A Most Interesting Year

Tomorrow is the last trading day of 2020 and with new Year's Day on Friday we get another long weekend into the start of 2021 next week. This has been a really interesting year, though a very hard one for many, and will leave a legacy for economies and markets that will likely ripple through the next few years. We'll see how that develops in 2021.

At the end of every year we like to do a free public webinar or two at theartofchart.net looking at where we see markets going over the next year, and we are doing the ones for next year tonight and tomorrow. All are welcome and the first  webinar we are running is at 5PM EDT tonight (Wednesday 30th January) looking at equity indices, FAANG stocks and key sector ETFs and, if you'd like to attend, you can register for that here. The second webinar is at 5PM EDT tomorrow (Thursday 31st January) looking at commodities including metals, energies, softs, meat and grains and, if you'd like to attend, you can register for that here. As always all webinars are linked from our monthly free webinars page at our blog, currently December.

In the short term we are seeing a slow, low volume end to the year, and markets are looking very stretched here. At the time of writing SPX is over 1.5% over the monthly upper band and would need to decline over 16% to retrace to the monthly middle band in the 3130 area. That is extreme though I'd note that IWM is even more stretched, currently an eye-watering 8% over the monthly upper band and 25% over the monthly middle band. The odds favor a large retracement starting soon, and that may start next week.

SPX monthly chart:

In terms of the setup for making a short term high here that is now very attractive and there is a very attractive case too that equity indices are topping out here before a retracement that might well look for backtests of those monthly middle bands.

On the SPX daily chart the main support is the daily middle band, currently at 3694. On a break below and conversion of that level to resistance a significant high may well be in, barring a retest or two to make topping patterns. That high might last through much of all of 2021, and we'll be talking more about that tonight, and talking tomorrow night about why we are looking for a solid bull run in commodities in 2021.

SPX daily chart:

On the SPX 60min chart the last new all time high delivered a slight overthrow of the rising wedge resistance trendline. I'm expecting the retracement back to rising wedge support, currently 3490 area, to start shortly, and the bearish overthrow is telling us to expect that to break, opening a possible move back to the monthly middle band.

SPX 60min chart:

NDX is looking toppy here, with a possible daily RSI 5 sell signal brewing and well established support at the daily middle band, now in the 12617 area. There is no obvious overall pattern from the March low but a decent rising wedge from the November low is topping out here.

NDX 60min chart:

Dow has been topping out within the very nice rising wedge from the March low for six weeks or so now. The last new all time high has now also slightly overthrown, so that too is looking very toppy here.

INDU 60min chart:

Years regularly start with strong declines in the first couple of weeks of the month and there is a very decent setup for that here. Could markets hang around here a while longer, or even break up? Sure, anything is always possible, but the odds favor lower.

We are running our next Trader Boot Camp starting 18th January and this is extremely competitively priced and covers a lot of territory. If you're interested you can read more about that here.

Lastly we are running our December sale for memberships at theartofchart.net until the end of the year, and that offers annual memberships with four free months rather than the usual two. We won't be running another of these sales until at least July, so if you are interested you should get this done before the end of December. You can find the page for that here.

Everyone have a great holiday weekend and a very Happy New Year! :-)

Tis The Season

It has been a grim year and I, and many others, will be very glad to leave it behind, but even with maximum lockdown spreading rapidly across the UK with the new virus mutation, I have a great holiday weekend planned with roaring fires, presents, great food, homemade pancakes, (probably too much) chocolate, board games and so on. My soon to be ex-wife will be absent but my three children, two cats, and one dog will all be here having a great time and there is a good chance that this will be the most enjoyable christmas that we have had so far this millenium. I'm really looking forward to it. I've had requests for a family video of us making pancakes over the holiday that I may well film on New Year's Day and post on YouTube. :-)

In the background of course markets are still trading and are setting up beautifully for a possible retracement in (probably) early January, so let's have a quick look and see how that is developing.

On the Dow 30 price is still rising very gently just under the beautiful rising wedge resistance trendline that I've been watching for four or five weeks now. Looking for a retracement towards rising wedge support, currently in the 28000 area, to start soon. No bearish overthrow here so that wedge support may well hold as support when tested.

INDU 60min chart: 

On the SPX chart I had SPX bearishly overthrowing my initial rising wedge resistance trendline, but the latest all time high has established a high quality alternate wedge resistance trendline that I have switched over to now. This wedge is therefore in the same place as the Dow 30 wedge, looking for a retracement back to rising wedge support to start soon, with that currently in the 3470 area.

SPX 60min chart:

There isn't much negative divergence on the daily charts here what what I would note is the repeated tests of the daily middle bands on SPX and most other indices notably excepting the Russell 2000. The daily middle band on SPX is now in the 3677 area, and a break and conversion of that level to resistance should signal that the retracement has begun.

SPX daily chart:

The Dow has also been repeatedly testing the daily middle band as well. No daily closes below that so far, but it is easy to see where current support is, and I'm expecting to see that close below within days.

INDU daily chart:

NDX hasn't been testing the daily middle band as aggressively as SPX and INDU, but there are still two clear and precise tests in recent days, so that support is very clear there as well. When that support breaks we should see that decent retracement.

NDX daily chart: 

I'll be working most of next week, as I don't really like taking many days off work, and Stan and I have two big public webinars planned for the end of the year, looking at the prospects in 2021 for the many instruments we watch across the board, and with a particular focus on commodities, which we are expecting to be the big winners next year. The two webinars we are running are firstly at 5PM EDT on Wednesday 30th January looking at equity indices, FAANG stocks and key sector ETFs and if you'd like to attend you can register for that here. The second webinar is at 5PM EDT on Thursday 31st January looking at commodities including metals, energies, softs, meat and grains and if you'd like to attend you can register for that here. As always all webinars are linked from our monthly free webinars page at our blog, currently December.

We are running our next Trader Boot Camp starting 18th January and this is extremely competitively priced and covers a lot of territory. If you're interested you can read more about that here.

Lastly we are running our December sale for memberships at theartofchart.net until the end of the year, and that offers annual memberships with four free months rather than the usual two. We won't be running another of these sales until at least July, so if you are interested you should get this done before the end of December. You can find the page for that here.

I'll be back at work on Monday and am planning a couple more posts before the end of the year. Everyone have a great holiday weekend. I know I will. :-)

Annus Horribilis

Occasionally there is a year so awful that nothing seems to go right. The title phrase was first used in a Church of England publication in 1870, the year that papal infallibility was declared, Prussia invaded France, Italy annexed Rome, Lenin was born and the US weather service made their first official forecast. 2020 is another year worthy of the name (meaning horrible year in Latin), with COVID-19 having ravaged the world in a serious and lasting health and economic disaster.

This hasn't been a great year for me either, with my marriage ending acrimoniously, though that end had at least been a long time coming, and then I received the news this morning that my beloved sister was killed last night by a drunk driver in London. She will be sadly missed by many including her  three barely grown children though the funeral will have to be small due to COVID-19 restrictions. This really has been a bad year and I really won't be sorry to see the back of it. This also adds a sister killed by a drunk driver to my existing tally of two close friends killed by (their own) alcohol problems in their 40s. That's high, though a 2017 study found that the annual deaths worldwide from alcohol abuse are about 15 times higher, and the deaths from tobacco about 5 times higher, than the total deaths from all illegal drugs, which makes those last deaths from illegal drugs essentially a small rounding error on a much larger substance abuse problem involving legal drugs. Thought for the day.

Onto the markets where I think that the likely retracement on SPX that I've been predicting has started, though there may still be a high retest or two as larger topping patterns form. Just to review those charts across multiple timeframes then.

On the SPX monthly chart the recent punches over the monthly upper band historically favor a topping process that at least heads back to the monthly middle band area, currently about 3124.

SPX monthly chart: 

An RSI 5 sell signal has fixed on the daily chart that is getting close to target, but hasn't reached it yet, suggesting that SPX may retrace further short term. The low today was a test of decent support at the daily middle band, which could deliver a high retest if we see a strong enough rejection there.

SPX daily chart:

On the hourly chart SPX has formed a beautiful rising wedge from the March low that has overthrown bearishly and should now be returning to rising wedge support, currently in the 3420 area. The bearish overthrow suggest that will break at or soon after that test and open a minimum likely retracement of 38.2% of the move up from the March low. That target would be in the 3130 area, and if you're thinking that area sounds familiar, I'd note that the monthly middle band target is currently just six handles lower.

SPX 60min chart:

In terms of the shorter term pattern setup a very high quality H&S was forming on both SPX and ES into the close yesterday, and then broke down overnight with a target in the 3575 area on SPX and 3570 area on ES.  Of course whenever a pattern like this breaks down there is an inflection point where the trading instrument can reject back up into the previous highs (all time high retest here).  There are two levels I would be watching to signal that rejection. The first is the H&S right shoulder high at 3674.97, as a break above invalidates the H&S. The second is the 50 hour MA on SPX, currently at 3679. A break and conversion of that 50 hour MA back to support opens the all time high retest.

SPX 15min chart:

What else supports my overall view here? Well there are a number of things, but by far the prettiest is the beautiful rising wedge on Dow from the March low. I've been following and posting this for weeks now and it really is a beauty. So far it is delivering very well, and likely that continues to be the case.

INDU 60min chart:

Why am I working today when my sister was killed last night? Well I tend to work when I am feeling happy, as I enjoy it, and I tend to work when I am feeling sad, as I find it takes my mind off other problems. All in all I don't tend to take many days off work.

We had to delay the webinar scheduled for last night so we are doing our next free public Trading Commodities webinar tonight at theartofchart.net an hour after the close today. We will be looking at interesting trades on oil, natural gas and gold. If you'd like to attend you can register for that on on our December Free Webinars page. If you can't make it the recording will be posted on the same page later tonight.

Topping Trendlines

I was saying in my last post on Monday that a retest of the high looked likely and we saw new all time highs on both SPX and NDX as expected. So what now?

Well the best pattern on the board on Monday was the rising wedge on the Dow, and that is still looking pretty good. A daily RSI 5 sell signal has fixed there already of course, as one has on SPX as well.

INDU 60min chart: 

However that rising wedge on Dow is no longer the best pattern on the board as a simply beautiful rising wedge was established on SPX at the high this morning. A possible hourly RSI 14 sell signal is now brewing (also on NDX) and an hourly RSI 5 sell signal has fixed.

SPX 60min chart:

The daily chart on SPX looks very ready to roll over here. No more upside targets on SPX, NDX, IWM or INDU that remain to be hit and look like unfinished business.

SPX daily chart: 

We have a service at theartofchart.net that covers tech majors and sector ETFs. We send out charts a couple of times a week and the chart below is the hourly TSLA chart I sent out on Sunday. There is a dotted trendline above price that is the potential rising channel resistance trendline that is a theoretical resistance level. I put these on charts a lot in case they are hit.

TSLA 60min chart (Sun 29th Nov):

Here is the TSLA chart from today and as you can see, that rising channel on TSLA has now been established. Unless that breaks TSLA is also topping out here. It's just one (very large cap) stock but there are a lot of signs that a significant high is being made here.

TSLA 60min chart: 

We'll see how it goes but until we see some significant evidence to the contrary, my working assumption is that equity indices are topping out here. Our December Free Webinars page has been posted and I'd mention that our free monthly public Chart Chat is at 4pm EST on Sunday 6th December. Be there or be unaware! :-)

Thanksgiving Thoughts - Shorter Term

 November is about to end and SPX is likely at the time of writing to do something not previously done in the last twenty five years, which is to close a long way above the monthly upper band, currently 3566 area, only three months above the last strong punch close above in August. What does this mean?

Well on NDX this would give about 40-45% odds that the market would then deliver a series of closes at or above the monthly upper band in coming months, but while that is possible on SPX, historically there would be little precedent for it. The odds still favor a close at or below the monthly upper band at the end of December, at which point it would be unlikely to be over 3600.

SPX monthly chart: 

In terms of the SPX 45dma, the current all time high was made almost 10% over the 45dma, the highest of a lot of very high readings since the March low, and SPX is still very stretched to the upside by historical standards.

SPX daily 45dma chart:

In terms of pattern setups the best current pattern from the March low is on the Dow Industrials chart where that appears to be topping out in a high quality rising wedge. The action here seems to favor downside soon, with a daily RSI 5 sell signal already fixed on both this and the SPX chart, but that might need another high retest before reversal.

INDU 60min chart:

On SPX and ES retests of the all time highs were just missed on both and, together with a retest of the all time high on NDX, look like unfinished business above. That unfinished business could be finished later of course, but I'd expect to see those retests at most within a few weeks. SPX 60min chart:

In the short term the current retracement from  the high on ES looks like a bull flag, so we may be seeing those all time high retests in the next day or two, after which I'd be looking for at least some retracement back into the mid-3500s. A significant high may be forming here. ES Dec 60min chart:

The historical stats for last week leaned bullish but the stats for this week lean bearish including, unusually, the first day of the new month tomorrow. Looking for a retracement to start soon, ideally after those all time high retests.

I would also mention that we have been running our usual Black Friday sale on annual memberships at theartofchart.net until the end of November, and have extended that slightly until the end of Tuesday 1st December. During this sale we are offering four free months on an annual membership against normal monthly prices. We never raise subscription prices for existing members as long as memberships are renewed without breaks, so if you are thinking of getting an annual membership to theartofchart.net, then this is the best time to do that.

Our December Free Webinars page has been posted and I'd mention that our free monthly public Chart Chat is at 4pm EST on Sunday 6th December. We are also offering a free week this week on our Vega Options Service for anyone interested.

Thanksgiving Thoughts - Longer Term

I was going to do a longer post today but I've decided to split the post in two, covering the longer term in this post and looking shorter term in a follow up post to be published tomorrow.

In my last post I was looking, among other things, at the SPX monthly chart and noting that if there was a monthly close significantly above the monthly upper band (currently 3570 area) at the end of November, then that would be the first time in the last twenty five years that had happened less than six months after a recent strong punch close above the monthly upper band (in August). The monthly close for November is at the close on Monday, so that is now only just over a trading day away in regular trading hours. Could it happen? Yes, and this has certainly been a very strange year both in the world and on the markets so we'll see.

SPX monthly chart 25 Yr:

It isn't the case on every chart that monthly upper band punches deliver minimum consolidations lasting several months, there are three or so exceptions on the Dow Industrials chart in the last 25 years, and on the NDX longer term chart there are twelve similar punches over the last 25 years and five of those delivered monthly upper band rides going quite a bit higher. What I would say is that such a break would be bubbly looking action on SPX, given that this hasn't happened in the last quarter century, a period that includes at minimum two asset bubbles into the 2000 and 2007 highs.

NDX monthly (LOG SCALE) chart 25 Yr: 

One thing to add here is that I've said quite a few times over the years that in my view LOG scale charts are greatly overused and I only see a few charts where these are obviously a good choice. These tend to be the longer term charts and the NDX monthly is a good example. I would note that NDX is testing possible channel resistance on this chart and I have very much seen this kind of LOG scale pattern deliver before.

Where would that be you might ask, and one great example is below with the beautiful 26 year channel that captured the whole of the secular bull market on SPX from the low in 1974 to the high in 2000, so I'm watching that NDX channel with great interest. We'll see whether that candidate channel resistance trendline holds.

On another point of interest if you take the secular bear market low in 1974 to the secular bear market low in 2009, you can see that the 2009 low was slightly more than ten times higher than the 1974 low. Equally, looking at the chart it seems clear that a new secular bear market started at the 2009 low. If this was to repeat exactly with the current secular bull market, which is unlikely but simply for the sake of argument, that would suggest the next secular bear market high would be in about the year 2135 in the 21000 SPX area, with a subsequent bear market low in the year 2144 perhaps in about the 7000 area. Thought for the day.

SPX monthly (LOG SCALE) chart:

I'll be doing a post tomorrow morning looking at the shorter term setups on SPX and NDX particular, with a look at why I think that both are likely to at least retest the current all time highs before a serious reversal is seen. I would also mention that we are running our usual Black Friday weekend sale on annual memberships at theartofchart.com until the end of November on Monday night, and that during the sale we are offering four free months on an annual membership against normal monthly prices. We never raise subscription prices for existing members as long as memberships are renewed without breaks, so if you are thinking of getting an annual membership to theartofchart.net, then this is the best time to do that.

Everyone have a great weekend and look out for my follow-up post tomorrow. :-)

So Here We Are

 Firstly my apologies for the wait since my last post. I'm currently getting divorced, which isn't much fun, and the presidential election was so polarising in the US that I was getting the impression that if I mentioned that the weather was getting chillier as the season changed, then some would feel that was a comment on the election and get offended. The election is finally over....ish, and I think it's safe to start writing again about markets.

So in my last post I was writing about the bull flags that would likely deliver retests of the all time high as and when they broke up. Those evolved into larger bullish patterns, a bull pennant on SPX, a bull flag on INDU, a possibly still forming bullish pattern on NDX, and on Monday those broke up into new all time highs on SPX, Dow 30 and RUT, but not so far on NDX. Equity indices are still retracing from those Monday highs, so what should we expect next?

Well it has been a really crazy year on the markets, but the first thing I want to talk about is the SPX monthly upper band. At the end of August there was a serious punch over the upper band and these are rare. The chart below shows the last 25 years on SPX, including a couple of bubbles and four technical bear markets (declines of over 20% from the preceding high). In that time there have been strong punches over the monthly upper band in mid 1997, early 1999, mid 2007, early 2011, early 2017, late 2018 and late 2019. In none of those seven examples was there another close above the monthly upper band in the next few months, and that is currently in the 3548 area and rising at maybe 20 handles per month. Historically upside on SPX over the next few months is likely limited, and favors both November and December closes this year under 3550. Two of these punches delivered topping processes into full bear markets lasting longer than a year not long after, and a further three delivered retracements back to the monthly middle band, now at 3085, with retracements in the 20% area.

Bottom line is that the odds strongly favor SPX making a high here, and the high is possibly made, but more likely just close.

SPX monthly chart:

The exception to the new all time highs on equity indices on Monday was NDX, partly as there is now a coronavirus vaccine on the horizon and there is a consequent rotation out of the tech stocks that have been benefiting from the lockdowns. That said, this is a pretty obvious bullish flag setup on NDX from the all time high  and the obvious target remains a retest of that high. That looks like unfinished business above and we will likely still see that retest either soon or within a couple of months.

NDX 60min chart:

On SPX there was an excellent triangle that I was talking about in the free monthly Chart Chat at theartofchart.net on Sunday. If you'd like to see that recording then that is posted on our November Free Webinars page. We would usually see some daily negative divergence at a high so I'm leaning towards seeing a retest of Monday's high before a likely November close below the monthly upper band currently a hundred handles below.

SPX daily chart:

Here's the lovely bull triangle on SPX that I was looking at on Sunday. That has now reached the minimum target at a retest of the all time high. SPX 60min chart:

Here is the bull flag megaphone on Dow Industrials that has also made the minimum target at a retest of the all time high.

INDU 60min chart:

I was saying on my premarket video yesterday morning at theartofchart.net that I'd like to see another day or two of retracement to deliver a decent decline on the SPX daily RSI 5. That's posted on my twitter if you'd like to see it. After that I'm leaning towards a high retest so we'll see how that goes. I'm resuming regular posts now and the next post should be later this week to review progress.

Onward and Upward

 Last week I was looking at the IHS patterns that had broken up on SPX and NDX with targets at retests of their respective all time highs. We've seen some retracement this week but overall nothing has changed and I am still looking for the same targets, though the retracement has given more form to the current moves and is giving some clues as to where these moves will find resistance.

Starting with ES, where after the grind up on Monday I posted a chart on the subscriber twitter feed at theartofchart.net showing the rising channel established on ES Dec from the September lows, and with a slight adjustment that channel has held into the end of the week with a test of the low before the open yesterday morning. Resistance on that channel is now in the 3600 area so the IHS target is within that range.

ES Dec 60min chart:

On the SPX daily chart this retracement has been deep enough that by the time the all time high is retested there should be a high quality possible daily RSI 5 sell signal brewing. The daily upper band is expanding into the all time high retest area.

SPX daily chart:

There isn't a corresponding rising channel on SPX but there are a couple of decent rising wedge resistance trendline options that I'll be watching. Either would be a good fit for the retest of the all time high depending on the time taken to deliver that.

SPX 60min chart:

SPX broke back over declining resistance from the last high today so this retracement low is probably in, though a break below the ES rising channel support, currently at 3455 would open a possible lower retracement low. I'm not currently seeing any reason to expect that though, and this retracement low was close to the IHS neckline backtest that would often be seen with a pattern like this. I would note though that this backtest does increase the probability of hitting the extended IHS target, which is in the 3650 area, as the retracement started about halfway to that target.

SPX 15min chart:

On NDX a decent quality rising channel has been established, though NDX has been lagging since the retracement low so far and declining resistance has not yet been broken.

NDX 15min chart:

Two things to mention about next week. The first thing is something I was talking about on Wednesday morning in my usual premarket video for subscribers, and that is that there are four out of five trading days next week which historically close higher over 60% of the time. That makes next week one of the most historically bullish weeks of the year, and and ideal week to attempt a retest of the all time highs on SPX and NDX. I was saying on Wednesday morning that a couple more weak days into the end of the week could set that retest up very nicely and if we see an AM low on Monday that could run higher into the end of the week. I'll be watching for that.

The other thing is to mention that Stan and I did another trading commodities webinar at theartofchart.net yesterday looking at trades on oil, natural gas and gold. The recording is posted on our October Free Webinars page if you'd like to see that and I'd mention that in future, as these are mainly about designing options trades, we are expanding these to cover everything else we watch, so as other futures, sector ETFs and tech stocks. We are doing out next Big Five and Sectors webinar an hour after the close next Thursday, covering FAANG stocks The sector ETFs and if you'd like to attend you can register for that on the same page. Everyone have a great weekend :-)

In The Inflection Point

 I was looking at the inflection point setting up here in my post yesterday and it is now fully set up and looking good. At this stage I am looking for either a break up towards a retest of the all time highs on both SPX and NDX, or a hard fail that delivers new retracements lows, though we could see a limited retracement here that preceded the break up.

On the SPX daily chart there is no current divergence but SPX is now testing and slightly over the daily upper band.

SPX daily chart:

SPX has gapped up over rising wedge resistance at the open this morning. There is a possible alternate resistance trendline just above but if this is a wedge overthrow then it should reject downwards soon. If it doesn't reject soon, either today or Monday morning ideally, then the all time high retest on SPX and NDX is the obvious next target.

SPX 15min chart:

On the NDX daily chart, the daily upper band is also being tested and a possible daily RSI 5 sell signal is brewing.

NDX daily chart:

The IHS on NDX has finished forming and broken up and, if NDX is going to reject back down, then this is the ideal area to do that. We'll see how that goes.

NDX 15min chart:

This is a very decent inflection point setup and SPX and NDX could well fail back down here. On the overall setup here I'd be leaning towards 50/50 on whether it does though I'd add that in the event of a rejection into a lower low I'd be seeing that as a likely expanded bull flag retracement that would then probably deliver the high retests that would otherwise have been delivered directly from here. This is the sort of setup where the rejection might well get started on the back of bad news over the weekend, so I'll be keeping an eye on that too. Everyone have a great weekend. :-)

Mundane Objects

 Well I tried to talk about face masks and COVID-19 in my last post and that was my least popular post in years. I would note from the responses that wearing a mask is primarily for the protection of others from those infected with COVID-19, so wearing one is not so much a matter of personal courage as consideration for others. In response to a couple of questions I was asked I would also add that I'm happy to say that I am in a low risk age group, and that the only member of my family in a high risk group has already had and survived the virus so personally I'm not too concerned. Be all that as it may it seems that I should abandon trying to talk about COVID-19 until after the presidential election.

In the meantime, and on the theme of otherwise mundane objects attaining a strange symbolic significance I have a lovely little clip from Blackadder Series 4 to share with one of my favorite ever comedy monologues on the origins of British humor from a german perspective. That part is from 55 to 90 seconds in but the rest of the clip is also excellent. Enjoy :-)

On to the markets where last week SPX broke back over the daily middle band and converted it to support, and may be on the way back to a retest of the all time high, but there is a significant hurdle on the way at the same time that SPX is testing the daily upper band, currently at 3438, with the high today at the time of writing at 3444. The daily RSI 5 buy signal has reached target.

SPX daily chart:

On the 15min chart you can see that SPX has reached both the alternate double bottom targets that I was looking at a week ago, and with the kind assistance of President Trump and twitter on Tuesday night (77 point decline on tweet that stimulus negotiations delayed until after the election), and Wednesday morning (complete reversal on tweet that stimulus negotiations back on again), the right shoulder formed on a decent quality IHS that has now broken up with a target at a retest of the all time high.

As ever with these patterns there are now two likely outcomes, and the chances are that we will see one of those play out. Either that IHS heads to the target, or we see a fail soon that delivers a retest of the retracement low at 3209.45, and likely at least somewhat lower. At this stage the H&S setup looking for the 3110 area has already failed of course, though the 200dma is still in that area, currently at 3116.

If we are going to see a fail then that could be from here, as the obvious rising wedge resistance trendline from that low has now been tested though I'd be leaning a bit higher based on the NDX chart, which I'll be coming to. If SPX should break below wedge support, currently in the 3380 area, that would be a significant sign of weakness, and a break below the right shoulder low at 3354.54 would invalidate the IHS. Main support is at the daily middle band, currently 3349, which would need to be broken and converted to resistance to open the downside.

SPX 15min chart:

On the NDX daily chart the RSI 5 buy signal reached target and on a retest of the last high at 11606 a possible RSI 5 sell signal would start brewing, but the main pattern setup is on the 15min chart:

NDX daily chart:

The setup on NDX important because more than any other index I think NDX is driving the equities bus here, and it is notable that on this current leg up NDX has been lagging. The setup here is similar to the setup on SPX except that the pattern from the low is a clear rising channel which would make an excellent bear flag channel.  There is also an IHS forming that has not yet broken up. A sustained break above the IHS neckline in the 11620 area would look for another all time high retest, and usually we would at minimum see that IHS break up even in the event of a subsequent fail. If we see that break up and then the channel breaks down then the odds are decent that NDX will be on the way back to the lows, though the IHS would not be invalidated until a move below the IHS right shoulder low at 11225.20.

NDX 15min chart:

If we see a firm break up from here then I'd expect all time high retests on SPX and NDX, but in the meantime there is a decent possible setup for a fail here.

If you aren't already aware, access to the Chart Chat service and educational video library at theartofchart.net is free this week but only until the close on Sunday. Check those out if you're interested. We did a Chart Chat video yesterday and will do the next one on Sunday, and there are a lot of excellent educational videos that we have recorded over the last five years in the library. Worth a look IMO.

The Masks We Wear

 I'm planning to drop some COVID-19 info and updates into some of my posts, hopefully in a way that won't get people thinking that I'm taking a position in the US election, as it is of vital interest for the economy going forward, and there was a time when that mattered for stock markets too, though that seems less certain at the moment.

I was giving the best guess mortality stats for the virus on Tuesday, and just wanted to break those down a bit further. The bottom line really is that, subject to some variations depending on race, sex and existing co-morbid health conditions, and in the event that anyone is actually infected, as many may well never be infected, then the death rate for those in the 12 to 40 age range is about 0.01%, or one in ten thousand, the death rate for people in the 41 to 60 range rises to about 0.1%, or one in a thousand, and the mortality rate rises sharply for those 60 or over to about 2%, or one in a fifty. That last stat is heavily weighted towards the oldest and least healthy in the population, to the extent that the average age of death from COVID-19 among white people in the Indiana study I was referring to was 78.9, with over half of all COV-19 deaths in Indiana among nursing home residents.

What does this mean? Well it's actually very good news, with this pandemic being relatively mild and normally distributed compared to a really bad pandemic like the one in 1918-20. With this information the math is pretty simple and it's obvious that with some masks and social distancing to slow the spread and protect the more vulnerable while a vast and likely to be ultimately successful search goes on to develop a vaccine. I was initially sceptical about that yielding much in any useful timescale but with the vast resources being put into this I suspect that a workable vaccine may well be ready by the middle of 2021, so with those precautions ensuring that infections don't run away and risk overloading health systems the world should be about ready to get back to work, but ..............

There seems to be a lot of resistance to wearing masks and maintaining sensible distances, and I've been seeing a lot of this first hand in the UK. A lot of people just aren't wearing masks either at all or are wearing them in a way that makes them ineffective. People are aware of what they should do but here many just can't be bothered to take basic precautions for the general public welfare, or indeed for the welfare of their more vulnerable family members.  That said, this seems to have been taken to a whole new level in parts of the US, with the anti-masker movement apparently seeing masks as a a civil rights rather than public health issue. I have been watching videos like the one below with disbelief. Wow.

What does this mean? Well with both the UK and US considering further partial or full lockdowns to slow the spread of the virus, it seems that lazy and stupid people may have the clout to deliver the further economic damage that the virus, on the merits of the infection curves and mortality stats, do not. Any economic damage from further lockdowns on these stats is an economic self-inflicted gunshot wound. This has really not been a good year for the ongoing search for intelligent life on earth.

On to the markets, where so far the bulls have been slowly winning the battle at this inflection point. SPX closed slightly over the daily middle band yesterday and has traded above it all of today at the time of writing. That is starting to be converted to support and, if that continues, my next targets are in the 3420-50 area.

SPX daily chart:

In terms of the hourly chart there is no current negative divergence on the SPX RSI 14 though bulls need to break up through the 200 hour MA now at 3390 as that has been holding as resistance yesterday and today. A sustained break above should deliver at least 3420-30.

SPX 60min chart:

There is a decent case here for an IHS here that has formed and broken up with a target in the 3520 area. A break back over 3455.5 would invalidate the open H&S target in the 3110 area. If we see SPX test 3520 I'd be looking for the all time high retest, very possibly to make the second high of a larger double top.

SPX 15min chart:

SPX spent the day mainly just consolidating over the daily middle band, and may well be waiting for the non-farm payroll numbers due an hour before the RTH open tomorrow. If those numbers are good then the path may be open for SPX to retest the all time high. If they disappoint then this rally may well just end suddenly, and on a hard rejection I have some H&S patterns forming on tech stocks that suggest that SPX might then head for the 3000 area. We'll see how that goes.

Stan and I are doing our monthly free public Chart Chat at the artofchart.net at 4pm EST on Sunday (4th Oct). We'll be looking at the usual very wide range of instruments and markets and if you'd like to attend, then you can do that on our October Free Webinars page. Be there or be unaware. :-)

Rally Time

 My apologies for this being the first post in a couple of weeks. Hoping to get this back to a couple of posts a week now.

I've been avoiding discussing COVID-19 much in recent months as it is very much an election issue in the US and that's not a conversation I really want to be involved in. The progress of COVID-19 is very much a market issue as well though, so I'm going to drop in some hopefully not too controversial statistics on COVID-19 mortality rates as these are now becoming a lot clearer as time has passed.

In terms of deaths per confirmed case there have now been just over 33 million cases and about 1 million deaths worldwide at the time of writing. That puts the death rate per confirmed case at just over 3%, which will be low as there is a lag of about 16 days between a case being confirmed and the likely date of a consequent fatality. However in practical terms the actual mortality rate is likely much lower, as a lot of people get COVID-19 without having been tested, particularly those who show slight or no symptoms at all when infected, which may be as high. The CDC is estimating that the true mortality rate is in the 0.6% area in the USA, which is likely about right. What is very interesting though is the variation in the mortality rate between different groups within that overall average.

My numbers here are based mainly on an excellent study in Indiana, though these are comparable with a number of studies worldwide in richer countries. The death rate in poorer countries will obviously tend to be higher due to poorer access to healthcare.

Over half the deaths in Indiana were among nursing home residents, as the risk of death rises very sharply with age or co-morbidities from other health problems such as hypertension and diabetes. Excluding those in institutions the average age at death was still 76.9 years. Breaking that down further, if one were to take the numbers as per every thousand deaths of people of 60 or over, there would be 70 deaths from people aged 40 to 59 years, and just 6 deaths of those 12 to 40 years old. Men are 33% more at risk than women, and whites are slightly more than three times less likely to die than non-whites, with the average age among whites at death at 78.9, and non-whites at 73.3.

What does all this mean? Well it means that this pandemic is very unlike the 1918-20 pandemic, which preferentially attacked the young, and killed, at best estimate, about 2.5% of the population of the world at the time. This death rate is far lower, and the majority of deaths in the US are among those who would likely have died from another cause within five years without the pandemic.

In terms of the economic cost of the pandemic, it is already high and may get a lot higher before the pandemic declines enough for economies to strongly recover. Infection numbers are rising again in many countries, including both US and UK, and here in the UK there is serious talk that the country may be back in full lockdown within days, albeit mainly it seems because so many people aren't bothering to observe social distancing rules or to wear masks. Personally I'm thinking that there is a growing case for our species name Homo Sapiens Sapiens to be shortened by at least one Sapiens (meaning wise in latin), and taking the year as a whole, possibly two.

On to the markets where markets have been retracing from the new all time highs made on SPX in August, well after the new all time highs made on Nasdaq in June, and I have read then and now a lot of people talking about a big new bull market starting in March this year. Frankly I was sceptical about that then and remain so, but since March at least the Fed has certainly done a great job of reassuring markets, though without managing the more difficult job of putting economies back on track. There has been a lot of economic pain from COVID-19 so far, and there will likely be a lot more, with government debts also ballooning across much of the first world over 200% of GDP, well over the level (at about 180% as I recall) where the risk of eventual default on their government bonds becomes a major risk. Is this a good environment over the next few years for stock markets? We'll see, but for now the Fed still seems to be fully committed to supporting asset prices and as long as that remains the case prices may remain inflated over where they would otherwise likely be.

In terms of the retracement on SPX here, a significant support level has been reached at the low last week when the weekly middle band was tested. That has delivered a strong bounce and there is a possible setup here to go considerably higher. Key resistance is now not far above at the daily middle band, which is at 3373 at the time of writing. The daily middle band held on the last two rallies and may hold again here. If it does, then expect lower prices not long afterwards. I'd note that the last daily RSI 5 buy signal failed on the last leg down and another one fixed on Friday. This has been a strong trending move down.

SPX daily chart:

In the event that SPX can break back over the daily middle band then I have a fixed alternate double bottom targets in the 3420 and 3440 areas, bracketing a possible larger IHS neckline in the 3430 area. In the event that this move extends into a possible retest of the all time high, we might well see an IHS right shoulder for, which would have an ideal low in the 3310 area.

SPX 15min chart:

What are the chances of an all time high retest? Well Tech stocks were firmly  in the driving seat on the way up from June, and led the way down on this retracement. The H&S I show below is the SPT (S&P 500 Tech) and there are similar setups on both QQQ and XLK. That H&S has broken down with a target a lot lower, probably equivalent to the 3000 area or under on SPX and at the break of a high quality pattern like this there is an inflection point where there will either be a breakdown into that target area, or a strong rejection back into a retest of the prior high. If SPX gets back over 3400 then I'll be leaning towards the second option, albeit very possibly just to make the second high of a large double top.

SPT daily chart:

In terms of resistance in the SPX 3430 area I'd note that the monthly pivot on ES at 3416 is a close match with that, so if we see that level tested and a failure there, then that larger IHS right shoulder may be forming.

ES Dec 60min chart:

What are the odds of a high retest on SPX soon? Well in the event that this is just a technical retracement in a huge new bull market then pretty high. If however this is a top forming from the new all time highs last month then I'd note that from my own research significant highs and lows on SPX involve some kind of high retest after a strong retracement over 65% of the time. In that case therefore, there would also be a high retest considerably more often than not, and that is something that I am watching out for.