The 5DMA Three Day Rule

The bulls put in a strong day yesterday and almost tested triangle resistance. The RSI mirror triangles on the daily chart broke up and I would normally now expect to see a thrust up from the triangle to follow the RSI triangle breaks. However SPX has not yet convincingly broken back over the daily middle band, or broken up from the triangle, or broken the last significant high at 2114.24. SPX also needs to establish some support and that is the main issue for today. SPX daily chart:

Where does SPX need to establish support? Well on a closing basis it must hold the 5 day MA in the 2092 area, and ideally close back over the 50 hour MA as well, currently in the 2095 area. The 5DMA is the main one though and I have a rule that I have established after a lot of research on 5DMA breaks.

The (RTH closing basis only) rule is that if SPX breaks back over the 5DMA after a decline of more than 2%, then SPX must close at or over the 5DMA on the following two days to avoid a fast retest of the low just made. That retest will usually result in a lower low and I have found no exceptions to this rule as far back as the start of 2007, which is as far as I have looked.

In effect this means if bulls fail to close SPX over the 5DMA today or tomorrow, then the 2067.91 low will very likely be retested this week, and likely broken at that test. Stan has a possible scenario back into the 2040s if that happens and was talking about that in his post last night. You can see that here: SPX 5DMA chart:

How are my optic run indices looking here? SPX is close to a test of triangle resistance of course, the falling wedge on Dow broke up and has retraced slightly over 38.2%. Bull case has Dow making the right shoulder on an IHS here. Bear case is that the falling wedge is a continuation wedge and is played out. The right shoulder on TRAN that I was talking about yesterday is forming ok. Screen 3x 60min SPX INDU TRAN charts:

NDX is on the way back to falling wedge resistance, which should be the next target. RUT is on the way back to channel resistance, which should be the next target, and NYA has broken slightly over triangle resistance. Screen 3x 60min NDX RUT NYA charts:

Bulls need to hold the 5DMA at the close today. That closed yesterday at 2092 and will most likely close a bit lower today. Intraday I'd be looking for support in the 2087 area and the chances of a bullish resolution for today will be considerably lower if intraday support isn't found there.