SPX Approaches Main Resistance

 SPX has gone through a lot of trendlines and divergence on this amazing move up, with the last lot breaking on the move over the 3350 area including the negative divergence on the daily RSI.

SPX is very stretched here, has punched 100 handles over the monthly upper band, touched an amazing 7.1% above the 45dma when I last annotated that chart yesterday, and is now close to testing the last and largest resistance trendline on the chart.

That trendline starts at the March 2009 low, held support at the 2010 low, and then was touched as resistance at highs in 2011, 2012, 2014, 2017/8, 2020 and is now close to being tested as resistance again. That trendline hasn't broken as resistance since SPX crossed below it in 2011, and I have it in the 3510-20 area at the moment, though that is an approximation on a trendline that is now more than eleven years old. At the time of writing SPX has reached a new all time high at 3508.07.

Is this trendline going to hold? Well we'll see, this really has been an amazing move, but that really should hold as resistance.

SPX Monthly chart:

That's a decent match with a shorter term trendline on the SPX 15min chart below so we may be seeing that test soon and I'll be watching that with great interest.

SPX 15min chart:

On the bigger picture SPX reached an eye-watering 7.1% above the 45dma. That's only been exceeded once at a high in the last eight years and that was in June this year. A return to the mean move cannot be far away. and might well start at a test of the main resistance trendline now only slightly above.

SPX daily vs 45dma 2017-date:

Just as an aside this last phase up of the move from June has been a very narrow move based on tech and large caps.That's very clear on the hourly SPX equal weighted chart which has not yet retested the June high, and is still a good 10% short of a retest of the all time high.

SPXEW 60min chart:

This is a very important test for SPX, and if resistance holds then the return to the mean retracement should start next week, and SPX may make a major high. If it does hold then I'd note that the obvious next target on the monthly chart would be a return to the rising megaphone pattern support for which that trendline is the resistance trendline. That's currently slightly under 2300 of course.

Everyone have a great weekend :-)

Degrees Of Separation

 My apologies for my being unusually quiet over the last few days, My wife of 23 years and I are starting the process of getting divorced and I have been distracted by that. It's definitely for the best, and likely this would have started a year ago if she had not been diagnosed with cancer then. She is now clear and largely recovered, and the reality that we really shouldn't still be married to each other any longer has been brought into very sharp focus by COVID-19 and the quarantine this year, as I suspect it has for quite a few couples, so we are starting the process of correcting that. Our children are old enough now, are supportive of the split and it is just one of those things.

On to the markets where SPX has made the new all time high that seemed likely and where stock markets seem very disconnected from the real economy of eye-wateringly high unemployment, social distancing and sagging consumer demand. Is this sustainable? Well as always time will tell but I suspect not. We'll see.

I'm not sure who drew this outstanding cartoon below but many thanks to the artist for expressing the quiet satisfaction that US Main Street must be feeling now about the Nasdaq and the S&P 500 hitting new all time highs : -)

SPX isn't any more stretched than it was at the time of my last post, but it is still very stretched and there is a good argument and setup for thinking that the next retracement to the mean is starting here. The minimum retracement to the mean for me would be a backtest of the 45dma, currently in the 3238 area.

SPX chart vs 45dma:

Would that retracement to the mean move stop at the 45dma? No, historically it would often then continue down to the 200dma, currently in the 3072 area and the obvious next target on a break and conversion of the 45dma to resistance. Decent quality daily RSI 14 and RSI 5 sell signals are now brewing but need more downside to fix.

SPX daily chart:

On the SPX hourly chart an RSI 14 sell signal has now fixed and rising wedge support from the March low has broken. I haven't marked it in but there is a decent quality double top setup that would be targeting the 45dma area on a break down.

SPX 60min chart:

On NDX there is now a really very nice overall rising wedge from the March low and NDX may be topping out for a significant high here. A daily RSI 14 sell signal has already fixed, as well as this hourly RSI 14 sell signal on the chart below and I'm watching that rising wedge support, currently in the 11150 area, for a possible break down. 

NDX 60min chart:

Stan and I are doing our monthly big 5 and sectors free public webinar at theartofchart.net tonight and if you'd likely to attend you can sign up for that on our August Free Webinars page or the direct link that I will be tweeting on my twitter shortly after I publish this post.

Stretched

SPX broke up through both of the inflection points that I was looking at in my post earlier this week with the second one at the island top gap into 3337.75 yesterday. SPX here is very stretched, but that doesn't mean that it can't go higher, and there are no longer any significant resistance levels between here and a retest of the all time high, which I'm now leaning towards seeing before SPX makes the next serious retracement.

A serious retracement is of course a retracement strong enough to break and convert the daily middle band and then likely deliver a reversion to the mean move or more. I was asked earlier this week what I meant by that and I'm going to take a little time today to explain what I mean as it is very simple and extremely easy to incorporate into your market views if you don't have a system to do this already.

The system I use is based on the distance that price on SPX is from the 45dma, and I've found that this gives a good view. If you were to use the 50dma instead that would likely be just as effective but I've always used the 45dma myself. On the two charts below I've looked at the highs over the last seven years on SPX that delivered a mean reversion move, here defined as a retracement to the 45dma or lower. Obviously the 45dma is a moving target and I have marked some of the interim highs on the way to those highs that didn't deliver a mean reversion move to show that the markets could be less stretched by the time that mean reversion high delivered. As SPX has risen considerably over this seven year period I have listed both the approximate number of handles above and the percentage above for each high.

SPX daily vs 45dma 2013.5 to 2017.5:

The chart that interests us most here of course is the chart including the current move and at the close today I had SPX about 175 handles over the 45dma which is about 5.2% above. That is stretched by historical standards though the two highs since the March low have both been more stretched, at 6.8% for the April high (no mean reversion completed), and 8.7% for the June high (almost exact mean reversion move). That isn't untypical after a big decline and there was an interim high at 6.1% over the 45dma just after the early 2016 low.

I haven't marked in some of the smaller highs over the seven years but all of the highs I marked in before March 2020 landed in a range between 2% over the 45dma to 5% with the exception of the late 2015 high at 5.7% and the early 2018 high at 5.4%. I also noted that early 2016 interim high that didn't deliver a mean reversion move at 6.1% above that went into a mean reversion high at 4%.

The point is that from a mean reversion perspective the air is getting pretty thin up here, though after the resistance breaks this week I'm not seeing any strong signs that the next mean reversion high will be below the retest of the all time high. Let's look at that next.

SPX daily vs 45dma 2017.5 to DATE:

On the 15min chart I have a decent short term resistance trendline currently in the 3365 area, though that would be unlikely to deliver the mean reversion high. I would note the beautiful triangle on the 15min RSI 14 that broke down today and may well deliver a more modest retracement early next week.

SPX 15min chart:

On the hourly chart there is no current negative divergence and while the current move might still be an overthrow of the resistance trendline now in the 3300 area, my eye is drawn to the possible alternate wedge resistance trendline currently in the 3405 area.

SPX 60min chart:

There's no current divergence on the daily chart either so I'd be looking for a retracement and then high retest before a likely swing high. Given the lack of either distance or resistance between here and the mean reversion high, I'd expect that retest before we see that high, but that the next mean reversion high would likely not be far above it.

SPX daily chart:

Stan and I are doing our monthly free Chart Chat at theartofchart.net on Sunday 9th August at 4pm and if you'd like to attend then you can register for that on our August Free Webinars page. We'll be looking at the likely impact of COVID-19 on economies and markets over the coming months and years as well as the usual market analyses. Everyone have a great weekend.

Testing 3300 on SPX

The nice topping setup from my post last week failed to deliver, with SPX finding support once again at the daily middle band, and the very nice bull flag channel on NDX failed to break down as I was hoping it might. Instead it continued to form and delivered the high retest that we have seen this week. So what now? Well the high retests on NDX and SPX have of course set up possible alternate double top setups which are again of high quality, so this is the next important inflection point,and in the event that the SPX daily middle band continues to be solid support, perhaps the last inflection point before a retest of the all time high on SPX. 

On The NDX daily chart an RSI 14 sell signal has already fixed, supported by another on DAX daily, but those are the only good daily RSI divergences on indices unless they go higher. On the NDX hourly chart below weak RSI 14 and RSI 5 sell signals have fixed and there is a very high quality possible double top setup here. 

NDX 60min chart:

On SPX I'm watching the high quality rising wedge resistance trendline that I was looking at in my last post and that is overthrowing slightly in what should be a bearish overthrow. I mentioned yesterday that if that trendline was broken then the ideal range to make a high here would be in the 3000-20 SPX area (3290-3310 on ES) and the high today at 3306.94 is in that range. An hourly weak RSI 5 sell signal fixed today. 

SPX 60min chart:

On the SPX 15min chart an RSI 14 sell signal fixed yesterday and is still open and should deliver a move to the target 30 area on that RSI 14. We might well see that directly from here. 

SPX 15min chart:

The key support on SPX recently has of course been at the daily middle band, and if that isn't broken and converted to resistance soon then we are likely to see an attempt to retest the all time high on SPX. If we see another retracement soon, which seems likely, then I'd note that the next test will be a test of three important levels. The first of those is rising wedge support, now in the 3250 area, supported by the 50 hour MA currently in the same area, then the daily middle band, which closed today in the 3230 area. If that can be broken and converted to resistance then there is a high quality double top setup here that on a sustained break below 3200 would look for the 3100 area. 

If the daily middle band holds as support again that will open then test of the island top and breakaway gap into 3337.75, and a fill of that gap would clear the path for a retest of the all time high on SPX. 

SPX daily chart:

Stan and I are doing our monthly free Chart Chat at theartofchart.net on Sunday 9th August at 4pm and if you'd like to attend then you can register for that on our August Free Webinars page. We'll be looking at the likely impact of COVID-19 on economies and markets over the coming months and years as well as the usual market analyses. I'll also be doing a post tomorrow or Thursday looking at the way markets have behaved in past recessions, as the GDP figures last week have now confirmed that this is the steepest recession since records began in 1947. Everybody take care :-)