Choices, Choices

One way of looking at markets is as a succession of inflection points or probability forks, at which there are generally a higher and lower probability option which, once taken, take the markets to the next in that series, either eliminating or significantly changing the paths not taken at that inflection point.

We've been looking for one of those inflection points to happen at about this time, and in about this area, and that is likely to be resolved over the coming week, so in this Memorial Day post I'll be looking at that and what the shorter and longer term implications of the direction taken from that on SPX.

Back at the end of December I wrote a post 'Goodbye To 2018' that the key resistance level to hold on any rally would be the monthly middle band, and that a monthly close back above would likely deliver a new all time high in 2019. On 15th February, after the break back over the SPX monthly middle band at the end of January I wrote another post 'It Sounds Wild But .....', where I was talking about the possibility that that all time high retest might make the second high of a large double top, and we have now obviously reached the stage where that pattern is visibly forming, though of course it doesn't need to finish forming, or indeed play out to target if it breaks down.

That said, it is a very high quality potential pattern. The target area would be close to 1800, a double fib retracement area with the 50% retracement of the bull run from the 2009 low and the 61.8% retracement of the bull run from the 2011 in the same areas. Double top support at 2346.58 is also close to the rising support trendlines from the 2009 and 2011 lows. This is a very attractive setup,and it has potential to deliver that move in the right environment, which could be delivered if the trade war news, already heading south, continues to deteriorate.

SPX monthly chart:

In the shorter term, looking at the retracement so far from the new all time highs in 2019, there is a 5dma Three Day Rule target at a full retest of the May low at 2801.43, not yet quite delivered on this last move down, though NDX and RUT have both already made lower lows. That Three Day Rule target is an exact target, though there are a couple of rare past exceptions when overall triangles have been forming, which doesn't currently appear to be the case here. I am therefore expecting to see a full retest of 2801.43 on SPX sooner rather than later in the coming week.

As and when we see that full retest, that takes us fully into the next inflection point on SPX, with possible daily RSI 5 buy signals then forming on all of SPX, NDX and RUT, and indices in the clear low window with the centre of that window seen last Friday.

SPX daily chart:

The short term setup here on SPX/ES is fully formed H&S patterns on SPX/ES with targets in the 2640/50 area. Again this is an attractive retracement target, at a 50% retracement of the move up from the December low. As a general rule we regard the inflection point options as a 70/30 probability split, so reaching that target here would be the 30% option. The more likely option on the timing cycles would be a rejection at the break below the H&S neckline, delivering ideally (for me) a retest of the all time high, in what might well be the second high of a smaller double top, or alternatively (for Stan) a consolidation below 2900 area resistance before the next leg down. If ES is going to reject back up, then that might well be after a touch of possible falling wedge support

ES Jun 60min chart:

On NDX the setup here is another H&S that has already broken down slightly, though it may be that the head has just been completed on an H&S with a flatter neckline. Either way, if the H&S delivers a sustained break down, the target would be in the 6650-6750 area, just over the 61.8% fib retracement of the move up from the December low.

NDX 60min chart:

On RUT the setup here is a double top that has already broken down slightly before this latest bounce. On a sustained break down the target would be in the 1370-90 area, significantly more than 61.8% of the move up from the December low.

RUT 60min chart:

We are regarding the odds at this inflection point as 70% to find support after a modest lower low and rally there for several weeks, and 30% that we see a sustained break down towards these pattern targets on SPX, NDX and RUT. That said, bad news may push the market down and the trade war news so far has been impressively grim, with no sign of that being likely to change over the next few weeks, and with signs that the situation may deteriorate significantly further over that period. We shall see.

A couple of announcements today. An hour after the close on Wednesday Stan and I will be doing the third webinar in our Trading Commodities - Setups And Approaches' series. If you'd like to attend you can register for that either here, or on our June Free Webinars page. We are also doing our free monthly Chart Chat on Sunday, as it is the first Sunday of the month, and if you'd like to see that you can either register for that on the same page, or directly here.

Stan and I have also launched a new metals and energies service looking at some important stocks in these areas. Those tickers are AG, GOLD, KL, MUX, SBGL, USO and UNG. If you're interested in a free trial you can see more details here: This new service and our Big Five and Sectors service are both included in a 20% Memorial Day sale lasting until the end of this week, and, as with all our discounts, that discount lasts through the lifetime of the subscription, with no price rises ever applied while any subscription is continuous.

Everyone have a great holiday! The rest of the week should be interesting.

Three Day Rule Target At 2800 Retest

SPX broke back over the 5dma last Thursday and that put SPX back on the Three Day Rule, which is that after a decline of more than 2% followed by a break back over the 5dma, then SPX must hold above the 5dma the next two daily closes. If SPX fails to manage that then the retracement low (2801) should be retested before the initial high before the decline (all time high). The close on the third day on Monday was a clear break back below the 5dma. That low retest would normally be soon after the break and this a very strong stat, so I am looking for that 2801 retest. 

SPX daily 5dma:

In terms of the timing of that retest there are a few things to consider. The first is that the next cycle window is close, with the middle of that window on Friday this week. That can run into the middle of next week but that is not a lot of time to make this low. Unless there is some really impressively bad news the next retracement low may not be much below 2800. We will see.

What are the support levels? Well I have possible H&S necklines in the 2785 and 2722 areas, with 2722 being my preferred option since we started this decline, though that's a long distance below unless we start seeing some serious moves to the downside. I'd note that the daily 3sd lower band is now in the 2765-70 area, so a fair match with my first support level not far below 2800, and that on a sustained break below 2800 would now fix an H&S target in the 2650 area.

Given the short time available though, I'd note that the H&S setup here is very much a two edged sword. If that SPX neckline in the 2800 area breaks down, and then SPX rallies enough to invalidate the H&S with a move over the right shoulder high at 2892.15, then there would be a strong Janus Flag target at a retest of the all time high, and we will be looking for a possible strong rally back into June, so that would be a decent fit with cycles.

To start the move down into the 2800 retest the first support level is at the weekly pivot and 50 hour MA on SPX in the 2851/2 area. A break and conversion of that to resistance opens the low retest.

SPX 60min chart:

On the daily chart I'd note that on a retest of 2800 from here, then a possible daily RSI 5 buy signal would start brewing. On the retests of the retracements lows on NDX and RUT, similar daily buy signals would likely also start brewing. SPX daily chart:

 

The remaining cycle trend days this week are today, not looking too trendy so far apart from on CL, and Friday. There is a big news day tomorrow with the Fed, and random news bombs can come at any time of course on trade war updates. The trade war news has been pretty grim over the last few days, and that being the case I'm a bit surprised that SPX isn't closer to a retest of 2801 already.

An hour after the close on Thursday 28th May Stan and I will be doing the third webinar in our Trading Commodities series. If you'd like to attend you can register for that directly here, or on our May Free Webinars page of course.

X Marks The (Ideal) Spot

Before the open this morning I was cautiously predicting that ES would rally today to a higher high than yesterday, ideally failing today at a high in the 2865-9 area. As it happened the low of the day was happening at the time on ES, slightly before the RTH open, and ES is now testing yesterday's high. So far, so good.

Full Premarket Video from theartofchart.net - Updates on ES, NQ, RTY, DAX, ESTX50, SPX, NDX, RUT, CL, NG, GC, SI, HG, ZB, KC, SB, CC, ZW, ZC, ZS, DX, EURUSD, USDJPY, USDCAD, AUDUSD:

The scenario I was looking at then and now was a modest higher low and then a modest higher high to form a bear flag channel into a test of declining resistance from the highs on SPX. I have tentatively marked an X on the SPX 5min chart the ideal time and level for SPX to top out today and we'll whether that delivers exactly in the next hour or so. If not there is some wiggle room. 

SPX 5min chart: 

On the hourly chart I show the overall falling megaphone forming from the high so far. Declining resistance and the 50 hour MA are effectively the same resistance area at the moment.

SPX 60min chart: 

In the event that declining resistance and the 50 hour MA are broken and converted to support, which is possible but not looking particularly likely at the moment, then resistance higher is at the daily middle band, currently 2903 area, and the monthly pivot at 2914. SPX daily chart: 

An hour after the close tomorrow Stan and I are doing our free monthly public webinar on big five and sectors, covering AAPL, AMZN, FB, GOOG, NFLX, TSLA, IBB, IYR, XLE, XLF, XLK and XRT. Given the current market action that should be pretty interesting, and if you'd like to attend you can register for that here, or on our May Free Webinars page.

The Battles Of The Band

On Thursday before I wrote my post SPX went a few handles below the daily 3sd lower band, and as I'd generally expect we saw a strong rally from there. On Friday, somewhat to my surprise SPX again went a few handles below the daily 3sd lower band, and we then saw an even stronger rally off that low. This morning, with the daily 3sd lower band currently at 2816, the current low of the day is a few handles lower and we're probably going to see another rally, though it's hard to say whether it will be as strong as the others.

Obviously the daily middle band is now turning down, and the lower it turns and the wider the bands become, the further down the daily 3sd lower band will extend, SPX could just keep riding this down.

The current level is important though. I was asked a couple of weeks ago where I would expect the retracement to go, and I gave two targets. The first target is the current area, 2800-20, marked with the purple band on the SPX hourly chart below as an established strong support/resistance level. The second and preferred target is the 2722 area, at the full retracement of the rising wedge from the March low, and the 38.25 fib retracement of the rising wedge from the December low, also a possible larger H&S neckline. Stan  ran the cycles last Thursday night with updated data and the next cycle window is a low window in two weeks. That is where I would like to see SPX at that low.

In the meantime I'm still looking for a possible wave B retracement, with the caveat that we may already have seen a very fast B wave rally on Friday. If that is not yet done I'd be looking for strong resistance at the daily middle band, now at 2909, and the monthly pivot at 2914. A break and conversion of those levels to support could trigger an ATH retest.

SPX daily chart:

On the hourly chart SPX is testing a big support zone here, and this would be an obvious level to rally from. I'd note that hourly RSI 14 buy signals fixed on all of SPX, NDX, and RUT on Friday though of course a very strong trend can overwhelm these. SPX is testing a high quality falling megaphone support trendline that may hold.

SPX 60min chart:

No current divergence on the ES 60min chart, though ES is testing trendline support here as well.

ES Jun 60min chart:

One thing I was looking at on Friday that was encouraging for a rally on equities here was the strong reversal setup on USDJPY formed on the initial break of major double top support and annual pivot test. A 60min buy signal fixed and a high quality double bottom setup formed. Obviously there is a very decent correlation between USDJPY and SPX. Overnight that long setup fell apart with a strong break below the annual pivot towards the double top target considerably lower at 106. Obviously that is not that encouraging for a strong rally, though it is encouraging for my main target in the 2722 area being reached. We will see.

USDJPY 60min chart:

Regardless of a possible stronger rally here, SPX is trading under the daily 3sd lower lower band as I write, that is strong support for today and on a daily lower band ride we would almost always see a test of the daily 2sd lower band at some point during the day. That is currently at 2846.

An hour after the close on Thursday Stan and I are doing our free monthly public webinar on big five and sectors, covering AAPL, AMZN, FB, GOOG, NFLX, TSLA, IBB, IYR, XLE, XLF, XLK and XRT. Given the current market action that should be pretty interesting, and if you'd like to attend you can register for that here, or on our May Free Webinars page.

Taking Stock Here

Last week I was looking at support that needed to be broken at the SPX daily middle band to open further downside and obviously SPX did that and could be at or close to the wave A low here, looking then for a B wave rally, and then a C wave down into the next low window and to complete the current move. On Sunday's free public Chart Chat I was talking about a possible H&S target in the 2840 area which was reached at the lows this morning. If you missed Sunday's Chart Chat or would like to see that again, that is posted on our May Free Webinars page.

We hold a subscriber only webinar every month at which we answer any questions attendees have, and review important markets in response to those questions, and we are holding one tonight at which, this time only, all are welcome. So if you'd like to see that you can register for that on our May Free Webinars page or you can register to attend using this direct link.

So where are we up to on the SPX daily chart? Well the short term H&S target at 2840 has been reached and the daily RSI 5 sell signal has reached target. The low today was just under the 3sd daily lower band, currently at 2839, and SPX has also currently broken below the 50dma now at 2859. If the B wave has now started then the rally should respect either 2900 or the monthly pivot at 2914. A break and conversion of the monthly pivot at 2914 to support at this stage might well finish this move early and deliver another all time high retest. After the Wave B rally we would ideally see a high latest Monday, down into the next cycle low to be made middle to end of next week.

As I was saying on Chart Chat, my ideal target for that low would be at the 38.2% retracement and retest of the March low at 2722, but I also mentioned possible support in the 2800-20 area, and a possible alternate H&S neckline in the 2785 area.

SPX daily chart:

In the short term the current low is now on any hourly or daily positive divergence so while the Wave A low may be in, it is unlikely that the main retracement low is in. Any rally here should just be a rally before lower lows in the near future. We shall see. 

SPX 60min chart: 

Everyone is welcome at tonight's webinar an hour after the close. Hopefully I'll see you there. 

Important Support Breaks

Since my post a week ago SPX has retested the all time high as expected and made a marginal higher high, the rising wedge from the December low has broken down, the second daily RSI 5 sell signal since the December low has fixed, the first having played out into the March low, SPX has broken important short term trend support at the 50 hour MA for the first time since March, and backtested that as resistance, and also broken the weekly pivot at 2925.

Today's Premarket Video from theartofchart.net - Updates on ES, NQ, RTY, DAX, ESTX50, SPX, NDX, RUT, CL, NG, GC, SI, HG, ZB, DX, :

So what now, as we move into the next cycle low period expected in a couple of weeks? Well the minimum fibonacci retracement target I'm looking for on the breakdown of the wedge is the 38.2% target at 2722 which, if seen, would also be an exact retest of the March low and the possible large H&S neckline there. Ideally the next low would be there, with a right shoulder bounce back into (ideally) the 2868 area into the June cycle high window, though I have an alternate possibility for the May low in the 2820 area. That is assuming of course that shorter term support at the daily middle band, tested at the low today, can be broken.

SPX daily chart:

In the short term the hourly and daily sell signals are close to played out and we could see a rally here. Ideally the 50 hour MA, now at 2930 would hold as resistance as it did at the AM high today, and SPX would continue down from there. A sustained break back over 2930 could deliver yet another high retest, which would be annoying, but might of course be needed to set up a double top to deliver the next leg down.

SPX 60min chart:

If we do see a sustained rally from the low this morning, I do have a possible ES 60min buy signal brewing to help deliver that high retest. We will see.

ES Jun 60min chart:

Stan and I are doing our monthly free public Chart Chat on Sunday looking at the usual very wide range of instruments across indices, bonds, metals, energies, currencies, cryptos and other commodities. If you'd like to attend you can register for that on our May Free Webinars page.