Break And Rejection

I was saying yesterday that if there is a rejection on the day after a break back up over a middle band, it is generally on the next candle, and we saw that yesterday. I also said that after a rejection there is generally a follow-through to the downside, and we've been seeing that on ES overnight so far.

The only other example of a failed break up over the daily middle band in the last three months is highlighted in blue. That was in January and started the decline into the January low, so that was a good example.

SPX daily BBs chart:

On the daily chart I'm watching the possible H&S forming here, and the rejection yesterday would be at the top of the right shoulder on that. On a break below 4200 the target would be in the 3575 area though, as I said yesterday, I'm not expecting to see SPX much under 3900 this year. If we do see 3575 that would be a serious support break and would kill off my wedge breaking up towards the 6500 area scenario.

SPX daily chart:

On the weekly chart the high this week was a decent test and fail at the weekly middle band, which tends to be a very important support and resistance level.

SPX weekly chart:

So if we are seeing a fail into a lower low here, what has this high delivered in terms of trendlines? Not as much as I would have liked, but this high on SPX was a solid hit of declining resistance from the high. There isn't a really high quality corresponding support trendline yet but the best option, marked on the chart below, is currently in the 4150 area.

SPX 60min chart:

On Dow there is now a decent quality falling channel, so if Dow is headed down to channel support, that is currently in the 32500 area. Both of these options on SPX and Dow are possible bull flags forming from their all time highs.

INDU 15min chart:

We are doing our monthly free public Chart Chat at theartofchart.net at 4pm EST on Sunday and will be looking at the options here more there, as well as looking at the usual wide range of markets. If you'd like to attend you can register for that here or on our February Free Webinars page.

Everyone have a great weekend :-)