Just the Stats Ma'am

The close on SPX yesterday was a clear close back over the 5dma, and as it has been a decline of more than 2% since the last break down, that puts SPX back on the Three Day Rule. That means that if SPX should deliver a clear close (4/5+ handles) back below the 5dma, currently at 2684, today or tomorrow, then SPX would very likely retest the October low in the following few days.

When SPX is trending in either direction I watch the 5dma and the 50 hour MA for trend support or resistance. The 50 hour MA is currently in the 2694 area, so that and the 50dma give us the short term support area.

On the resistance side there is a possible IHS neckline in the 2725 area, and that's still in play potentially if SPX breaks back under the 2685-95. That would have an ideal right shoulder low in the 2651/2 area, but in practical terms in the event of a daily close back under the 5dma SPX would likely deliver at least a new retracement low.

Higher resistance and a very possible target area for this rally if reached quickly are the 200dma and daily middle band, both currently at 2765, and the 50% retracement of the decline from the ATH in the 2772 area.

Our overall lean here is that we are expecting this rally to pull back shortly, very possibly into the 2680-2700 area, then go higher, very possibly into the 2760-70 area. SPX may well then fail into a new retracement low before the main rally begins. This current rally would therefore be what we would normally describe as 'the high before the low'.

It is possible though that the short term low may be in. I'd note that the daily stats lean bullish every day between now and FOMC next Wednesday, and there is already a possible asymmetric double bottom that has broken up with alternate targets in the 2785 and 2810 areas.

SPX daily 5dma chart:

SPX 60min chart:

Stan and I are doing our monthly free public Chart Chat on Sunday this week, and obviously that's likely to be an interesting edition. . If you'd like to attend, you can register our November Free Webinars page.

Looking At The Bigger Picture

SPX retested the retracement low this morning, so the Three Day Rule target has been reached. This is a return to form after the first fail on this stat since the start of 2007 in April/May 2018. Still the strongest stat I follow. So what now?

From a cycles perspective there is a cycle high window in January, then a big cycle low in May 2019 at which we are thinking we should see the main low for this move. The ideal target for that low then would be a test of rising megaphone support from the 2011 low to be hit in the 2370 area, which would also be at the 50% retracement of the move up from the 2016 low. There are two very decent looking options for reversal on the way.

The first is in the the 2655-70 area, from where we could see a reversal to retest the high, to set up a double top looking for the main target area.

The other is a retest of the annual pivot and 2018 low area 2532-38, which is the obvious full retracement of the move from there and a possible large H&S neckline. If that H&S was to to form, with the right shoulder high ideally in the 2870 area in January, then on a break down the H&S target would be in the 2140 area, with a likely inflection point at rising support from the 2011 low where that would either hold and end the retracement there, or break to open up that full H&S target.

SPX weekly chart:

In the short term we are seeing a rally from this morning's low that should fail into at least a retest of that low. That fail should ideally be at or below declining resistance from the high, currently in the 2765-70 area. SPX 60min chart:

Stan and I are doing two free public webinars this week. The first is the Paragon Options webinar after the RTH close tomorrow at 5pm EST, delayed from 11th October, and on Thursday after the close we are doing our monthly webinar on the FAANG (+TSLA) and key sector ETFs. If you'd like to register either or both you can do that on our October Free Webinars page.

Don't Fear The Reaper

It has been a while since we have seen a Three Day Rule signal fix, in part because the rule requires an initial 2% decline, and those have been pretty rare over the last couple of years, but the Three Day Rule triggers when there has been a minimum 2% decline on SPX and then SPX closes back over the 5 day moving average. That is day one, and that happened on Tuesday. The rule looks at the next two days and if there is a close back below the 5dma on either day then the rule fixes. That close back below happened yesterday, on day three. On this statistic we could see a fairly marginal high over the current rally high this week, but whether we see that or not, SPX should retest the low at 2710 in the near future. The only exceptions to this rule since the start of 2007 were two instances when an overall triangle was forming, and rather than a full retest of the previous low there were marginal higher lows over that low in the next few days.

This is the highest probability stat that I follow, and SPX is very likely to retest the 2710 low in the next few days. SPX 5dma chart:

After that retest of 2710, what then? Well we could find support in that area or continue directly down towards the obvious bigger picture target in the 2500-50 area. We'll see when we get there. Stan is leaning 50/50 on that and I'm leaning 65/35 towards the downside targets. SPX weekly chart:

On  the short term chart I'd love to see that higher high into the 50% retracement in the 2825 SPX area, but there was a significant failure this morning to convert the weekly pivot at 2790 SPX into short term support into a higher high, and SPX may head down directly from here. If we do see that marginal higher high, I'd expect that early next week, and it would be a very appealing short entry area. SPX 60min chart:

So why the title today? Well I just wanted to add that a 15% or 20% retracement of the kind that we may well be seeing here may feel like the apocalypse has arrived, but that's just because this has been such a long bull move. In truth a sharp retracement to the mean every so often is a sign of a healthy market, and it should be remembered that every retracement of any size on SPX historically has resolved to the upside. In the longer term the bulls always win. That doesn't apply on every market, tulip bulls have been waiting a while since the bottom fell out of that market in 1637, and they may be waiting a while longer, but US stocks aren't tulips. The reaper here isn't the herald of apocalypse, it's just the guy who mows the lawn.

Need To Know Your ABC

I was saying after the SPX support trendline touch a few days ago that having a strong three-touch support trendline cuts both ways, in that it is strong support while it holds, but can get ugly fast when it breaks. The strength of this push down after the support trendline broke on Wednesday morning was extremely impressive.

That move may be bottoming out for the moment and, if so, that should be the end of wave A, with a wave B rally in progress now or soon, and a likely wave C down after that to complete this move from the high. There are a number of possible options for the wave C low, but my favorite would be a retest of the 2018 low at 2532.69, just under the annual pivot at 2538. There is a possible H&S neckline at that level. If SPX does a 50% retracement from the current low then the target would be in the 2825 area, though there is impressive looking resistance in the 2790 - 2800 area that may hold as resistance. 

Full Premarket Video from theartofchart.net - Update on ES, NQ, SPX, NDX, RUT, CL, NG, GC, SI, HG, ZB, KC, SB, CC, ZW, ZC, ZS, DX, EURUSD, USDJPY, USDCAD, AUDUSD:

SPX 60min chart:

Everyone have a great weekend. :-)

Updated SPX Roadmap

I was saying in our free monthly Chart Chat on Sunday that the obvious next downside target on SPX was main channel support, and a test of that trendline that would mean that the channel had likely evolved into a rising wedge, which is something that happens regularly. If you'd like to see the recording of that it is posted on our October Free Webinars page.

At the low yesterday SPX hit that rising support and held it, and hourly buy signals fixed across the board on SPX, NDX and RUT. That should be the start of a new leg up and, as long as that trendline support remains unbroken, the next target within the rising wedge is wedge resistance, due to reach the 2965-70 area by the time of the next high window in early November.


Full Premarket Video from theartofchart.net - Update on ES, NQ, SPX, NDX, RUT, CL, NG, GC, SI, HG, ZB, KC, SB, CC, ZW, ZC, ZS, DX, EURUSD, USDJPY, USDCAD, AUDUSD:

SPX 60min chart:

We are doing a free public webinar on Thursday after the close looking at Paragon Options, the futures options service that we launched in June, and if you'd like to attend, you can register for that on our October Free Webinars page.

Potholes On The Yellow Brick Road

On Thursday morning my SPX path that has held the last four weeks hit a serious pothole with the break below shorter term rising wedge support and a break back into the high 2800s. I've been looking carefully at the options from here and there are clear bull and bear scenarios. Price needs to give direction but until demonstrated otherwise I'm leaning towards the bullish option that SPX has another new ATH into what well then be a high that lasts well into 2019.

RUT has been leading the market, as is often the case and is testing the 200dma, which is holding so far. On a break below the next big support is rising support from the early 2016 low. A break below that would be a major technical break. RUT daily chart:

On SPX shorter term rising wedge support was broken and SPX came close to a test of main rising channel support at the low on Friday. At the moment the original upside targets in the high 2900s are still on the table, a full test of channel support likely cuts that to 2960ish, and a break below tells us that the high may already be in. I'd note that the first serious daily and weekly sell signals on the equity indices fixed last week, so the wind is at minimum already changing. SPX 60min chart:

We are doing our monthly free public Chart Chat today at 4pm EST, covering the usual very wide range of markets and instruments, and if you'd like to attend, you can register for that on our October Free Webinars page.

Clean Clean

In my last post I was talking about the touch of the rising wedge support trendline that I'd been looking for, and the bull flag that was forming on SPX, that should break up today if not seen on Friday. SPX gapped up through flag resistance at the open today, and the minimum flag target is a retest of the all time high, not seen today but likely coming soon. On the video I was talking about a backtest, which we are watching now, and the ideal target for that would be a backtest of broken flag resistance, currently in the 2922 SPX area. The next possible target below would be a gapfill into Friday's close at 2913.98.

Partial Premarket Video from theartofchart.net - Update on ES, NQ, SPX, NDX, RUT:

I'm not showing the usual SPX hourly chart today because I was talking about the need to test rising wedge support for a couple of weeks before it was hit, and I wanted to show the clean trendlines on this pattern. This really is a beautifully formed rising wedge. The next target within the wedge, as long as wedge support is not broken first of course, is rising wedge resistance, currently in the 2975 area and rising of course. If hit, I'm expecting to see that in the next seven to ten days and that should deliver a significant high under main SPX trendline resistance from 2009, currently in the 3000 area. That main resistance trendline could be tested, but doesn't need to be. SPX 60min chart:

We are doing our monthly free public Chart Chat webinar on Sunday covering the usual very wide range of markets and instruments, and if you'd like to attend, you can register for that on our October Free Webinars page.