Rubber Bands

Well that was an impressive trend down day yesterday and a lot of technical damage down. I am now officially impressed, and while I had been thinking we might put in the retest high just before the holiday weekend, Greece has pulled that forward a few days and in all likelihood both the 2015 high and the retest are now in the review mirror. This would be a good time to pull together a few reference posts to show where I think we are here.

The first post is from Monday 2nd February where I confirmed that the January close on SPX met the criteria for some very bearish long term stats suggesting very strongly that the best case for SPX in 2015 would be a flat close, and the worst case a large decline. You can see that post here.

The second post is from Tuesday 26th May when I called a likely 2015 high the previous day at 2134.72 SPX, added that I had been fortunate enough to short the high tick on ES at that high, and that I would be holding that short into at least the 1820 area at a retest of the October low. You can see that here.

The third post is from my master swing trader friend Alphahorn, who did a public post showing where the SPX, Dow, NDX and RUT are in terms of their Elliot Wave counts, shows the likely target areas and puts us here at the start of Primary Wave 4 from the 2009 low. Stan and I also think that's the most likely count here so this is a useful reference to bookmark. You can see that post here. Most of Alphahorn's posts are behind a subscription paywall so I appreciate him making this post available to all.

In terms of the move we are looking at now, Stan is leaning towards a low in the April area next year, so this should be a slower move than in 2011. That said the compression here over the last few weeks has been extreme, with the last ten weekly closes in the very narrow 2092 - 2126 range, and a weekly band pinch that reached what is likely to be the extreme last Friday at 80 handles or 3.8% between the lower and upper weekly bands. Apart from a run of three pinches under 4% in 1992, 3 & 4, that is the tightest weekly band pinch since 1970, and most of the band pinches under 9% resolved into moves of 10% area or more during the subsequent band expansion. That expansion should now have started on SPX. SPX weekly chart:

In the shorter term SPX closed twelve handles under the daily lower band yesterday and that would generally suggest some kind of bounce coming into today, though it might not be much more than the current +17 from yesterday's close at the time of writing. I have declining resistance at the broken H&S neckline in the 2072 area, declining resistance from 2129.87 in the 2090 area, and the daily middle band at 2100. For support I have the 200 DMA at 2053, the weekly lower band at 2051, support at the March lows in the 2039-45 range, and then nothing obvious until we see a test of the 2000 area. SPX daily chart:

For today I'm hoping to get a morning high to sell hard and I think we may well get that. For a more detailed view of what Stan and I are looking at over the next few days I'd suggest watching the video Stan posted last night at our joint site theartofchart.net, as that gives a very helpful summary. You can see that here. Everyone trade safe, the next couple of weeks may get rough.

Much Ado About Nothing

On Friday night I posted the small channel from the 2129 high together with the larger falling channel it was trading within. Both have broken down at the open today and the bears now have a shot at breaking more important support levels. SPX 5min chart:

The main more important support level is at rising channel support and the daily lower band, now in the 2077/8 area. If broken I then have H&S neckline support at 2075, and on a sustained break below that would open up an H&S target in the 2010-5 area. SPX 60min chart:

I'm not sure how seriously to take the grexit crisis and am waiting to be impressed by a serious support break. That would start to look serious. Until then there is strong support below and big gaps up or down on headlines have a very strong tendency to fill the gap before picking a firm direction. I'm a seller on a gap fill today and the daily middle band at 2103 should now be decent resistance.

Testing Key Support Hard

The bears turned in a second consecutive very solid day yesterday, with a fail at the 50 hour MA in the morning and a close marginally under both the daily middle band and 100 day EMA. If bears can break the low yesterday by more than a couple of handles then that opens up an H&S target at 2085-8 and below that a test of channel support and the daily lower band in the 2078 area. SPX 60min chart:

SPX daily chart:

On the weekly chart there is very important closing support at the middle band in the 2098 area. a significant break below today would be extremely bearish, and likely confirmation that the intrayear high for 2015 is now in the rearview mirror. SPX weekly chart:

Bulls closed yesterday at the edge of a technical cliff, and on the gap fill and lower low at the open today they are in serious danger of falling off it. If we should see a rally today I have key resistance at the 50 hour MA in the 2115 area, and I'm doubtful about the bulls making any lasting break back over that from here.

The historical stats for today lean bullish and no theartofchart.net chart here today though I will be doing a post there later.

Probably A Dip To Buy

Bears had a pleasant break from the uptrend yesterday, pulling back to close on the low just above support at the 50 DMA (2107) and the daily middle band (2104). On the bigger pictures the bears

haven't accomplished anything yet, and to take back control of the market they need a closing basis break below the daily middle band. Until we see that this is likely to be just be another buyable dip. SPX daily chart:

That's not to say that no support levels were broken yesterday. The 5DMA broke, but not in the first three days after the break up which would have been very bearish. SPX closed under the 50 hour MA, but the break is marginal so far and just tells us that this is not a strong uptrend, which isn't news. Bears need to do more today if they want to demonstrate that the 2015 high has already been made. SPX 60min chart:

I'm still working on how my work will be split between here and my new swing trading site theartofchart.net in collaboration with Stan Nabozny. I think for the moment I'm going to try posting a chart that belongs there at the bottom of each of my morning posts & see how that goes.

This chart is the falling wedge breaking up on GC on an hourly buy signal. We're expecting a reversal pattern to form and then a likely full retrace of the wedge back over 1200.; GC 60min chart:

I'm leaning bullish today unless bears can break below daily middle band support. If we see an intraday break under 2103 then the odds will shift towards the 2015 high being made and on a close below the middle band I'd be looking for a probable retest of 2072 area support.

80% Odds Trend Today

My theartofchart.net collaborator Stan tells me that the setup here gives an 80% chance of a trend day today, though it's important to remember that there is still therefore a not insubstantial 20% chance of not seeing a trend day today. If we do see that trend day my lean would be towards down, though obviously there is only one way to find out for sure. If we trend up then the possible topping targets at 2134/5, 2138 and channel resistance at 2146-8 are all in range, but if we trend down then I have a setup that should be more fun to trade.

The support zone is at 2103-15 today, and SPX did not touch the daily upper band yesterday, so the door is open for some retracement today. SPX daily chart:

If SPX can break below the very strong support zone here then I have a downside scenario that looks interesting, and I've marked that on the chart below. That could deliver a retrace to possible channel support in the 2088 area, and I'm not really looking for that unless we do see SPX break support. If it does break down though then that would be the next obvious support. SPX 60min chart:

As ever with trend days, if indeed we see one today, the main aim is to end the day in the green. Don't get married to any scenario, manage your risk carefully and don't spend any time trying to catch big reversals. We'll see where SPX ends up by the end of the day.

First Day Upper Band Ride?

SPX hit the daily upper band yesterday and has reversed there. This may be the first day of an upper band ride, so we'll see whether it gets another touch today. I have the multiple support levels underneath in the 2102-10 zone today. SPX daily chart:

On the upside rising channel resistance is 2145/6, and the most likely signals that this market has finally topped out for the summer, and most likely for 2015, would either be a hit of channel resistance there, or a break of rising channel support in the 2075 area. The more likely option is a hit of channel resistance, and that could take a few days, though equally we could see tat tomorrow. . SPX 60min chart:

I was asked yesterday what my end of month target on SPX is and the answer is that I don't have one. I would note that tops tend to take longer than expected, and that when I have tried to fit a timetable around a top in the past, then the process has seemed to take even. longer. The truth is that when SPX is good and ready the top will be made and then the correction will be on. Until then time can be used learning new things, including patience if necessary. :-)

I'm expecting a high in the next couple of weeks, and there's a decent chance that rising channel resistance will deliver an almost exact high level when the currently unknown time variable has firmed up.

Same SPX, Different Day

SPX pulled back towards support on Friday, but no technical damage was done. The close was at 2110, and support below is at:

• 2106 - 50 day MA
• 2104 - Daily middle band
• 2102.5 - 5 day MA
• 2102 - 50 hour MA
• 2101 50 day EMA

If this raft of support levels can be broken then SPX may well be on the way back down again. Until then this was just a retracement to test support. SPX daily chart:

That said there is definitely an argument here for SPX going a bit lower this morning. There is a 5min buy signal on the chart now, but the obvious trendline target has not yet been hit. SPX 5min chart:

Unless we see a break of strong support not far below Friday's low then I'm still looking for a retest of the high before more downside.

Time To Take The Cheese

SPX made a break with impressive conviction back over the daily middle band yesterday, so the retest scenario I first started talking about a month or so ago, before the current high, should be on. I was talking about what I expect for the summer in more detail in my post on 26th May and you can see that here to refresh your memory.  Nothing material has change in my view from when I wrote that post.

That being the case I am now looking for a retest of the high, ideally today, and if that test is today I have an ideal target zone for the likely 2015 high in the 2132-42 range. I have explained the merits of the three targets within this range on the chart below. SPX daily chart:

As I mentioned on the chart above the weekly upper band is at 2141 today along with short term channel resistance. That is my highest target area and the one I would prefer to see hit today, though that doesn't make it the most likely target of course, which is probably 2138. SPX weekly chart:

I was talking about a possible reversal back up on DX yesterday morning and that is coming along nicely. Unless we see a break back under 94 then I'm looking for 95.6 next, and I have a possible setup forming that might then take DX back to 98. We shall see. DX 60min chart:

I would like to see an AM low that is bought very hard today for the last run to retest the highs and hopefully make the second high of a double top there. That would ideally be today as there is strong form for making significant highs near quarterly witching, and equally strong form for the two weeks after June witching to be bearish.  My ideal end to June would be to make the 2015 high in my target zone today, and then fail hard next week.

A Little Spot Of Greece

The bulls won FOMC on points yesterday, with a break back over the 5DMA, a test of the daily middle band, and a close on the 50 day EMA. Today they need to hold the 5 DMA (currently 2096) on a closing basis, with important support at the 50 hour MA just below at 2094.5. Above bulls need to break over the 50 DMA at 2104 and deliver a close more than a couple of handles over the daily middle band at 2106. If they can do that, then they can have a shot at retesting the all time high. SPX daily 5DMA chart:

The short term pattern that I was looking at yesterday morning took my option 2 and has evolved into a rising channel. Channel support is in the 2092 area, slightly below the 50 hour MA at 2094.5. That is key support today. SPX 5min chart:

DX is at a big inflection point here with a lovely falling channel from the last high currently either doing a bullish underthrow for the 70% bullish option, or starting to break down for the 30% bearish option. I am currently assuming that DX will break up here and that CL and GC will break down with that. It could still go the other way though and I'll be happier when DX is back over, and reliably holding over, 94. DX 60min chart:

Bulls have the short term trend and support and resistance are clear. May the strongest large and bad tempered animal win :-)

The Bottom Line

SPX has held the 2072.14 low and has returned to retest the resistance levels broken late last week and then surrendered on Monday. SPX closed back over the 50 hour MA at 2092.7 yesterday, and just under the 5 DMA at 2098. Above there resistance is at the 50 day EMA at 2100, the 50 day MA at 2104 and the daily middle band at 2107. A close back over the daily middle band opens the door to retest the all time high at 2134. SPX daily chart:

On the 60min chart the 50 hour MA at 2092.7 is now important support and bulls want to break back over falling megaphone resistance in the 2105 area to trigger the megaphone target at a retest of 2134. SPX 60min chart:

The clock is ticking here though. The rising wedge on the 5min chart that I was posting on twitter yesterday afternoon is either:

1. Breaking up towards a target at or above 2115 - bullish
2. Evolving into a rising channel - bullish but less so
3. Breaking down next after a bearish overthrow - bearish

Bulls need to hold that rising wedge support as a break below would deliver a retracement that might well just keep going down and kill off the highs retest scenario. That rising wedge support is now at 2092 and rising at ten handles per day. SPX 5min chart:

I still like the highs retest scenario here. All the Fed needs to do today is make some soothing noises and scatter a bit of dove guano over the market to deliver a last move up into my ideal target and short entry at the important fib level at 2138. The Fed has made doveish statements on occasion in the past and I'm looking for that again today. If the Fed comes across as hawkish instead the retest is most likely not going to happen.

Peering Over The Cliff

I've been leaning towards a retest of the highs in recent days, and the main reason for that is the falling megaphone from the all time high which broke up slightly at the high last week. Since then though SPX has lost the support at the 50 day MA & EMA, and then the 50 hour MA, and followed up by losing support at the 5 DMA yesterday. From here there are two obvious paths forward:

On the bull scenario a double bottom is forming that would target 2103.5 on a break over 2088. Once that played out bulls could have another try at the daily middle band to try and open up a possible retest of the high which would be supported by the falling megaphone that would then be targeting a retest of the all time high.

On the bear scenario support in the 2072 area breaks and SPX is on a second lower band ride down. There is some support at the weekly lower band at 2050, then at main double top support at 2039, and then on a conviction break below 2039 the double top target would be in the 1944 area, just above the 61.8% fib retrace of the rising wedge from the October low at 1940. On that conviction break below 2039 the falling megaphone from the high would most likely also break down, making the break up last week a bearish overthrow, and strongly supporting the double top target at 1944. SPX 60min chart:

SPX daily chart:

I still like the pattern setup for a retest of the highs from here but the bulls haven't been delivering in recent days. If they lose support in the 2072 area then bulls may get another chance to regain control in the 2039-50 area, but the case for a highs retest will by then be a lot weaker. The timing wouldn't be great either as the historical stats for Monday through Thursday next week are all bearish.

The Art Of Chart

I have an announcement today as I set up a new site at the weekend to cover my swing trading collaboration with fellow chartist Stan Nabozny. The site is at www.theartofchart.net, and I christened it yesterday with a post on bonds. I will be posting most of my, and our, work outside equity indices there in future.

Bulls had a bad day on Friday and managed to lose support at the 50 day MA and EMA and at the 50 hour MA. They did however managed to hold on to the 5 day MA on a closing basis, and are still in with a shot at a retest of the highs at the moment, though the odds have worsened considerably. Support is at the 5 DMA at 2093.5 (closing basis) and rising wedge turned channel support in the 2073/4 area. Resistance is at the 50 hour MA at 2096, the 50 DEMA at 2100, and the 50 DMA at 2103. If bulls can break back above those (closing basis) then they can have another run at the daily middle band at 2110.50. If they can manage that then a retest of the all time high opens up. If they can't then 2039 is the next obvious support. SPX daily chart:

Not far under the close on Friday was the weekly middle band at 2089. That has been very important support so far this year, and has been tested in 13 of the 23 trading weeks since the start of the year. The open today has gapped below it and bulls need to fill that gap by the end of the week to avoid a breakaway candle through support. SPX weekly chart:

A very weak start to the day with the move to 2074, but I would note that rising channel support has held at the current low. On the bull scenario 2073/4 has to continue holding so if SPX returns to break below then I'd expect to see continuation down. Right now however, this is a possible higher low.

Retesting Broken Resistance

Yesterday went much as expected, with a first test of the daily middle band that failed, a no retest of broken resistance turned support. Overnight ES has retraced to test support, which on ES is in the 2098 (50 hour MA) to 2102.5 (50 DMA) range. If this area holds today then I would expect another attempt at the daily middle band with a break up, before a retest of the all time highs. If we instead see a hard break of support today then the picture gets a lot darker, and we might well break back down hard. SPX 60min chart:

Hopefully some of you took the long on bonds I was looking at earlier this week. The falling wedge has now broken up and I'm looking for a full retrace back to 123.3, with possible fail areas at the 50% and 61.8% fibs. TLT 15min chart:

I'm expecting a short term bullish resolution today and will be looking for long entries at support. If we get the retest of the all time highs I'll be looking for a very hard fail there. This is the retest to make the second high of a double top scenario that I was looking at on 26th May. You can see that here. I don't think this move has any longer term bullish implications and will be adding short at the retest.

The Daily Middle Band Test

A very strong day yesterday and SPX broke and closed over the 50 hour MA and the 50- day MA and EMA. I've looked at the stats for tall white candles that have broken and closed over the 50 day MA and EMA in the last year and there have been eleven. Of those eleven only one closed below both the next day and that was marginal. Six never even retested them as support. They closed at 2100/1 and that may well therefore be very strong support today.

If these hold on a retest, which I'm expecting them to do, then the next level of resistance that the bulls need to break is at the daily middle band and declining resistance from the high at 2111/2. A close back over this level with any confidence opens up a retest of the all time high at 2134. SPX daily chart:

All the reversal patterns that I posted yesterday morning had made their targets by the close yesterday, as had the fixed 15min buy signal that I mentioned. The SPX chart below illustrates why the 2111/2 area is important here at it is (70% bullish) falling megaphone resistance. Scan 3x 15min SPX INDU TRAN charts:

Scan 3x 15min NDX RUT NYA charts:

I'm expecting some kind of retracement to start today, and I'm doubtful about seeing any break of strong resistance turned support at 2000/1. That retrace low should be a good buying opportunity. for a run back into a retest of the all time high, and the very likely fail there.

Rally Time

SPX had me worried yesterday morning when falling wedge support broke, but it reversed at the 2072 triangle target and broke right back up. This is unusual but perfectly valid. With the 15min buy signal as well I am expecting a rally back into the 2090s, most likely to test key resistance in the 2099-2101 area at the 50 hour MA and 50 day MA and EMA. I have marked up a possible IHS on the chart, which could morph into a double bottom on a retest of yesterday's lows. SPX 15min chart:

INDU and TRAN are supportive of a rally, with two more falling wedges that have broken up, and a part formed IHS and double bottom respectively. Scan 3x 15min SPX INDU TRAN charts:

There is a falling megaphone on NDX that has still yet to break up, with another part-formed IHS. RUT and NYA both look ready for more upside as well.  Scan 3x 15min NDX RUT NYA charts:

TLT has been a bit of a mystery the last few days but I had enough data points yesterday to identify the pattern, which is a decent falling wedge. ideally this will make a slightly lower low today and then break up to retrace the full move down from 1st June. TLT 15min chart:

Is a rally guaranteed here? No, as there is no such thing as a sure thing in this business. The setup is good though and I think the high probability outcome here is a move back into the 2090s to test overhead resistance. The next week or two should depend on whether the rally breaks up or fails at resistance there.

Lower Band Ride - Day 3

A strong day for the bears yesterday and SPX has reached another inflection point. A clear falling wedge has developed from the triangle break and that's a 70% bullish pattern that broke up slightly before the final decline yesterday afternoon.

If that falling wedge breaks up today then I'd expect at minimum a retest of the 2095-7 area, and on a conviction break back above 2100 then perhaps a retest of the highs. if this wedge now breaks down, and we should always remember that a 70% bullish pattern will break down 30% of the time, then the target would be in the 2040 area, essentially a test of main double top support there. SPX 15min chart:

What does the daily chart tell us? Well yesterday was a model second day of a daily lower band ride, closing five handles below the lower band. If the falling wedge breaks down then the lower band ride could get us there this week. There are no bullish divergences on the daily or hourly charts yet, though there is a possible 15min buy signal brewing. SPX daily chart:

If the SPX falling wedge breaks down it won't be alone. No doubt the falling wedges on INDU and TRAN would break down as well. Scan 3x 15min SPX INDU TRAN charts:

The 2085 level that broke yesterday is a big level, and it is opening resistance today. On a break back above it the bulls have a chance to take back control. On the downside if we see SPX break falling wedge support next then the odds would be in favor of continuation down towards main double top support at 2039. I can see decent arguments for both scenarios and at the moment this looks like a coin toss. A clear break up over 2085 or down through 2070 should be respected.

Possible Lower Band Ride Begins

SPX tested the daily lower band on Friday and almost hit wedge support. That near miss has implications as I would generally expect after a near miss like this then the rising wedge support level should break on the next hit, and if that happens then the path to the full triangle target at 2072 opens up. The other thing to note if wedge support breaks today is that we could be starting a daily lower band ride down, and as long as that lasted we would be looking for an AM high followed by more downside. SPX daily chart:

I have no decent buy signals here and not much to suggest that a strong rally is near, so we could well see the full triangle target at 2072 made. SPX 15min chart:

Important resistance today is at the 50 day MA & EMA, both at 2101 and resistance on Friday. Important support is at 2084/5 at rising wedge support and the 100 day MA. My lean is short unless SPX breaks back over 2101 with conviction, or bounces strongly off a hit of wedge support. If wedge support is broken then I'll be looking at the full triangle target at 2072.

Triangle Breaks Down

Bears had a solid day yesterday, breaking and closing below the 50 day MA, 50 day EMA and triangle support. Broken triangle support was perfectly retested and held. The full triangle target is in the 1972 area, and if SPX fails to get back over 2000 today, then I have a flag target there as well.

Important support levels on the way to that target are the daily lower and weekly middle bands at 2087-9, and the 100 day MA and rising wedge support from 2045 in the 2083-6 range. If SPX is going to fail to make the triangle target, then I would expect the fail to be at the rising wedge support in the 2085 area, and if SPX should touch and reverse there, then SPX could well retest the highs and perhaps make a slightly higher all time high within that rising wedge. If the rising wedge support breaks, then that opens up the full triangle target in the 2072/3 area,. SPX 15min chart:

SPX daily chart:

GC has broken down from a two month rising wedge and the next obvious target for gold is therefore a retest of the March low at 1141. GC 60min chart:

I have been working on the loose assumption that SPX would test the 2085 area today and then most likely retest the highs. If we see that wedge support trendline break, then we could well see a daily lower band ride to test main double top support in the 1939 area, so I'll be watching that carefully.

Breaking the Triangle

Triangles are very tricky to trade as I've mentioned many times, and yesterday's break up was an impressive false break.The close effectively on the daily middle band and 60min MA was very ambiguous though, and the move down overnight is suggesting very strongly that this triangle is going to break down, which is the natural direction as these triangles lean 64% bearish. opening up the obvious target area below at 2082-5 that I have been looking at for most of the week. SPX 15min chart:

SPX daily chart:

The triangle looks cooked and ready to serve now so I'm looking for an AM high of whatever size and then a hard fail to test then break triangle support at 2099/00. Hopefully we can get this moving today as forming this triangle has been a bore and I for one am more than ready to move on to the next setup.

Coiling

SPX spent another day yesterday with a low at the SPX 50 day MA and EMA in the 2100 area, a rejected high at the 50 hour MA, and close just under the daily middle band. I had thought that SPX might resolve this by gapping up over the middle band but there was no breakaway gap today and the opening gap was filled in very short order.

2100 area support is in the .... um .... 2100 area today, the daily middle band closed yesterday at 2112, and the 50 hour MA closed yesterday at 2115.3. In the absence of a break up the obvious target is still in the 2082-4 area, if bears can ever manage to finish beating 2100 support to death. SPX daily charts:

What do the other indices suggest? SPX & Dow are clearly looking for a move lower to test wedge support trendlines, and TRAN is clearly in a downtrend, though it may be forming a small IHS, and in the event of a rally a retest of broken double top support in the 8580 area would a very obvious target. Scan 3x 60min SPX INDU TRAN:

All the rising wedges from the October low have broken down, but not all patterns from the start of May have broken down yet. There are still unbroken support trendlines from there on both RUT and NDX, and an IHS that has not yet made target on RUT. There is some support for a retest of the highs on these charts, though only to make the second high on double tops. Scan 3x 60min NDX RUT NYA:

SPX is breaking back up over resistance here, and testing yesterday's high. If bulls can sustain trade over the 50 hour MA this morning then I'll be looking for a retest of the highs, and failure there.