Breakout Opportunity Here

The bulls delivered a strong rally yesterday and there is actually a decent looking setup for a break up here that might well then deliver a fast retest of the all time highs on SPX. A daily RSI 5 buy signal fixed on NDX at the end of last week, which I wasn't taking particularly seriously in the absence of a confirming signal on SPX, but at the close yesterday a daily RSI 5 buy signal also fixed on SPX. Both signals could deliver a sharp push up here through some key resistance levels.

On the SPX chart very strong resistance is in the 4500 area, with the SPX daily middle band currently at 4498.

SPX daily chart:

The SPX daily middle band is reinforced by key resistance at the the weekly middle band, currently at 4504, which has been tested a few times but not meaningfully broken since the first decline in January this year. A break (weekly close) of that and conversion to support would open a possible all time high retest.

SPX weekly chart:

On the NDX daily chart a daily RSI 5 has fixed, as I have mentioned, and there is also a decent quality IHS forming that on a sustained break back above the neckline in the 15250 area would look for a minimum target at a retest of the all time high. The daily RSI 5 buy signal would make target long before an ATH retest, but NDX is still also on the larger daily RSI 14 buy signal that fixed after the current retracement low in March.

NDX daily chart:

Is there a pattern setup that might look for an all time high retest on SPX? Yes, the initial H&S that broke down on SPX failed on a rally that took SPX back over the right shoulder high. That fail has a target at a retest of the all time high.

There is also a Three Day Rule target back at a retest of the retracement low at 4114.65, but there is a small exception to that rule that has only happened twice (so far) in the last fifteen years, where a marginal higher low (like the one made shortly after the Three Day Rule signal fixed) is ok in the event that a triangle is forming. This retracement could be a bullish triangle from the all time high, and this could be wave D. If so the ideal right shoulder high would be in the 4590 area, then I'd expect a shortish wave E before the break up into an all time high retest.

One way or the other there are plenty of indications that the retracement this year is forming a bull flag, and that triangle is one form that such a bull flag can take.

SPX 60min chart:

Is there anything else here to support a retest of the all time high on SPX? Well it looks at first glance as though an equivalent IHS to the one on NDX may be forming here but that isn't the case, as the pattern would be too large relative to the preceding trend. What SPX does have though is a possible rising megaphone from the March low that could be forming into that all time retest, and could allow that retest as soon as early May. The megaphone support trendline is only two touches, but the resistance trendline is an ideally formed and anchored three touch trendline. It is very nice and strengthens the case that there is an actively forming upward facing pattern.

There is one other thing worth noting on the SPX 15min chart, and that is the declining resistance trendline from the rally high at 4637.30. At the time of writing SPX is testing that for the third time today and that is a very obvious fail area. A break above opens a test of main resistance in the 4500 area.

SPX 15min chart:

In the absence of a break up here I'm expecting to see new retracement lows soon, and the news isn't really supporting a return to the all time highs at the moment, but this is the highest quality bullish setup I've seen so far this year, so it is best to be watching it. As always, we'll see.

We are doing our usual monthly free public Big 5 stocks & key sector ETFs  tomorrow at 5pm EST. If you'd like to attend you can register for that here. As always you can also find the registration link on our current monthly free webinars page.

Now The Support Test

On Friday morning I was looking at the short term bull and bear options on SPX and at support and resistance levels being tested. The main resistance level was of course the weekly middle band, now at 4518 and with the SPX close on Friday at 4488, just above support at the daily middle band, there was a complete failure to break back up over that resistance.

SPX weekly chart:

That has led into the test of key support that we are now seeing on SPX and NDX particularly this morning. The most important short term support level on SPX is of course the daily middle band, now at 4495, and SPX opened well below that this morning. A clear daily close below that today would be a significant strike in favor of the downside option here.

SPX daily BBs chart:

So what is the downside option? Well on Friday morning I was looking at the possible H&S forming on SPX here and that H&S has now completed and broken down at the open this morning. If SPX can sustain that break then the H&S target is in the 4265-70 area. If we see a rejection here then a break back up over the right shoulder high at 4521.16 would fail the IHS, looking for a retest of the previous high at 4637.30, and break up from a double bottom looking for a target in the 4600-10 area.

We should see a clear break up or down from this inflection point area on SPX very soon and that may well happen today, particularly if SPX breaks down.

SPX 15min chart:

On NDX the setup is messier. I have marked in the slightly more bearish H&S option that has broken down with a target in the 13420 area. A break back over 14630 should fail both of the H&S options here and would be a significant bullish break and likely look for a retest of the previous high at 15625. Conversion of the broken neckline at 14300 to resistance would strongly favor the downside.

NDX 15min chart:

The Dow is looking more bullish here, with perfect tests on Dow and YM of the possible bull flag resistance trendline on Friday. That would look bullish on a break up over that trendline and a subsequent break over that H&S right shoulder high at 35.1k would then look for a retest of the previous high at 35.4k.

INDU 15min chart:

Overall I'm still leaning towards the short side here. The news on Ukraine continues to be grim and there's no obvious sign that will be changing anytime soon. The news on sanctions is suggesting that those may intensify a lot in coming weeks, with a possibility it seems that most energy purchases from Russia by Europe may be ending soon, which may have a serious impact pushing energy prices up and very possibly equity prices down as inflation then rises further, the cost of living crisis intensifies, and western economies are pushed closer to recession. There is also of course still a Three Day Rule target at a retest of the 4114.65 low.

We'll see whether this current break down can be sustained into the end of the day. If so, and there is a confirming close below the daily middle band tomorrow, then the next likely move on SPX should be to 4270, putting SPX within striking distance of the 2022 low at 4114.65.

We did our monthly free public Chart Chat on Sunday at 4pm EST looking at the prospects for equity indices here as well as the usual wide range of other instruments and markets. If you'd like to see the recording you can see that here. As always you can also see the recording on our current monthly free webinars page.

Between Key Support And Resistance

In my last post I was looking for a retracement and looking at targets below for the likely backtest that was coming, and those initial targets have been hit, more or less. The main target was the mean reversion target at the 45dma, now at 4417, and the current low this week at 4450 isn't quite a hit, but came close.

SPX daily vs 45dma chart:

Another target was the backtest of the daily middle band, now at 4467, and that was tested Wednesday and yesterday, and is holding so far.

SPX daily BBs chart:

SPX is rallying from the daily middle band, and broken support on the way down is now resistance. The most important such resistance is at the weekly middle band. That is now at 4518, and a close above it would confirm the weak but definite close above at the end of last week. A close below would be a bearish failure to confirm.

SPX weekly chart:

Another important short term level of resistance is the 5dma, now at 4527. That's not important for a Three Day Rule break, as SPX is still on the Three Day Rule looking for a retest of the 2022 low at 4114.65 before a retest of the all time high at 4818.62, but it is still a significant short term resistance level.

SPX daily vs 5dma chart:

The second important short term resistance level is the 50 hour MA, now at 4546. A break and conversion to support of the 50 hour MA would be a significant short term bullish break, and might well signal that this short term retracement is over.

SPX 60min chart:

So what are the obvious options from here?

On the bear side the war in Ukraine is showing no signs of either ending soon or of becoming less brutal to civilians there. There is also a Three Day Rule target at a retest of the 4114.65 low.

On the bull side there is also a failed IHS looking for a retest of the all time high, though in the context of an overall bull flag forming from the all time high a lower low for 2022 would be perfectly acceptable before that retest of the all time high.

Overall I'm leaning towards a break down here but it may as always go the other way. We should have a clearer view by the close on Monday.

In the short term the failure to quite make a lower low on SPX yesterday means that there is no hourly buy signal on SPX here, and possible H&S patterns are forming on all of SPX, NDX and INDU. In the absence of a definite break up in the next couple of days, these are setting the scene for a possible hard break down instead next week.

We are doing our monthly free public Chart Chat on Sunday at 4pm EST and we will be looking at this further then as well as the usual wide range of other instruments and markets. If you'd like to attend you can register for that here. As always you can alternatively register for those on our monthly free webinars page.