Follow The Yellow Brick Road

I never managed to get a post out yesterday in the end as I was preparing for my vacation, so I'm doing an early post today before I go using charts I did last night for Basic Chart Service subscribers at theartofchart.net.

SPX inched a little higher yesterday and a possible strong RSI5_NYMO daily sell signal is now brewing. SPX may go a little higher but not much I suspect, and I am expecting that sell signal to fix within a couple of days. After it does I'm expecting a retracement to at minimum test the daily middle band, which  closed yesterday at 2111, and likely lower. SPX daily chart:

ES could fail any time on this setup and if it fails today then there is already a decent looking possible double top formed to get the ball rolling if it fails today. ES Sep 60min chart:

One thing I was very pleased to see last night was that after TF broke rising support from the 1085 low, a rising channel from that low was then established. This gives us a very useful marker for when this uptrend has likely topped out. There's not a lot happening on the short side while this channel survives. After it fails there shouldn't be much of interest on the long side until SPX at least retests the daily middle band as support. TF rising channel support is currently in the 1201/2 area. TF Sep 60min chart:

After this coming retracement completes we should see more new all times highs on SPX, so I'll be keeping an eye out looking for a low and will be posting updates every so often on my twitter feed, which you can see here. I'm on vacation until Sunday 31st July, so my next morning post will be on Monday 1st August.

Straining at Gnats

It has been very dull in the afternoon recently, and sometimes not a lot more interesting in the morning. SPX has been stalled for three days now and a possible double top has formed. It's very small, and after the great leap upward from 1991, one would think that a retracement of slightly over 1% would be easily accomplished, but it seems that SPX is paralysed into a retracement that so far has been only in time.

If a surviving bear can be located, then an hourly close below double top support at 2155.79, and the 50 hour MA in the same area, then the pattern target would be in the 2142.50 area. First support on a daily close basis is at the 5dma, currently in the 2160 area. SPX 60min chart:

Next support, on an hourly close basis is at the 50 hour MA, currently in the 2155 area. SPX daily chart:

If this very small double top turns out to be a bull flag instead then I'd expect to see a retest of the current all time high, and likely a marginal new high that would be unlikely to sustain trade over 2190 before a retracement that should run to at least 3% and more likely over 5%, before making more all time highs.

Last post before I go on holiday is tomorrow & I am really looking forward to having some time off, particularly if the intraday tape is going to be more of the same while I'm away.  :-)

Milestones

SPX and NDX showed the first significant signs of weakness in a couple of weeks on Friday, with breaks below the support trendlines on decently formed rising wedges from the late June lows. Decent quality 60min RSI 14 sell signals have fixed on both SPX and NDX and that's promising to deliver some retracement soon, though the swing high may not be in, and I'm still waiting for RUT to join the other two with a trendline support break and negative RSI divergence.

Nonetheless, I think all three indices are likely in a short term topping process here, and am looking for topping patterns to form for a decent retracement of 3% or more starting in the next few days. I'm expecting that to be a dip to buy. SPX 60min chart:

How far might this move ultimately go? Well, that could be significantly higher. I'm using the IHS on the FTSE chart as one milestone marker here, and I'm expecting FTSE to at least retest the all time high slightly over 5% higher, and FTSE may make the full IHS target almost 10% higher. Hard to say what that would be on SPX, but significantly higher at the least. FTSE daily chart:

Moves like this don't tend to turn on a dime and while I think the swing high is close, SPX may well be in a topping process for the first half of this week. Stan has his eye on 2181 SPX as a possible swing high area.

I'm going to be on holiday from Thursday through to the end of next week. Last regular post will be on Wednesday though I'm expecting to put up at least a couple of charts while I'm away.

Rising Support Breaks

Bulls had an ok day yesterday, but they're looking tired here, and this morning has seen the rising wedge trendlines break on both ES and SPX. There is a small double top on SPX targeting 2149 on a break below 2159, and I'm looking for a larger topping pattern to form, so I'm going to be watching the possible H&S neckline in the 2146 area. SPX 60min chart:

Until there is a clear topping pattern the high on SPX may still be retested and exceeded, but SPX should now be in a short term topping process for a decent retracement before most likely going higher. Ideally the retracement target would be a retest of the daily middle band just under 2100, and that's currently a good match with a 38.2% fib retracement of this move up from 1991. 

I'm going to be holiday from Thursday 21st July through Friday 29th July. I'll get a couple of posts out over the period but my internet access is likely to be patchy. Everyone have a great weekend :-)

Better Late Than Never

Very late post today, but it's my younger son's birthday and events have conspired to make this a late one.

I was saying yesterday morning that a move like this is like a trend day, in that it can just keep on going through negative divergence, pattern setups etc etc etc. A decent example of that was the move up overnight but this has clarified the resistance trendline setup nicely and we might now be reaching a stage where this move be topping out.

I did the chart below last night for subscribers at theartofchart.net, and SPX has come close to testing the daily upper band again today. The daily upper band ride is likely ending here but bulls have another chance to try to reach it again tomorrow. SPX daily chart:

There is now a decent looking possible rising wedge resistance trendline, and that needs a touch of rising wedge support, currently at 2157/8 and rising rapidly. SPX 60min chart:

There is now  decent rising wedge resistance option on ES. Stan and I are thinking that we might well do a slightly higher high before breaks the wedge but we'll see. ES rising wedge support is currently in the 2145 area. ES Sep 60min chart:

Until we see a break below the rising support trendlines on both ES and SPX there's not going to be much happening on the short side. That should happen in the next two or three days though, as rising support trendlines this steep don't last long. That said, the next retracement might obviously just establish a less steep support trendline.

SPX Daily Upper Band Ride Day 3?

SPX has had an amazing run the last few days and I understand that this move up from the 1991 low is the strongest thrust up in over 5 years. A move like this is akin to an extended trend day, in that there is no shortage of counter-trend setups, but these all tend to fail until the move is nearing the end. We've had some weakness this morning, and an impressive range of 60min sell signals have fixed across the indices, but there is a much higher than usual risk that these won't deliver a decent retracement. On the bigger picture this move is very likely to need higher, and any retracement here is likely to be a dip to buy.

If SPX manages to push up through the negative price action this morning then SPX has been on a daily upper band ride for the last two days, and if that is to continue today, then I'd expect a touch of the daily upper band at 2164 before the close to maintain the band ride. SPX daily chart:

On the 60min chart both RSI 14 and RSI 5 sell signals have fixed, though the RSI 14 sell signal is weak and may need another high on increased negative RSI divergence. If we see more downside today then first support is rising support from the 1991 low, currently at 2140. If we are to see a deeper retracement then that would break and I'd then be looking for a reversal pattern to form, with one eye on the possible H&S neckline in the 2135 area. SPX 60min chart:

The maximum I'd be looking for on any retracement here would be a test of the daily middle band, currently in the 2090 area. Any dip we see here should be a buy into a new all time high.

Grinding Higher

SPX pushed through the big resistance levels I was looking at yesterday at the open and has made a new high at 2153.62 so far today. If the bears have a shot today, and that's a real maybe, then the best scenario has the very well formed rising wedge on ES shown on the first chart below, having overthrown wedge resistance this morning, returning to test wedge support, currently in the 2118 area but rising rapidly of course.

As I haven't recently reposted here the bonus charts that I post for subscribers at theartofchart.net before the RTH open every morning I'm posting them all today. The usual ones are ES, NQ, TF, DX, CL, GC & ZB and I'm trialling NG as a possible addition. If you want to see these every morning you would need to subscribe to either the Daily Video Service or the Chart Chat Service at theartofchart.net. ES Sep 60min chart:

NQ Sep 60min chart:

TF Sep 60min chart:

DX Sep 60min chart:

CL Aug 60min chart:

GC Aug 60min chart:

ZB Sep 60min chart:

NG Sep 60min chart:

How high can this thrust up on SPX go? Quite a bit higher, though it really should see at least some retracement soon. As and when we see that and the support trendlines on ES and SPX get tested we should have final pattern confirmations. Until then we are looking at resistance trendline options, and if an SPX daily upper band ride gets going, SPX could be heading for the 2180-2200 area.

Would a hit of 2200 mark a glorious new push on SPX into heights far beyond? I'm very doubtful about that. The earnings and fundamentals don't support that move, there is no QE in the US to push it up anyway, and my very strong January barometer stat is calling 2016 as closing marginally green at best. You can see my post on the first day of February 2016 talking about that here. Could we see that stat fail this year? Yes, obviously, but the historical stats for last year were a lot stronger than those for this year and the stat delivered then. My working assumption is that it will deliver this year too.

That having been said I am not seeing any obvious setup for a serious high here yet. When the 2134 high was made last year I'd been talking about it for days, shorted the exact high (lucky entry) and announced in a post a couple of days later in a post titled 'The Road to 1820' that I was going to keep that short until 1820 was reached with the intention of taking over 300 handles on that short. You can see that post here. In the comments below you can see me saying that I was expecting to see that low latest spring 2016 and when the time came I cashed up in February at 1810 for slightly less than 300 handles once the three contract rolls on ES were taken into account. I haven't located the post where I mentioned that exit but it's in there somewhere.

The main thing is though that I haven't been calling anything similar here because I don't yet see anything similar here. I'm not expecting SPX to close 2016 heavily in the green but we could go a fair amount higher before we see the next strong move down. Best to be cautious on the short side until this move runs out of steam.

Testing Major Resistance

Apologies for the late post today. Busy morning.

I did the chart below over the weekend for chart service subscribers at theartofchart.net, and it shows the many attempts on SPX to break through resistance in the 2100-35 area. Since the start of 2015 there have been an impressive fourteen highs in this range that have led to short term reversals of over 2.0%, and this morning of course SPX has broken above slightly to make a new all time high at 2141.

This area has a number of big resistance levels. 2138 is a major fibonacci level, the weekly upper band is at 2139,  the daily upper band is at 2144. SPX has not broken through these with any confidence yet. SPX daily 5dma chart:

There are a lot of people today looking for a move directly to 2200 or even 2400 next, and while I'm doubtful, there's only ever one way to find out for sure. I was saying on Friday morning that if SPX broke up then we'd likely see a new all time high soon after and here we are. I was still thinking that a retracement would follow shortly thereafter and I still think so.

For today though the pattern setup here very much likes a reversal, and when you see a setup like the one below at a major resistance area, it's best to at least bear it in mind. Better that even odds that this morning's opening gap up is filled today in my view. If not then likely tomorrow. SPX 15min chart:

Bulls are having an extended test of this reversal area and maybe they'll get through. If they don't I have sell signals brewing on the 60min, 15min and 5min charts, and I'll have my eye on a retest of 2085.

Moment of Truth Time

Well I was doubtful about the bears holding it in yesterday but they did. None of SPX, RUT or NDX managed a bullish break and there are now very decent topping setups here on all three to deliver a solid retracement of the move up from last week's low, if resistance can hold again today.

Lately an expectation that the bears would show up to work sober two days running has been overoptimistic, and if this was a bull setup I'd be calling 80% odds that this setup would deliver, but this is the bears, and the NFP numbers may make the decision before the open, so I'm giving 60/40 odds in favor of the bears that this topping setup plays out, with the note that on a break up we would likely see SPX test the all time high at 2134 in the near future.

On SPX a 60min sell signal is now brewing and there is a very nice possible double top in place that on a sustained break below Wednesday's low at 2074 would have a target in the 2039 area, just above the 61.8% fib retracement target at 2036/7. Important daily closing support levels on the way are at the 5dma at 2097/8, the daily middle band at 2079/80, and the 50dma at 2077. Not far below the target is important support at the 200dma at 2025. The key levels close to double top support are the 50dma at 2077 and the 50 hour MA at 2078. On a break over yesterday's high at 2109.08 I'll be switching my lean to the bull scenario towards a retest of the all time high at 2134. SPX 60min chart:

On RUT a sustained break below 1131.71 would have alternate targets at either 1108 or 1102. More details about the overall scenarios on all three indices here are in the comments on the charts. RUT 60min chart:

On NDX a sustained break below 4380 would have a target very close to the 61.8% retracement of last week's move at 4290. NDX 60min chart:

Obviously the NFP numbers at 8.30am may set the direction for today and there is a higher than usual risk of a trend day in either direction. If the bear scenario plays out to target then I'll be looking for support there or at the 200dma on SPX at 1925. The bigger picture setup is still pointing upwards either now or later.

Flags

ES didn't quite make it to the double pivot support yesterday, though the low at 2066 was arguably a test of monthly pivot support at 2062.5, and might be close enough. Obviously the SPX daily middle band held as support at the close and the intraday low was at a test of the 50dma. Can we see more downside? Maybe, though the obvious next move on the SPX daily chart points to a retest of the 2108 high, and on a sustained break above 2108, to megaphone resistance in the high 2120s, and that may well be the target for this move up from yesterday's low. In effect that would be a test of the all time high at 2134. SPX daily chart:

I mention regularly that the RUT chart is well worth watching, as it is a very technical chart, unlike NDX, which can often be a bit of a mess in trendline terms, and is at the moment. Not so with RUT, and the RUT daily chart is the best thing that bears have going for them here in terms of promising a strong retracement.

The move up from the February low on RUT was a clear rising wedge, and that has broken down into an equally clear falling channel, which would usually be a bull flag, and most likely is a bull flag here too. As and when the flag breaks up the flag should deliver a test of the 1190 high as the first target, and on a sustained break above the flag targets would be either a retest of 1296 for the second high of a double top, or the full flag target in the 1340 area. Why is that good for bears? Well that's because the flag has not yet broken up, and if we were to see a fast retrace back into flag channel support that would be in the right area for a 50% retracement of the move up from the February low in the 1066/7 area. That is a very natural target for any decent retracement here. RUT daily chart:

How's that scenario looking on the shorter term RUT charts? Well on the 15min chart yesterday's action does not look promising for bears at all. The low yesterday established a rising channel from last week's low, so to break lower bears now need to break that rising channel to open up the downside. The retracement this week has also formed a clear smaller falling channel, which as I mentioned looking at the bigger picture on the RUT daily chart, would generally be a bull flag in this context. RUT closed yesterday at bull flag/channel resistance and if that flag breaks up today the first flag target would be a retest of last week's high at 1161.05. If that target was made, and normally it would be, that would mean that the larger bull flag channel would be breaking up with a target in the 1190 area, and that target would also normally be made. This setup puts bears in the last chance saloon for more downside this week, with them wanting first to avoid a break over yesterday's close at 1147.91, and if that breaks, with them very much needing to avoid a break of larger bull flag/channel resistance, currently in the 1158-60 area. If they fail to manage either then this move may well run into a new all time high on SPX in the next few days. RUT 15min chart:

Soooooo, the scenario I would prefer to see here depends on the bears not dropping the ball at this technically critical moment. Do they ever drop the ball at this kind of inflection point? Perhaps a better question would be whether they have ever recently not dropped the ball at this kind of critical inflection point? Bear performance at moments like this in recent years might charitably be described as mixed. We'll see what happens today, but bear chances would be considerably improved by an opening gap down that doesn't fill. Today is a cycle trend day, with 70% odds that one side or the other will dominate the day, but the performance on these can be weak around holidays and we've certainly been seeing that lately. We'll see whether that delivers today.

Just a reminder that you can buy annual memberships at theartofchart.net at 30% off this week only. On our daily video service there is a considerable expansion of the work Stan and I do here covering ES and SPX as well as detailed coverage every day as well of  NDX/NQ, RUT/TF, DX, CL, GC & ZB, with less detailed coverage as well of NG and SB. You can get a better idea of what we do there if you watch the video on the Subscriptions page here.

Eyeing The Double Pivot Support Test

SPX did a very nice test and hold at the daily middle band yesterday. SPX opened above that today and has gone slightly below it intraday at the moment. As this is daily closing support only, for it to hold on a test again today it just needs to be back to or above the daily middle band at the close today. In the meantime we may see a move significantly below intraday and I'll be looking at the targets for that on the ES chart: SPX daily chart:

What Stan was calling for in the public Chart Chat on Sunday was for a test of double monthly and weekly pivot support earlyish this week and that is in range on a spike down through the daily middle band today. You can see the recording for that here. The monthly pivot is at 2062.5 ES and the weekly pivot is at 2059.5 ES (approx 2071 and 2068 SPX respectively) . I have an open H&S target in the 2057 area and that is a match with the 38.2% fib retracement of the spike up from the last week's low. ES Sep 60min chart:

If we see that test, will that strong support zone hold as support? I'm leaning towards yes, and Stan is leaning towards no. Either way we'd likely see a bounce from there. RUT/TF is in a potentially very bearish bigger picture setup if we should see a full retracement back to last week's low. That's probably too alarmist, but if SPX/ES break support here we could see retracement back to the 1900-50 area before (most likely) making new all time highs. TF Sep 60min chart:

Must ES test that double pivot support? No, though it usually would on this setup. If we see SPX break back over the current ceiling established at 2091 then I'd be looking for a retest of the 2108.71 high, possibly as the second high of a short term double top.

I have a couple of announcements to make today. The first is that I'm going to be on holiday from Thursday 21st July through Sunday 31st July. I'll likely do a couple of daily posts and a few tweets in that time but my internet access will be very limited and my wife is going to be grumbling if I take too much time out to work. Stan's going to be covering my morning bonus charts at theartofchart.net.

The second is about forthcoming changes at theartofchart.net. I've been taking about us planning to raise the price of our daily video service for a few months now and that's been delayed as we've been upgrading the website, debugging, plugging a security hole etc etc etc. That's now likely to be coming either at the end of July and September, depending on when Stan is on holiday. We're planning quite a large price increase, as we've expanded the service a lot since we started it 11 months ago, and anyone wanting to lock in the current prices would be well advised to subscribe before we do that, as we have a policy of never raising prices to any subscriber for any service as long as their subscription is continuous. We're running a promotion this week with an extra 10% off annual memberships, so now wouldn't be a bad time if you're thinking about it. When we are ready to raise prices we will be mentioning that at least a few days beforehand, and it's possible that we may run another promotion then of course.

Backtesting Broken Resistance As Support

ES has been retracing somewhat overnight on Brexit fears and I understand that China's debt to GDP ratio is now in the 250% ratio, which is roughly 50% more than Greece but still significantly behind the world leaders in insanely reckless fiscal policy Japan. Given that everyone knows nowadays though that this problem can be solved just by printing enough money to buy back the debt and cancel it I have no idea why anyone worries about these things any more, but for whatever reason markets are down and people seem to think that has something to do with it.

A retracement is overdue, and the first target is a retest of the daily middle band on SPX, which closed at 2083 on Friday. SPX daily chart:

On ES the chart below is the one I posted earlier for subscribers at theartofchart.net, and the H&S has now broken down with a target close to the 38.2% fib retracement target for the move up from last Monday's low in the 2057 area. That is close to the ES weekly pivot at 2059 which is the next natural support on a break back below the middle band, and will will probably test that on this retracement. ES Sep 60min chart:

Kudos to Stan for calling the 2104 ES target in Chart Chat on Sunday. if you haven't seen that you can see the recording for that here.

We Are Where We Were

It's been an amazing week, and in effect the first five days after the Brexit vote were all trend days, with ES now kicking around much the same area this afternoon as it was on the afternoon before the vote. What does this all mean? Not much I suspect. The journey to 1991 wasn't the herald of the bear apocalypse that some were expecting, and I strongly suspect that the journey back isn't the herald of the bull rapture that some are now expecting. We'll see how it looks after we see some two way trading return after the long weekend.

SPX broke back up over the daily middle band yesterday and NDX and RUT look likely to do the same today. That opens up targets a bit higher and I've had a close look at the pattern setups on all three on the daily chart.


On SPX the obvious pattern is a megaphone aka a broadening top. I prefer calling these megaphones as they have no directional bias so the other name is rather misleading. The next obvious target within the megaphone is megaphone resistance in the 2125 area. SPX daily chart:

On NDX the obvious pattern is a falling megaphone, and on a break over this test of broken rising channel support the obvious next target is megaphone resistance in the 4510 area. On a break over megaphone resistance the megaphone target would be a retest of the 4574 high. NDX daily chart:

On RUT there is a falling channel formed from the June high that is a likely bull flag on the bigger picture. Flag/channel resistance was being tested at the high today and if SPX and NDX reach their targets I'd expect RUT to break flag resistance and test the first flag target at a retest of 1190 by then. RUT daily chart:

Today looks like to close green as expected and if we are going higher next week I'm expecting to see some retracement first on Tuesday/Wednesday before that happens.

Stan and I are doing our monthly public Chart Chat at theartofchart.net on Sunday and will be discussing the usual very wide range of indices, commodities, currencies etc and taking questions. Lots of interesting turns and trendlines at the moment across a lot of markets so it should be a Chart Chat to remember. The webinar is free and open to all, so if you want to come you can register for that on this page here.

Everyone have a great Independence Day on Monday, and let it be a reminder to everyone that when a country declares independence from a larger group of countries in which they don't feel they belong, while it does result in short term uncertainty, the end result can sometimes be well worth the effort.  :-)