Retracement, Maybe

I think it's pretty obvious that we'll be seeing a test of the all time highs before going much lower, but the perfect bull flag channel on SPX here is saying that we may well see a decent dip to buy first. Key support is at 2070 and if that breaks without first seeing a break of flag channel resistance, it's still possible that we could see a test of flag support in the 2000-10 area. SPX 60min:

RUT is testing double trendline resistance here and is very short term overbought on RSI. There are both RSI 5 and RSI 14 sell signals on the 15min chart. The obvious next move is a test of short term channel support in the 1187-90 area. RUT 60min chart:

NDX is already on a 60min RSI 14 sell signal of course. NDX 60min chart:

SPX flag resistance is in the 2093 area, and a break above kills off the possible setup for a retest of 2000. Key uptrend support is at the 50 hour MA at 2082.70. A sustained break below opens a test of 2070, and a break below 2070 opens up a retest of the 2040 area.

Today is a cycle trend day, so there are 70% odds that either buyers or sellers will dominate the tape today. The volume is low though so that may affect the odds.

Stan and I are doing a free Chart Chat every fourth Sunday, and the next one is on Sunday 6th December. It should be a very interesting one with the current setups here on USD, gold, oil, natgas, sugar etc so I'd sign up early to make sure that you have a place. You can sign up for that here.

Holiday Tape

The last two cycle trend days both delivered. There is a third this week on Friday but the volume will be very low and I'm doubtful about any decent trending move. We may well not see much in the way of any moves on the equity indices before next week now.

The retracement on SPX stopped just short of a test of the important 50 hour MA. As long as that holds the uptrend is intact. If that breaks then there is a nice looking pattern setup to retest the 2043 area. Resistance is at the current high at 2097. If we see a decent break above we should see a test of 2116 next. SPX 60min chart:

The 50 hour MA is also strong uptrend support on NDX, with a close test yesterday. Again, while that holds the uptrend is intact. NDX 60min chart:

I'm not a fan of trading thin holiday tapes and my experience has been that to the extent that these low volume tapes have a direction, they definitely lean bullish. The key support levels today on SPX are the 5dma at 2087 and the daily middle band at 2080. Both of these are daily closing support. Not far below now is the 50 hour MA at 2076, and if the bears can convert that to resistance then we can see a deeper retracement. I'm keeping an open mind but I won't be holding my breath waiting.

Thanksgiving isn't a holiday in the UK for some reason, but I need a break and am going to take the opportunity to take some time off. My next post will be on Monday morning. Everyone have a great Thanksgiving. :-)

Will She Won't She?

Very late post today as I've had a very bitty day. I'm heading out again as soon as I've posted this so I'll be brief.

I mentioned yesterday morning that yesterday and today were both cycle trend days, meaning that there were 70% odds on each day that either buyers or sellers would dominate that day. Yesterday morning opened strongly for bulls, and then sellers dominated the day from the AM high. Today so far has been the mirror image, with bears opening strong and the rest of the day so far being dominated by buyers.

So what are we likely to see next? Well we are at a short term crossroads here. On a sustained break over the 2097 high the next target is a retest 2116, and I'd expect a retest of 2134 in the next two or three weeks. On a retest of the 2097 high and hard fail, then I'd be looking for a retest of this morning's low at 2070 and on a sustained break below that, the double top target would be in the 2043 area, slightly below the 50% fib retracement target at 2049.

The first support levels to watch are the 5dma in the 2085 area and the daily middle band in the 2080 area. Those were tested this morning and have obviously held so far. If we see a sustained break below them then the 50 hour MA in the 2068 area becomes a target again, having already in effect held as support this morning. SPX daily chart:

The double top option looks decent on RUT as well, with the addition that a 60min sell signal would fix on RUT which has made a higher high since I did this chart. All bears have to manage is a sustained break below the low this morning, if they can. RUT 15min chart:

Are we going to see more retracement? I'm doubtful. If only because all of the fixed and potential sell signals that I was looking at yesterday morning have made target, and the key support MA in an uptrend on SPX, the 50 hour MA, has been tested and has held with confidence so far.

If bears can break below the 50 hour MA now then we might well see a strong retracement. If they can't then this is looking higher.

Smells Like Retracement Coming

The rising wedge on SPX broke down on Friday afternoon and an RSI 14 sell signal fixed on the 15min chart, with an RSI 5 sell signal also fixing on the 60min chart. There is no obvious short term topping pattern yet, and we may see a higher high to form that, but a retracement looks close. If we see that retracement, then the obvious support levels are the daily middle band in the 2078 area, and the 50 hour MA in the 2061 area. SPX 60min chart:

NDX and RUT haven't yet broken their support trendlines, but there are both RSI 14 and RSI 5 sell signals brewing on the NDX 60min chart. If and when the current support trendline breaks, those sell signals will likely fix. NDX 60min chart:

Today and tomorrow are both cycle trend days, which means that there are 70% odds that either buyers or sellers will dominate each day. This does not require full trend days. I'm expecting to see a strong day of selling tomorrow if we don't see that today.

Positive Definition

I was talking a few days ago about this retracement on SPX being a definitional move that would define which scenario SPX would be running into the end of the year. In order to stay on the bear scenario bears needed to avoid a break back over the daily middle band yesterday, and when that inflection point was reached yesterday afternoon the bulls broke back over that with confidence.

Does that entirely kill the bear case here? No, but it makes the bull scenario much more likely unless the bears can reverse this hard, and I can't see any obvious reason to think that's likely.

The bull scenario here is that last week's retracement retested broken double bottom resistance at 2020, and is returning to make the lower double bottom alternate target at a retest of the all time high at 2134. On a break above the higher alternate target is at 2174. SPX daily chart:

On the 60min chart I posted a rising wedge on twitter yesterday afternoon. At the moment that wedge appears to be breaking up with a target in the 2127 area. Strong support is at the 50 hour MA at 2059 and that would need to be broken with confidence as a first step to reverse the technical damage done to the bear case yesterday. I can't see any obvious reason to expect that yet. SPX 60min chart:

SPX 15min chart:

The daily middle band is at 2073, and key support below is at the 50 hour MA at 2059, and the 5dma at 2058. For the bear case to be taken seriously bears need a daily close with a clear break below the 5dma. On my 5dma three day rule that would mean that the 2019 low would be very likely to be retested shortly after, and at that point bears should be back in the saddle. In the absence of that we are back on buy the dip and the next obvious target is a retest of the 2134 all time high.

Testing First Resistance

SPX tested falling channel resistance at the high yesterday and if that channel is going is going to hold then yesterday's high shouldn't be tested today. That high was a test of the 50 hour MA at 2060, the 200dma at 2064 and channel resistance at 2066. If the channel breaks then the path is clear for a test of the daily middle band in the 2073 area. SPX 60min chart:

SPX daily chart:

There was no negative RSI divergence at the highs yesterday so I'm leaning towards a test of the daily middle band, which is key (daily closing) resistance for this rally. If we see a break above it then the break needs to be confirmed with another close over the band on the next day. If seen I'd expect a retest of the 2116 soon after. Until we see that my preferred scenario is reversal in this resistance area back towards the 1990 support area.

Approaching Resistance Test

Well, rather faster than I was expecting, we are close to testing the resistance cluster that I was talking about yesterday morning. At the open this morning the cluster starts at the 200dma at 2064, then the 50 hour MA at 2065/6, falling channel resistance at 2069 and the daily middle band at 2072. As long as we see SPX turn here then I'll be looking for 1990 next, and SPX may well be on the way back to 1871. On a break back above the daily middle band the falling channel is a bull flag and I'd be looking for a retest of the 2116 high. SPX 60min chart:

NDX is important here because there is currently an island top on NDX. There's more than one gap above but if the gap from 4588.93 is filled I'll be disregarding this setup. NDX 60min chart:

In the event that resistance breaks elsewhere then on a break over 1158.43 the double bottom target would be in the 1176 area. RUT 60min chart:

This is a definitional resistance test. If SPX resistance holds here then SPX is going lower. If SPX breaks back above the daily middle band then we'll likely retest the 2116 high, at which point SPX goes higher and/or makes the second high of a double top.

Decent Rally Coming

I don't have any positive divergence here on the 60min or daily RSIs, apart from a slight divergence on the 60min RSI 5, but I have a lot on the 15min and 5min charts. I'm not looking for the main retracement low here, but SPX is very oversold short term and I'd expect to see a decent bounce shortly. That bounce may already have started. SPX 60min chart:

The obvious targets for a strong bounce would be the 200dma at 2064 and the daily middle band just above at 2071. If the rally gets that far I'd be looking for failure there as this retracement does not look finished. SPX daily chart:

Opex is on Friday and in the wake of the Paris attacks we may have a headline minefield week, so it could get very choppy. Short term a bounce looks much more likely than continuation down.

Friday the 13th

Well we got the breakaway gap down that I was looking for yesterday morning and all of those H&S patterns I posted yesterday have broken down. None of them have made target yet and I'm still looking at the 38.2% fib retrace at 2023 as first serious support and the obvious first target on SPX. The daily lower band is at 2025, broken resistance at 2022, and I have the H&S target in the 2018 area. This area could well be the low area for this retracement. SPX daily chart:

Both the daily RSI5_NYMO sell signal and the 60min RSI 14 sell signal have now made target, and if we are going to make a retracement low close to 2023 support I would expect a decent bounce first to set up positive divergence on the 60min RSI 14. SPX 60min chart:

I'm leaning towards seeing a bounce this morning but we may not see it. The first big support on SPX is around the 38.2% fib retrace target at 2023. I don't have a decline pattern from the H&S break yet as that would require a bounce of some kind. If 2023 is going to be the retracement low I'd be looking for that bounce today.

Looking Over The Edge

The rising wedge from 1871 broke down, and we would generally now see a retracement of the wedge in the 38.2% to 61.8% fib range, in the event that we were not to see a full retracement of the wedge. After the break of the wedge I look for a reversal pattern to form and there are now well formed H&S patterns on SPX, NDX and RUT. All of these patterns have targets around the 38.2% fib retracements of this last move up.

The obvious next step is for these patterns to play out to target. Today is the other cycle trend day this week so there are 70% odds that either sellers or buyers will dominate the day. In the event that we have a trend day down today I'd be looking for a big gap down that did not fill the gap. If we see that this morning then we may well see a big move down today. SPX 60min chart:

NDX 60min chart:

RUT 60min chart:

Yellen is giving a speech at the open which is a big wild card today. Overhead resistance yesterday was at the 5dma at 2087, and in the event that we see a hard spike up on Yellen's speech I'd be looking for resistance there again today. SPX daily chart:

Subject to this setup being drowned in dove guano during Yellen's speech today, it strongly favors a decline here and I am looking for the move to obvious big support near the 38.2% fib retrace at 2023.

Right Shoulders I Think

All futures charts today from the subscriber only bonus charts at theartofchart.net as they tell the story for today well and I'm running late.

All three of ES (SPX futures), NQ (NDX futures) and TF (RUT futures) look likely to be forming right shoulders on H&S patterns. those could go a little higher but if these are H&S patterns they could break down at any time. ES 60min chart:

NQ 60min chart:

TF 60min chart:

Today is a cycle trend day and if these H&S patterns break down today this could ruin. The level on ES I don't want to see broken is the weekly pivot at 2089.5. That's in the 2094 area on SPX, which is a match with important resistance at the 50 hour MA. A sustained break over that level would strongly suggest a retest of the 2116 SPX high.

Watching the Megaphone

That was a nice break down yesterday, though I'd note that the bears still haven't managed to put a full day together in this downtrend so far. I'd also note that the falling megaphone from the high is still not yet broken. While that remains intact there is a significant probability that we will see a retest of the highs, though it is also possible that this megaphone may just expand into the 2023 fib retrace target and then break up afterwards.

In the short term we are seeing a bounce off megaphone support and if that continues the obvious next target is megaphone resistance, currently close to the 50 hour MA in the 2094 area. That would be the first target on a rally from here. If the megaphone was to break up then the target would be a retest of the 2116 high. and that would be very likely to be the second high of a double top targeting that 38.2% fib retrace target at 2023. SPX 60min chart:

Could this retracement be finished? The daily chart says no. The high probability daily RSI5_NYMO sell signal is nowhere near target, but the signal would allow a retest of the 2116 high before going down further.  SPX daily chart:

The scenario I'm leaning towards today is a move to test megaphone resistance in the 2090-5 area. If we see an AM high that fails hard though, then the megaphone could break down (the 30% option) with a target close to that 38.2% fib retrace.

The 2020 area is an important inflection point area that should be tested here. If ES bounces hard there then I would have double bottom targets in the 2134 and 2170 areas. A break down there would open up a test of strong 1950-60 support and a possible full retracement of the rising wedge back to 1871.

High Retest Likely Unless ..........

The rising wedge from 1871 has broken down and SPX is in the topping process. The setup on SPX and NDX favors a retest of the high as at Friday's close. This should be the second high of a double top. SPX 60min chart:

There is a possible alternative though. If we see a gap down today and then Friday's intraday low at 2083.74 breaks down, then I would have a double top breaking down with a target in the 2056 area. SPX 15min:

Looking at the open this could very much go either way. I'll be calling breaks on twitter (@shjackcharts).

White is Black

The NFP numbers knocked it out of the park, and a December rate hike from almost nothing to slightly more than nothing now looks likely. For the moment that looks bearish, though a barely perceptible token rate hike from a Fed stuffed with doves is a little hard to take seriously, and may not remain bad news for long.

In the short term I have the move from the high as a falling megaphone and there are three main options here which I have laid out on the chart. From here with the ES low at 2083 the main remaining options are to either break back up to retest the high, or to break down from the megaphone into a target area in the 2040-50 range. I'm leaning towards the bear option with a trend down day, but keeping an open mind.  SPX 15min chart:

On the 60min chart the low yesterday was a test of important trend support at the 50 day MA. That has broken this morning and as long as SPX stays below that (currently at 2095), then the bears have the ball here. SPX 60min chart:

The bull/bear line for today is the 50 hour MA in the 2095 area. If bulls can recover over it and sustain trade above it then a retest of the high will be likely. If that holds as resistance then I'm looking lower and we may well trend down today. There are significant support levels on SPX around 2080 and 2060. If we go down hard today then I will be looking at the 2060 support area, supported by the 200dma at 2063 and the daily middle band at 2059.

Rising Wedge Support Broken

Rising wedge support from 1871 broke yesterday on SPX, and we should now have either seen the uptrend high or be in the topping process. Over half of topping reversal patterns on SPX are double tops so a retest of the highs is very much a possibility.

If bears can take early control today there is currently a small H&S targeting the 2078-80 area on a break below yesterday's low at 2096. The 50 hour MA is important support to watch at 2089. SPX 60min chart:

The 5 day MA was at the exact low yesterday and is support to watch today as well. SPX daily chart:

The minimum target that I am looking for on this move is a test of the 38.2% fib retracement in the 2023 area. Could we go down further? Yes, but but I'm a bit doubtful about the seasonality for a really big move. We'll see what happens at 2020. In the meantime I'm looking for a reversal pattern to form here and have support levels for possible H&S necklines in the 2078 and 2063 areas.

Waiting For The Break

SPX has had a nice move up from the touch of rising wedge support at the close last Friday. That formed a small rising channel that broke down yesterday afternoon. Bears have a shot here at breaking rising wedge support, currently in the 2096-8 area and multiple sell signals are suggesting that it may well break here. SPX 60min chart:

On RUT the high yesterday was a touch of already established rising wedge resistance and there are multiple sell signals there too. The obvious next big target is rising wedge support in the 1157 area. RUT 60min chart:

Bears have something to prove here. The setup for a high here looks good but the uptrend is intact until we see a break below rising wedge support on SPX. We'll see if bears can manage that today.

V Profile Day

I'm not feeling well today so I might go back to bed after I post this.

The cycle trend day yesterday delivered the goods, and after the bears failed to manage a gap down yesterday morning, that was a strong bounce off the rising wedge support that was tested at the close on Friday.

Today is the other and less common type of day that Stan calls at the start of the week and this is a V profile day. There are 70% odds that the market will make a decent move in one direction this morning, and then reverse that move mostly or entirely this afternoon. The V can go either way with AM weakness followed by PM strength or vice-versa. Not seeing much sign of that first move so far today. If we don't see a decent directional move in the morning then there can obviously be no V.

SPX made it up to 2106.20 yesterday and rising wedge resistance is in the 2120 area. This uptrend could now fail at any time and a break of wedge support puts SPX into the topping process. SPX 60min chart:

NDX has now made a decent hit of the rising wedge resistance from the August low that I put forward in mid-October as a possible target. As with SPX there is strong negative divergence and the uptrend on NDX could fail at any time. NDX 60min chart:

The high yesterday was a possible uptrend high on both SPX and NDX. Both could still push a bit high but I'm expecting an uptrend high to be close and within a couple of days. After that we should see at least a strong retracement. My ideal day today would involve slightly higher highs in the morning that would be more than wiped out in a strong reversal this afternoon.

The First Day of November

Today should be interesting. It is the only cycle trend day this week, which means that there are 70% odds that trading will be dominated by either buyers or sellers. That can mean a trend day but often won't be a full trend day. That could very much go either way based on the closing setup on Friday, where the SPX close was at a test of rising wedge support. Bears have missed the opportunity so far to gap below wedge support at the open, and if we see a strong move up today then rising wedge resistance is currently in the 2115 area. Equally if rising wedge support breaks this morning this market looks ready to test the 2060 area next. SPX 60min chart:

If we do see a break of wedge support then I'd be looking for a test close to or at the 2010 area and we could see considerably lower. A high probability RSI5_NYMO sell signal fixed on Friday and that's telling us that a retracement is close, even if it doesn't start today, and that the retracement should be strong enough to at least make the 38.2% fib retracement of the wedge at 2010. SPX daily:

Today is the first trading day of a new month and that favors the bulls. My friend Cobra has the first day of the month up six times out of the last nine and this has been a weak year. If rising wedge support holds then bears may well be in for a long and disappointing day.