Markets Are Like Onions

That was a very powerful break down yesterday, ending what I understand was the longest period on SPX ever without a 1% daily decline. The rising wedge from November 2016 has broken down. The minimum target retracement should be the 38.2% fib retracement target in the 2280 area, and the next trendline support is rising wedge support from the February 2016 low, currently in the 2220 area and rising of course.

In the short term the open sell signals on the daily and hourly charts have made target, and I am looking for a topping pattern. I am also watching for the potential lower band ride that may be starting here, and in the case of a strong lower band ride we may see the daily lower band, currently at 2347, act as resistance, and the 3sd lower band, currently at 2335, act as support. If bulls can convert the lower band at 2347 to support then they have a shot at a strong rally here that could potentially retest the ATH to make a likely second high of a double top. SPX daily chart:

Peeling away a couple of layers down to the hourly chart, both RSI 14 and RSI 5 buy signals have fixed today, as well as buy signals on all of the ES, NQ and TF hourly charts that fixed overnight. That is encouraging for a rally here, if bulls can break back above the daily lower band, which they have failed to manage so far but are trying again now. At the moment there is a perfect 70% bullish falling megaphone formed on SPX and that's a decent pattern that could deliver that ATH retest.

Sometimes though these patterns form and then take the lower probability 30% option and break down. If seen here the target would currently be in the right target range 2265-75 and in effect the falling megaphone would be that topping pattern that I'm looking for. This is a relatively rare setup but happens regularly nonetheless. If bulls can't break resistance and deliver that strong rally then that may well happen here. SPX 60min chart:

Peeling away more layers down to the 1min chart we can see that from the rally high at 2359 yesterday a triangle has formed on SPX, and has broken up and may be backtesting now before a terminal thrust up begins. If bulls can make that confident break up over the daily lower band then this setup could deliver that strong rally. if the break up fails here then I'd expect at minimum a retest of today's low and very possibly continuation down from there. If the hourly falling megaphone breaks the support trendline then ideally that would backtest the broken support trendline and continue directly down. If we see that then we could see that 2265-75 target range made in the next few trading days. SPX 1min chart:

So there we have it. We have been watching bulls and bears duking it out in a key support and resistance area today and a sustained break in either direction from that range may well define the next few days. We'll see how that goes.

Stan and I are doing a free educational webinar at theartofchart.net an hour after the close tomorrow, and that will be a third webinar in the 'Technical Patterns You Can Profit From' series. If you would like to see more of the methods that Stan and I have developed to help forecast market direction over many markets then you can sign up for that on this page here.