A Moment Of Truth

 I've been looking at the resistance trendlines on ES and SPX over my last few posts, and the scenario I was looking at in my post on Friday 6th August that we may be seeing the start of a retracement here that could deliver a 3800 area retest. I was saying that we might well see more highs before that main move started and we've seen that.

One resistance trendline that I wasn't looking at was the rising wedge resistance trendline that has developed over recent weeks and ES is testing that too. Possible daily RSI 5 sell signals are now brewing on ES, SPX and NDX.

ES Sep daily chart:

On the hourly chart SPX is testing rising wedge resistance from the March 2020 low ..........

SPX 60min 20Mo chart:

.......... and the wedge resistance trendline from the November low, which is part of the larger wedge resistance trendline.

SPX 60min 10Mo chart:

Weekly RSI 14 and RSI 5 sell signals have already fixed on SPX.

SPX weekly chart:

The NDX resistance trendline hadn't quite been touched when I captured this chart at the weekend but has had a perfect test shortly after the open this morning.

NDX 60min chart:

So there we have it. Resistance trendlines hit, High quality negative divergence. Everything needed for a high except, so far, the actual turn. Hard to overstate the importance of that of course. We'll see now if we get that, but the setup is certainly looking good.

The free public webinar scheduled for last Thursday had to be delayed a week and is now scheduled for an hour after the close on Thursday 2nd September at theartofchart.net and will looking at the usual six big tech stocks and eleven sector ETFs, many of which are looking particularly interesting here. If you'd like to attend you can register for that here, or on our August Free Webinars page.

Testing SPX Rising Wedge Resistance Again

I was saying in my post last Thursday that if support was found at the levels being tested then, the next target within the rising wedge would be wedge resistance in the 4500 area, and well, here we are.

Now we are back at the daily upper band, and testing a wedge resistance trendline that has already held several times. The chances are that SPX is making another high here, setting up a pattern that can take us lower again than the last decline, so that is what I'll be looking at today.

In terms of the wedge itself, it is high quality, with an excellent resistance trendline that is unlikely to be broken significantly unless we are going to see a bearish overthrow, not uncommon at a significant high on wedges, or unless the wedge breaks up with a target in the 6800 area which sounds crazy, but really the market went through crazy without a backward glance a while back so it can't be ruled out altogether.

SPX daily chart:

The main rising wedge support from the March 2020 low was tested at that low last week and it is that rising wedge resistance that is now being retested. No high quality RSI 5 sell signal forming yet on the hourly but there is now negative divergence here ........

SPX 60min 20Mo chart:

........... that you can see more easily on the ten month hourly chart.

The rising support from November 2020 was not hit at the last low, but the resistance trendline shown below is the one on the wedge from the March 2020 low.

SPX 60min 10Mo chart:

In terms of the topping setup here, there is now a very decent quality possible double top setup that on a sustained break below last week's low at 4367 would look for a target in the 4245 to 4255 area. I think there is a very decent chance that setup delivers, though I think SPX might kick around here making this swing high for another two or three days first.

SPX 15min chart:

Just looking at the SPX weekly chart quickly, there are fixed sell signals on both RSI 14 and RSI 5 already of course, and I would note that the last time the weekly middle band was broken was ten months ago. That is the key level of support above that double top target, and the key level to be broken and converted in the event that my scenario for a backtest of the 3800 area that I outlined in my post on Friday 6th August is to have a chance of playing out. The weekly middle band is currently at 4296.

SPX weekly chart:

Overall I am really liking the odds of a decent retracement here, though it might be that would find support at the weekly middle band and return to the highs again. What I would say though is that the ideal time to do that would be into the end of October, and that is now only two months away.

An hour after the close on Thursday we are holding our monthly free public webinar on on the big five and key sectors at theartofchart.net and will looking at the usual six big tech stocks and eleven sector ETFs, many of which are looking particularly interesting here. If you'd like to attend you can register for that here, or on our August Free Webinars page.

Testing Key Support Levels

 SPX went to the resistance trendline that I was looking at in my last post and we have seen a 2%+ retracement from there so far.

On the daily chart the RSI 5 has reached the 30 level and the close yesterday delivered a clear break below the first big support level at the daily middle band. If that break below the daily middle band is going to confirm today, then SPX needs a close today at or below the SPX daily middle band, currently in the 4325 area.

I was doing an intraday webinar at theartofchart.net on Tuesday after the first leg down on this move and was looking at the obvious rally target at resistance in the 4445 ES area, and on a failure the obvious next target in the 4350 area. With that rally high yesterday at 4449 and the overnight low last night at 4347 I was pretty pleased with that call. If you'd like to see that video it is here.

SPX daily chart:

At the open this morning SPX hit a key support level at rising wedge support from the March 2020, and of course this move start with the test of rising wedge resistance from that low. That could be the low for this move of course, and if we do reject back up into the highs the wedge resistance trendline would now be in the 4500 area.

SPX 60min 20Mo chart:

On the shorter term SPX chart the rising wedge support from the November 2020 low is currently a bit lower in the 4355 area.

SPX 60min 10Mo chart:

On NDX the daily RSI 5 sell signal has reached target and the first big support level at the daily middle band also broke yesterday. Same comments as SPX above in terms of a rejection candle today and the NDX daily middle band is currently in the 15045 area.

NDX daily chart:

On the NDX hourly chart the nested double top setup is starting to try to play out, with the break below the smaller double top support at the open this morning. If we see further support breaks on the indices, particularly a break and conversion of the monthly pivot at 4345 on ES, then that first double top target is in the big support area at 14430. The alternative is that it rejects back up here into another all time high retest, and we should see one or the other play out.

NDX 60min chart:

We may be seeing the start of a retracement here that would deliver the 3800 area retest scenario that I was looking at in my post on Friday 6th August. There might be a further high retest before that main move starts though.

In the short term the key resistance levels today are the daily middle bands on SPX and NDX in the 4425 and 15045 areas respectively. A close below them today sets up a retest of today's low and a possible break lower. Rejection candles closing above them today sets up likely retests of the all time highs on both.

An hour after the close today we are holding a free public webinar on trading commodities at theartofchart.net and will be outlining the usual three possible option trades on interesting looking commodities there. If you'd like to attend you can register for that here, or on our August Free Webinars page.

Possible Topping Action Here

ORIGINALLY POSTED AT THEARTOFCHART.NET ON 16th AUG

I was looking at the resistance trendlines on SPX and NDX last week and while I was off on Friday SPX tested the resistance trendline there. Of those four signals, only ES hasn't yet made the possible near miss target, though it isn't far away, and may well reach that this morning without declining much further.

SPX 60min chart:

On the daily chart the RSI 14 sell signal is still open, but the RSI 5 sell signal failed last week. This high would be improved by a retracement here and then a retest of Friday's highs to set up the RSI 5 negative divergence again.

If SPX drops directly from here then key support is at the daily middle band, currently at 4404. A sustained break below opens the downside.

SPX daily chart:

NDX didn't reach the resistance trendline, which isn't needed, and didn't retest the current all time high, which might be needed, though not for negative divergence.

As the setup already stands though there is a very decent looking nested double top setup on NDX that on a sustained break below 14800 would look for the 14400 area, and then on the larger patter on a sustained break below 14465 would look for the the 13700 to 13900 area. That would be a modest retracement of the move up from the November low, and could play out directly from here.

NDX 60min chart:

On the NDX daily chart RSI 14 and RSI 5 sell signals are already fixed. Key support is at the daily middle band, currently at 15006. A sustained break below opens the downside.

NDX daily chart:

I'm not watching it with the same level of interest, but I'd note that there is a very decent looking double top setup there too. A sustained break below double top support at 217 would look for a retest of the July low at 209.05.

IWM 15min chart:

I would love to see a retracement start here that would deliver the 3800 area retest scenario that I was looking at in my post on Friday 6th August. If not though I would be looking for a minimum reversion to mean backtest into the 45dma, currently in the 4343 area.

An hour after the close on Thursday we are holding a free public webinar on trading commodities at theartofchart.net and will be outlining the usual three possible option trades on interesting looking commodities there. If you'd like to attend you can register for that here, or on our August Free Webinars page.

Still Testing Strong Resistance

 SPX has made new all time highs as expected and has gone to the resistance level I was talking about in my post a week ago. In the meantime though that trendline has risen and looks to be in the 4465-70 area now. There is no need to test that trendline, but it is strong trendline resistance if reached.

SPX 60min chart:

On the daily chart, subject to the close today, the fixed daily RSI 5 sell signal there may fail, though the one on NDX has now fixed.

SPX daily chart:

NDX is some distance away from resistance there, now in the 15,350 area. That too does not need to be tested, and if NDX is failing here then there is now a really decent looking nested double top setup formed and a very obvious target for a retracement here at rising support from the November low, now in the 13,950 area.

NDX 60min chart:

In the meantime the daily RSI 5 sell signal on NDX that I was looking at as likely a week ago has now fixed and NDX looks ready to roll over at any time. We'll see how that goes.

NDX daily chart:

SPX and NDX are looking close to a turn here. Do they have to turn? No, they never do, but it is an attractive setup and, if seen, we might see the scenario that I was laying out in my post last Friday play out into October. We'll see how that goes here.

What If ... We See SPX Retest 3800

Everything is in the groove from my post yesterday. NDX and ESTX50 made new all time highs yesterday. SPX and Dow made new all time highs today, RUT retested the August high today, making the second high of a possible double top. Only DAX looks slightly short of a new all time high but that may well be made too on Monday.

I had a look at all of these in my premarket video at theartofchart.net this morning and posted that on my twitter. If you missed that and would like to see it, you can see that here.

Obviously there is a chance that everything breaks up further here, so I'm carefully watching the well established resistance trendlines on SPX and NDX. The SPX wedge resistance trendline is currently in the 4450-5 area.

SPX 60min chart:

The NDX resistance trendline is currently in the 15300 area.

NDX 60min chart:

The chances of seeing a short term high are pretty decent, and we should see a retracement after that. If that retracement is deeper than the fairly shallow retracements that we have been seeing so far this year, then we have a decent historically bear friendly time window into October to see that.

There are some possible topping setups here that could deliver a backtest of the 4000 area on SPX, but the level I'd really love to see backtested is the 3800 area, and the main purpose of this post is to explain why that area would be so significant if we were to see a backtest there, and to look at the setups in the event that it held, or if it broke.

To do that I'd like to show a couple of past patterns that are in my mind, and to show how they might be instructive here.

The chart below is the SPX weekly chart 1980-8, and shows the bull move into the 1987 crash and just afterwards. I've seen a few people over the years say that move was an entirely unpredictable black swan, but on the chart below I show how the whole move was a model of technical precision, and that the 1987 crash delivered a very decent Fibonacci retracement of that move, though for sure a lot faster than anyone might have expected.

In particular I would draw your attention to the rising wedge that formed 1980-5, that broke up in 1985 with a target in the 295 area, backtested broken resistance perfectly, and then made that target in early 1987.

Rising wedges and megaphones normally break down of course, but I have seen a drawn a lot of these over the years, and the wedge or megaphone break with the clearest targets and highest probability of making target are the ones that break up. They do however need to confirm the target with the way they break up, which is to break up from the pattern, often but not always with a bullish underthrow of pattern support first, then deliver a decent and precise backtest of the broken resistance trendline, and then make a higher high with confidence to confirm the target.

SPX weekly 1980-8 chart:

Here is another example from June 2013 that some of my longer term readers may recall me first posting on 17th June 2013. At the stage I posted this the wedge had broken up with a target in the 1955 area, and done the perfect backtest. I followed this through the higher high and into the target reached in 2014.

SPX daily chart from 17th June 2013:

So .... why is this relevant here?

Well the move up from the 2009 low on SPX formed a really nice rising megaphone. That broke down in 2020 and when SPX made a higher high from there my first thought was that it was expanding into a larger megaphone. If that had been the case then obviously the old resistance would have held, as it did for three months before breaking up in November 2020. After that I was thinking the break up might be a bearish overthrow, but while that is still technically possible, SPX has broken up too far since for that to be likely.

Now it may be that the move into the March 2020 low broke that pattern, delivered a fibonacci retracement and that we are in a new sequence, but the other possibility is that the rising megaphone from the 2009 low has broken up with a target in the 6560 area.

If so though, then next and necessary step in the sequence would be a backtest of the broken megaphone resistance, currently in the 3750-3800 area. That would need to hold, and then I would be looking for a higher high over this one with confidence to confirm the then high probability target in the 6560 area.

SPX monthly chart:

Now I know some will be thinking that is a ridiculous idea, but given the worldwide economic blows taken over the last eighteen months from COVID, I think equity indices have already move through ridiculous. The current nosebleed index levels have been reached on tidal wave of quantitative easing and stimulus spending and, at the moment, that shows no obvious sign of stopping and may even, in terms of stimulus spending, be increasing further. How far can this move go? Well as I said, the obvious resistance was in the 3600 area last year. From here I can see no reason to think SPX can't go considerably higher as long as the Fed and government are supporting it. As always, we'll see.

Our monthly free Chart Chat at theartofchart.net is being held on Sunday. If you'd like to attend you can register for that here, or on our August Free Webinars page.

Retesting Strong Resistance Here

 SPX and NDX held the strong resistance they were testing a week ago, retraced a bit, and are now close to testing them again. I have been expecting new all time highs on both, and NDX has made a new all time high today, but SPX is still a bit short and likely needs to make a new one too.

Both RSI 14 and RSI 5 daily sell signals are now fixed on SPX, and if resistance holds again, then next short term high at least is close.

SPX daily chart:

The wedge resistance trendline on SPX is currently in the 4445 - 50 area, so that is approximately in the 4435 - 40 area on ES. That doesn't need to be hit that we should at least see that new all time high before a turn.

SPX 60min chart:

NQ formed a really nice little bullish triangle from the last all time high and that delivered a textbook break up, backtest into the triangle, and move to the (minimum) target at a retest of the all time high. That is a minimum target and NQ/NDX could go a bit higher still.

NQ Sep 60min chart:

On the NDX daily chart the new all time high has set an RSI 5 sell signal brewing, in addition to the daily RSI 14 sell signal already fixed there.

NDX daily chart:

NDX also has a strong resistance trendline, albeit a shorter term one. I'm not expecting a break above that on this move, and that is currently in the 15250 area.

NDX 60min chart:

Where might this short term high take us? Well every high this year so far has delivered only a modest retracement, but there is still a case for a backtest of the 3800 - 4000 area and not a bad setup here to deliver a backtest of 4000. I'm still thinking we might see a backtest of the 3800 area, if only because the best bullish setup over the next year of so would be confirmed with that backtest. I'm going to find some time to lay out that scenario in a post tomorrow, and it would be a really nice setup if we do see that backtest.

I'll also be looking at that in our monthly free Chart Chat at theartofchart.net which we are holding on Sunday. If you'd like to attend you can register for that here, or on our August Free Webinars page.