for the long eight chart post today. I've been trying to keep these morning posts down to five or six charts but there's just a lot to get through today as I felt that under the circumstances my revised take on the current primary bull market setup couldn't wait until the weekend. My previous take with the short term target at 1965 is now my primary alternate take, on the assumption either that the pattern from 1343 is just taking an unusually long time to become clear, or that I need to amend my view on primary patterns to allow a secondary joining pattern between primary patterns.

Bricks and Straw

SPX made a strong move into new all-time high yesterday at 1858.71 and then came off that high in the afternoon. So now what?

On 10th February I wrote that the next target from the bullish hammer on the weekly chart would be a test of the weekly upper bollinger band. That was at 1888 at the time and had fallen to 1866 at the close yesterday. Yesterday's high was close enough to qualify as a technical hit or very near miss, though we may well see a more exact hit shortly, particularly with the SPX daily upper bollinger band now at 1866 as well. I'm going to be treating that target as possibly made now. SPX weekly chart:

I've mentioned often before that the SPX weekly upper bollinger band is strong resistance on a weekly close basis, and punches over the weekly upper band (weekly closes well above), are both rare and bearish. With the weekly upper band so close there is no room for a fast move up from here, though we could perhaps see a slow move that might crawl up under the weekly upper band at the 10-15 points per week that the upper band can manage on average in an uptrend.

If we are to see a faster move up however we would need to see some retracement or consolidation soon to make some room for that move, and there is now clear short term negative divergence on the daily RSI 5 and the 60min RSI 14. We could see that retracement/consolidation from yesterday's high, or we could see a higher high to test the daily and weekly upper bands in the 1866 area, but one way or another we should see it soon. Here is the SPX daily chart showing the negative RSI 5 divergence and the possible major double-top forming that I would start to consider seriously only on a break under 1800 area support. SPX daily chart:

The TRAN 60min chart backs up this scenario fairly well, though I treat this chart with some caution as TRAN tends not to track the other equity indices that well. The setup on TRAN is that an IHS has broken up targeting new highs, but in the short term TRAN has hit very possible rising channel resistance. This setup is arguing for a significant retracement or consolidation very soon, with considerably more upside later, and that is a decent fit with my thoughts here. I would note on the TRAN chart however that there is currently no negative divergence on the 60min RSI 14, though there is on all the other US equity indices. TRAN 60min chart:

If we are to see a retracement the first strong signal on SPX would be a break below the important hourly 50 MA, currently at 1838. That has been support on the last two small retracements and and hourly close much below it should deliver a move that could retest the weekly and daily middle bollinger bands, now in the 1802-4 area. Such a retracement would also deliver something that is currently absent for the move from the 1737 low, and that is a support trendline. There have been no decent retracements so far since the 1737 low, and without decent retracements there are no support trendlines, and without support trendlines there is no trendline support or pattern to define a strong move up. SPX 60min chart:

I would like to see a move up here into the 1860s for a better test of the weekly and daily upper bollinger bands in the 1866 area, followed by a decent retracement or extended period of consolidation to clear some room for the next move up. If the retracement started at yesterday's high then the support levels to watch are the 50 hour MA on ES, currently at 1841 and holding as the overnight low at the time of writing, and the 50 hour MA on SPX, currently at 1838 and support since SPX broke up from the falling wedge into the 1737 low. I would treat an hourly close at 1836 SPX or below as confirmation that a retracement was ongoing.

A short and early post today as I need to go out for a while before the market opens.

Double Tops Forming

I've mostly been looking at charts with double-tops forming this morning. First I'll show the possible major double-top that may be forming on the SPX daily chart. That would trigger a target in the 1625 area on a sustained break below 1737, but in practical terms a break below strong rising support from the 1560 low, now in the 1750 area, would look extremely bearish. This is not my primary scenario here, but I'll be considering it seriously if we should see SPX break under strong support in the 1800 area.  Short term the best reversal signals on the SPX daily chart are from divergences on the RSI 5, and we have a bearish negative RSI 5 divergence forming there now. SPX daily chart:

I was talking on Friday morning about the possibility of a short term double-top forming on SPX and was looking for a marginal higher high. As it happened we saw a marginal lower high, with a breakdown that I called on twitter as it happened, and that might be enough, though we could yet see that higher high today after a strong rebound overnight. It is already a technically decent short term double-top however, which would target strong double support in the 1800 area on a sustained break below 1824. SPX 15min chart:

Supporting this setup on SPX is an almost identical short term setup on NDX, albeit with NDX having made new all time highs and also having made a marginal higher (all time) high on the short term double-top setup there. NDX 15min chart:

My last double-top today is on TNX. The possible falling channel I showed the other day broke up quickly, but that wasn't bullish. TNX has now established a second possible falling channel and thoroughly tested broken rising wedge support while forming a technically decent possible double-top. On a sustained break below 26.75 the double-top target would be in the 25.69 area. This is a strong setup and I am assuming that this will play out unless demonstrated otherwise. TNX 60min chart:

Last chart for today is the oil chart, where on the WTIC daily chart oil has broken up hard from a double-bottom with a target in the 110.25 area. Again this is a strong setup and is a buy on pullbacks until that target area has been reached. WTIC daily chart:

Mondays have all bearish so far this year, with the Monday two weeks ago which was marginally positive. The markets were closed last Monday of course. That fits my lean today which is flat to bearish. The four handles from the RTH close on Friday that ES is up at the time of writing would already, if sustained into the close, make this the most bullish Monday in 2014 by a significant margin. I suspect that it won't be sustained into the close.

Bearish Retest - Probably

I was saying yesterday morning that an hourly close much over the ES 50 hour MA at 1830.5 would suggest a retest of the highs, and well here we are. There are two options here and the first, and my preferred option, is that we are going to see the second high of a short term double-top made here. The second is that after a very minimalist retracement we are starting a new move up.

Why do I favor the bearish option? Well a string of rising wedges and channels have broken down on the US equity indices and none of those has evolved into a successor pattern such as a rising channel as far as I can see. We would also usually see a halfway decent short term topping pattern form here and while I was thinking that might well be an H&S pattern, a double-top would be just as common or more so, and this double top on SPX would target the obvious target, which is key support in the 1800 area.

So where would this second high of a double-top top out? I'd expect a higher high than Wednesday's 1847.50 SPX, and very possibly a new all time high over 1850.84. Firm resistance is at the daily upper bollinger band now at 1859 (and still falling), and I would count anything at 1852/3 or above as a technical hit of that resistance. The obvious time to see that higher high made would be today or Monday. If we do see this higher high made that would be with negative divergence on the daily RSI 5, which is my preferred reversal indicator at a reversal of any decent magnitude. SPX daily chart:

I have sketched out how that would look on the SPX 60min chart:

One chart I'll be watching here is the TRAN chart, which captures the ambiguous direction here well and may well be a good indicator for which way this breaks. On TRAN we have a large H&S forming and an obvious next target at rising support from the June low, which favors the bears here, but a possible smaller downsloping IHS is also forming, which would favor the bulls if it breaks up. If we see a sustained break up over that TRAN IHS neckline then that would strongly favor the bullish view that the low yesterday was the low for the (unexpectedly shallow) retracement that I have been looking for here. TRAN 60min chart:

Just a short post today as I have been travelling the last few hours, but I'm now back at my desk so if I see a significant downward reversal pattern/setup today I'll be posting it on twitter.

More Downside Likely

Yesterday went much as I suggested in the morning, with ES holding 1830, a run up to test the current highs, and then a clear fail there. A retracement of very uncertain size has started, as this may be just a bullish partial retracement of this last move up, but there is also now a technically very well formed candidate major double top targeting 1625 on a break below the last low at 1737. While I'm definitely leaning towards the bullish option, the bearish option needs to be borne in mind, and would need to be taken seriously on a sustained break below 1800 SPX.

For the moment I have a small (and very ugly) H&S target in the 1820 SPX area. Under that I am watching the possible larger H&S neckline in the 1809 area as if the bear option is going to play out here, then we may well form a larger topping pattern to take SPX through strong 1800 area support. SPX 60min chart:

If this is a bullish retracement then the key other areas to watch here are the 50 DMA, currently at 1813, which was of course support on the last retracement, the daily middle bollinger band at 1800, and the weekly middle bollinger band at 1797. There should not be any sustained break under 1800. SPX 60min chart:

All the main US equity indices have now broken their patterns from the last low, but there isn't much in the way of decent topping patterns yet. I do have another small H&S like the one is still pointing on SPX on NYA and that again is pointing to at least some more downside. NYA 15min chart:

ES has bounced at a possible H&S neckline at 1816-8 overnight, and may be forming the right shoulder for an H&S that would target the 1790 area. That would be a decent fit with a test of main support at the daily and weekly middle bollinger bands in the 1797-1800 SPX range. There is also another possible H&S neckline in the 1802-4 range. If we see the right shoulder form this morning the ideal right shoulder high would be in the 1827/8 area, and ES should not go over broken 1830 support. ES 60min chart:

I've been giving some thought to the setup on USD here, and looking at the main USD component EURUSD. I posted a USD chart a few days ago just after the last fail at the 200 DMA and USD is now testing possible ascending triangle support from the last low. If that breaks then the possible test of 78.6 I was talking about then opens up. USD daily chart:

How would that fit with the EURUSD chart? Well I have a possible major triangle forming on the EURUSD chart since 2006, and the next target within that triangle would be declining resistance from the 2008 high. That would require a retest of the last small high in the 1.385 area, and with the rising wedge from 127.5 having evolved into a rising channel, that doesn't look hard from here. EURUSD weekly chart:

I'm going to be out most of today, so I won't be able to post any shorter term patterns or call any serious break upwards as it happens. I'm expecting ES to hold below 1830 today and an hourly close much over the 50 DMA, currently at 1830.5 would warn that yesterday's high could be retested. A sustained break below the overnight low at 1817.25 would open up the main bullish retracement targets in the 1797-1813 SPX range, most likely delivering a test of the 1797-1800 SPX key support area.

Ten Green Candles

ES closed green again yesterday, delivering a second run of ten consecutive green candle closes since 2000. Looking at the overnight action I doubt that we will see a third record-equalling eleventh green candle today. At the moment ES is trying to hold 1830 and we might still see a test of the 1851 SPX high if it can hold. If 1830 breaks then the double-top target is in the 1822.50 area. ES 60min chart:

One way or the other the current wave up from the low is topping out. The rising channel from the low on SPX broke yesterday. SPX 60min chart:

Rising channel cum wedge support on NDX also broke yesterday. NDX 15min chart:

What hasn't yet broken down is the rising wedge on Dow, though unless there is a significant recovery into the open that is likely to gap under wedge support then. Dow 60min chart:

On other markets oil broke up hard through double-bottom resistance yesterday and the double-bottom target is in the 110.25 area. WTIC daily chart:

TNX has broken below rising support from the low, and the IHS is in serious doubt. A possible falling channel has formed and on any serious further weakness the falling channel support trendline would be in the 24.5 area. TNX 60min chart:

We might see a last move up today to test the 1851 SPX high but we may well have already topped yesterday. If a retracement is starting then I have the key support areas at 1815-8 for the 23.6% fib retracement and the retest of the 50 DMA, the possible H&S neckline at 1809, and 1800-3 for the 38.2% fib and the retest of the SPX daily middle bollinger band. If we see SPX break back below 1800 with any conviction then I will start seriously considering the major double-top scenario with a target at 1625 on a sustained break below the last low at 1737.

Nine Green Candles

This has been a really strong move up off the early February low, and without enough of a retracement so far to deliver a daily red close on ES. That means that there have now been a very impressive nine consecutive green ES closes off that low. More than nine closes is an impressive rarity, with ten closes in July 2013, eleven closes in March 2010, another eleven closes in November 2006, and then nothing back through to 2000. Will we see another very rare close over the nine today? Perhaps, but these really are very rare. The stats for today lean bearish, with SPX closing down 7 of the last 13 closes on the trading day after President's Day, though these stats are much less bearish than those for last Friday.

The patterns setups across the indices lean towards retracement here, though without any decisive support trendline breaks as yet. On ES the negative RSI divergence looks very promising and rising support from the low was broken briefly overnight. ES 60min chart:

On SPX the rising channel from the low is still unbroken, and until that breaks any retracement scenarios here are very speculative. I have sketched in a possible path to a 61.8% retracement over the next few days if channel support does break today. SPX 60min chart:

On NDX the setup is a rising channel with an additional possible rising wedge in play. NDX closed the week close to rising support so if we see a breakdown today NDX will most likely break down first. NDX 15min chart:

Dow has formed a nice looking rising wedge from the low and has some space to retrace within that wedge. Negative RSI divergence again looks encouraging. Dow 60min chart:

Will there be a retracement today? I'm leaning towards it but after this spectacularly strong run we'll have to see whether rising support can break on NDX, then SPX, then Dow. If one breaks then the chances are that they will all break, and then we'll see how far a retracement can go. I'm on holiday this week but I'll be doing a post every morning and posting some other charts on twitter.

Wedges turned Channels

Well somewhat to my surprise SPX bounced at my highest retracement target yesterday, and that was at the 50 DMA. The broken rising wedges on SPX and NDX both established rising channels at the low, and I posted the SPX channel on twitter later with the comment that there was no longer a retracement setup there unless the rising channel should break down. That remains the case this morning of course and I would add to that the note that the rising channel is rising at better than ten handles per day, so it is likely to break down within a few days at most. SPX 15min chart:

The setup on NDX is essentially the same, though NDX is already making new highs of course. NDX 15min chart:

The low yesterday was at the highest support level on SPX that I gave in the morning, which was the retest of the 50 DMA. For today I would point out that I have a possible falling channel resistance trendline marked on the daily chart and I have that marked in at the 1833-5 SPX level as far as I can make out. I have a bearish tilt coming into today which i'll expand on at the end of the post, so I'll be watching that area for possible reversal. SPX daily chart:

Gold has broken up through the 150 DMA which is excellent news and a strong signal that the bear market on gold and the precious metals complex generally may well be over. For confirmation gold will need to hold the 150 DMA as support, and I'll be waiting to see if gold can hold above it. if it can I'll be moving gold back onto my buy every dip list until further notice. Gold daily chart:

TNX is retesting the IHS neckline and this is a very nice looking long entry (long bond yields = short bonds) as rising support is not far under the trendline. This IHS setup will look a great deal less interesting if rising support should break, though it might still then play out. TNX 60min chart:

I haven't been posting the USD chart much lately as while I've been noting the strongly bullish nature of my USD forecasts that I have been seeing, I haven't shared that enthusiasm. USD has not yet so far shared that enthusiasm either, and looks as though it may be turning down to retest the lows. That retest would improve the current low considerably in my view and I think that we may well see that. At that 78.6 area test USD should then either bounce strongly into a new wave up, or break down hard to confirm that USD has been in a new downtrend since July 2013. USD has just failed at the 200 DMA twice and my feeling is that is because there is some unfinished business on the downside. If I'm right then Euro and GBP bears particularly should consider waiting until that unfinished business is concluded. USD daily chart:

Yesterday's trend day was an impressive show of strength, and we could see SPX run straight up to new highs from that retracement. However I would note two things that are potential issues in this scenario. The first is that with yesterday being a trend day, then the lean today, as it was on Wednesday, is towards consolidation or retracement. The second is that the stats for the trading days on either side of President's Day on Monday lean very bearish, with the trading day before down 17 times of the last 22 according to Stock Trader's Almanac. I mentioned yesterday morning that:

'I would add the caveat that at this stage in a rising wedge breakdown there is often ..... a test of the highs to establish the second high of a double-top. We could still see that happen here.'

That double-top setup is still in play here and if we were to see a break below the rising channel it would move up to be the most likely short term scenario. That breakdown and deeper retracement would obviously be a decent fit with the very bearish stats for today and Tuesday. As long as the rising channel on SPX lasts however, the uptrend is intact and uptrend support is rising at more than ten handles a day, so it's important not to be stuck on the wrong side of that.

I'm taking a week off trading next week but am still planning to get posts out on the mornings of Tuesday through Friday. Those posts may well be shorter than usual however. Everyone have a great weekend! :-)