Mind The Gap

I always enjoy using literary, philosophical or other references in the titles of my posts when I'm not summarising the central theme of the post in it, and this post narrowly escaped being entitled 'The Curious Incident of the SPX in the Daytime', before I decided that the central message of this post was too important not to be used as the title. The title would have been a reference to a quote from the famous Sherlock Holmes short story 'The Silver Blaze'.

The point is of course that while NDX/NQ did almost exactly as I predicted in my post last night, reversing in the right area back to the retest of the daily middle band on NDX, closing a handle below it, SPX/ES and RUT/TF were left at the starting gate, both closing not far above the lows for the day. What does this mean? Well at the least it means that the possible extension higher that I was looking at on SPX/ES if NDX/NQ now breaks up towards the all time high retest is now unlikely, and if NDX/NQ breaks up here then I wouldn't be looking for more than an all time high retest on SPX/ES, and likely not even that on RUT/TF.

The inflection point that I was looking at in my post last night though was very much on NDX, which closed the day at the point of decision, and with SPX having tested the daily middle band as support again today and held it again, this means that the direction from this inflection point may well be decided overnight. If so, a resolution upwards would then likely be confirmed with a breakaway gap up over daily middle band resistance on NDX, and a resolution downwards might well be signalled with a breakaway gap down through daily middle band support on SPX. If so those gaps would likely not be filled and the move in the selected direction would likely be a strong one. Hence the title.

SPX held the daily middle band at the low today and the daily RSI 5 sell signal reconfirmed after the higher high. If SPX can break that daily middle band support then this is a strong bear setup, though the sell signal would probably survive the alternate retest of the all time high on SPX. SPX daily chart:

NDX closed a handle under the daily middle band, having broken slightly over possible double bottom resistance. If this is what I would call a Janus bear flag, very like the one I was looking at on TF last night, then NDX would fail hard from this area into a minimum target at a retest of the low of the pattern at 5633.34. If this is a double bottom breaking up then the daily middle band gets broken and converted with a minimum target at the full retest of the all time high. There is no real middle ground on this setup so it's very likely one or the other. NDX daily chart:

The ES and NQ futures charts below were done after the RTH close for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

On ES there is a decent quality falling channel established from the high and, if that can be broken, then there is a decent double bottom setup that would look for a retest of the all time high on a sustained break over 2440.25. ES Sep 60min chart:

NQ has broken slightly over double bottom resistance and is in the inflection point here. A strong break in either direction from here likely keep going to either the top or the bottom of this range. NQ Sep 60min chart:

TF looked a bit lost today, and has converted the weekly pivot to resistance with the rejection from there at the high. A break below possible bull flag channel support currently at 1393 opens the downside. TF Sep 60min chart:

Which option do I favor here? I'm thinking this is pretty much a coin toss, with possible a slight edge towards the bear case. We'll see what happens overnight. .

Stan and I are doing our free educational webinar at theartofchart.net tomorrow afternoon an hour after the close, and that is the third webinar in our Managing Risk series, subtitled 'Position Sizing, Trade and Money Money Management', and if you'd like to attend then you can register for that on our June Free Webinars page. I would also note that this week's edition of The Weekly Call is posted and that the model portfolio there is up 178% in the seven months to May 19th, obviously well on course to make our target minimum 200% return over the first year. As and when that target is reached we're thinking of making the strategy there a bit less conservative. That's a free weekly service and if you trade futures I'd suggest adding it to your reading list.