Retesting The Upper Band

This is likely my only post this week, as I was wiped out by food poisoning on Sunday night, and while I'm feeling much recovered, my total food consumption so far this week is one hard boiled egg, a tortilla wrap, some houmous to go with the wrap and half a cookie, which is slim pickings. I'm cautiously considering possible menu items for today.

On to the markets though, and the H&S setup I was looking at yesterday morning in my premarket video at theartofchart.net I posted on my twitter failed and on the break over the right shoulder retested the rally high as expected (after the fail) and went a bit higher. So where does that leave SPX now?

Well I have some stats here. I have eight occasions so far since the start of the decade where SPX has been on a daily upper band ride, fallen away for at least two full days but not retraced as far as the lower band, then returned to a full retest of the upper band. Of the previous seven occasions a larger retracement started within a day from and only slightly above the retest new high four times, so the odds are decent that we will see a larger retracement start before Monday. Of the other three occasions one of those topped out for a few days before making a slightly higher high then starting the larger retracement, and only the last two continued higher directly.

SPX daily BBs chart:

With the odds so far this decade favoring the downside here I would note that the high retest yesterday established negative divergence on the daily RSI 5s on the SPX, IWM and Dow charts, so all now have possible daily RSI 5 sell signals brewing. I would also note that there are still open hourly RSI 14 sell signals fixed on SPX and IWM.

SPX daily chart:

Looking at the SPX 15min chart the possible target trendline for this rally that I was looking at on 17th July is still a short distance above in the 4070 area, and in the event that SPX can hang around here for next week, that trendline will soon be approaching the main downtrend resistance at the weekly middle band, now in the 4110 area.

SPX 15min chart:

So far this year the SPX weekly middle band has held on a weekly close basis at every test this year, and if we are going to see a low retest before heading higher, then I'd be expecting that would likely hold again, though if we are not going to see a low retest, then I'd mention again that there is a possible IHS neckline in the 4190 area that could make a decent alternative bottoming pattern.

SPX weekly chart:

On any retracement I look for short term support mainly at the 50 hour MA, which was backtested and held, or lower at the daily middle band. Another level I keep an eye on though is the SPX 45dma, now at 3923, which I use for reversion to the mean calculations and that was also backtested very well, though one could argue that was a backtest of the more usually followed 50dma, now at 3920. Either way, if SPX continues higher from here, that will become significant uptrend support. 

SPX daily 45dma chart:

Overall this rally still looks like a bear flag and the natural target for a bear flag is a low retest, so that is my lean for the next big move unless we see a clear closing break above the weekly middle band.

On the bigger picture the US indices are still within obvious bull flag setups from the all time highs though, and the natural targets for bull flags are retests of those highs. That doesn't have to happen, but the rally this month is suggesting that it might.

On the even bigger picture though, I'd note that may well be a bearish retest that would set up double tops for larger declines, and that would be my primary scenario if seen.

In the shorter term the historical stats are essentially neutral for the next five trading days through next Wednesday with a slightly bullish lean Thursday and Friday. There is often a significant bearish lean at the end of a month and a bullish lean at the start of a month but that isn't the case this time so both Friday and Monday are neutral.

If you're wondering where I get these daily historical stats from, I get those from the Stock Trader's Almanac 2022 by Jeffrey A Hirsch. I've been getting one at the start of every year for many years now and they are available from Amazon in the US and elsewhere.

Everyone have a great weekend. :-)

Testing 4000

Last weekend I was looking at the higher probability bear flag formation options on SPX and was looking at the resistance trendline on the chart below as the highest quality bear flag resistance trendline. That's in the 4050 area now, having eliminating the triangle option in the move up this week, and SPX successfully negotiated the very bearish historical stats yesterday to reach the 4000 area this morning.

SPX 15min chart:

On the bigger picture SPX is currently on a daily upper band ride and the 3sd upper band is in the 4050 area today, so that trendline could be hit today but SPX shouldn't really go higher.

SPX daily BBs chart:

I've mentioned a few times that possible weekly buy signals are brewing on SPX on both RSI 14 and RSI 5 and if today holds at least the level of yesterday's close today then they should both fix at the close. That would be a significant technical strike in favor of an overall bottom forming here for the move this year.

SPX weekly chart:

In the shorter term there is now a lot of negative divergence on the hourly charts on the US equity indices which had me thinking that we might see a retracement start yesterday. We could equally start such a retracement today. There are possible RSI 14 and RSI 5 sell signals forming on the hourly chart.

SPX 60min chart:

On NDX, which has been leading this rally in my view, there is similar hourly negative divergence but the obvious trendline target is higher, and a decent match with the possible IHS neckline in the 12900 area.

NDX 60min chart:

The historical stats for today are neutral, neutral to bullish on Monday, and neutral for the rest of the week apart from Wednesday, which is 61.9% bearish.  August then leans fairly neutral throughout until the end of the month.

If you're wondering where I get these daily historical stats from, I get those from the Stock Trader's Almanac 2022 by Jeffrey A Hirsch. I've been getting one at the start of every year for many years now and they are available from Amazon in the US and elsewhere.

We did our monthly free Big 5 & Key Sector ETFs webinar an hour after the close on Thursday. If you missed that you can see the recording here, or on our July Free Webinars page.

Everyone have a great weekend. :-)

A Short But Winding Road

In my last post I was talking about the possibility of a triangle forming on SPX. That triangle arguably then finished wave D at the low that day and then broke down the next. Had that been a bear flag triangle then the target would then have been a retest of the 2022 low, but it seems likely from the action since then that if there is a bear flag forming here short term, which seems likely, then it is still forming.

I've drawn in some trendline options on the SPX chart below for a possible larger bear flag triangle or rising megaphone. The megaphone resistance trendline in the 4025 area is the highest obvious option.

SPX 15min chart:

On Wednesday there was a clear break below the daily middle band, currently at 3816, with the break confirmed on Thursday and a break back above on Friday. That opens higher targets, though if we were now to see a rejection candle with a clear close back below the daily middle band on Monday, then that would be a very bearish looking candle that might well deliver a retest of the 2022 low at 3636.87 directly from there.

SPX daily BBs chart:

On the SPX 5dma chart there was a break back above the 5dma on Friday, after a prior decline of more than 2%, so SPX is back on the Three Day Rule. A clear close back below the 5dma, currently at 3825, on Monday or Tuesday would look for a retest of last week's low at 3721.56, and that option too would likely lead directly to a retest of the 2022 low.

SPX daily 5dma chart:

I'm not seeing any obvious options or trendlines here that might deliver a test of main downtrend resistance at the weekly middle band, currently in the 4138 area, so I'm expecting that this rally will likely fail before then into the low retest. At that low retest I'm expecting either (preferred option) to make a double bottom to finally see if all these big bull flag setups on equity indices might deliver anything, or continue downwards to most likely break the flag setups. We'll see.

SPX weekly chart:

In the short term one important level that I'm watching here is the 50dma on NDX, currently at 12051. That was strong resistance at the rally high so far, and if it still is, with NDX closing at 11983 on Friday, any move up from here would be very limited, favoring the rejection option on SPX on Monday.

NDX daily chart:

The historical stats for the coming week are neutral Monday and Friday, leaning bullish on Tuesday, leaning strongly bullish on Wednesday (76.2% green closes) and strongly bearish on Thursday (81% red closes). The week as a whole is prone to wild swings of 3% to 4% in either direction.

If you're wondering where I get these daily historical stats from, I get those from the Stock Trader's Almanac 2022 by Jeffrey A Hirsch. I've been getting one at the start of every year for many years now and they are available from Amazon in the US and elsewhere.

We are doing our monthly free Big 5 & Key Sector ETFs webinar an hour after the close on Thursday. If you'd like to attend you can register for here, or on our July Free Webinars page.

In Between Days

SPX is retracing and is likely to open today below the monthly pivot at 3867 and the weekly pivot at 3853. That opens a possible backtest of the daily middle band, currently in the 3812 area, and a close below and conversion of that to resistance would open a possible 2022 low retest.

Am I expecting to see that directly from here? No, but it is a possibility.

SPX daily BBs chart:

What I am expecting to see is a higher high on this rally, above the previous high at 3945.86 as if this is a bear flag forming, as it may well be, there would generally be a higher high coming unless this is a bearish triangle forming, which is possible, but not obviously the case as I write. There is however some shorter term trendline resistance in the 3940 area that would need to be broken to deliver that higher high.

SPX 60min chart:

On NDX, which has been leading this rally, the high so far has been at the test of the 50dma, which is a good resistance level on NDX. A break and conversion of that to support would be a step on the way to opening a path to the higher main target on SPX at the weekly middle band, currently at 4137.

NDX daily chart:

In the short term the action on ES since the high on Friday looks like a bull flag forming.

ES Sep daily chart:

....... and there is an even nicer bull flag setup forming on  RTY.

RTY Sep daily chart:

The  historical stats this week are modestly bullish leaning today, and strongly bullish on Wednesday (81%) and Thursday (71%) this week. The next bearish leaning day is opex on Friday at 38% green closes. These historical stats don't control direction of course, but they do tell us whether the bulls or bears have the wind at their backs or are pushing into it on any particular day. They deliver a lot and I'm always keeping an eye on them.

If you're wondering where I get these daily historical stats from, I get those from the Stock Trader's Almanac 2022 by Jeffrey A Hirsch. I've been getting one at the start of every year for many years now and they are available from Amazon in the US and elsewhere.

We did our monthly free public Chart Chat on Sunday at 4pm Eastern Time and if you missed that you can see the recording here or on our July Free Webinars page.

The Evolving Markets

SPX didn't retest the retracement low on Tuesday and that blew the best chance to do that in the next few days. The stats for today through Tuesday lean modestly bullish, and fairly strongly bullish on Wednesday and Thursday. This doesn't mean that SPX has to close higher on all or indeed any of those days, but it does mean that the bulls have the wind at their backs on those days rather than trying to advance against it. The next day with a significantly bearish lean is July opex on Friday 15th July.

In the short term SPX gapped over the daily middle band yesterday and that was the first serious short term resistance. If we are to see a retest of the retracement low in the next few days, which is still possible, then the clearest indication for that would be a daily rejection candle today that rolled back yesterday's candle entirely and delivered a clear close back below the daily middle band, which closed yesterday at 3630.

What could deliver that today? Maybe a bad NFP number, but it isn't the kind of move we would typically see on a Friday and a rejection like this would usually be on the day after the break up. If we don't see that rejection today then my working assumption will be that the daily middle band has been converted into support for the time being.

SPX daily BBs chart:

If the daily middle band does convert into support, then the next obvious target would be the weekly middle band, which has been the main downtrend resistance this year. That would be an obvious fail area into a possible low retest of course, but if that was to break and be converted into support, there would be a possible run into the retest of the all time highs that all the bull flag setups on the US equity indices are suggesting may be coming.

SPX weekly chart:

NDX has led the way down this year but looks the most potentially bullish of the US indices now. There is positive divergence on all of them but only NDX already has a weekly RSI buy signal fixed. It has also already retraced 50% of the move up from the 2020 low and has a very decent quality bull flag formed on the daily chart below.

NDX daily chart:

That high retest isn't the only odd looking move been suggested by the charts here. When I was talking late last year about the the IHS almost formed on TNX that might deliver a doubling of the 10yr treasury yield from 1.6% to 3.2% I mentioned that the obvious next move after making that target (made a few weeks ago) would be a strong rally on bonds that might last several months. Here's how that looks on the TYX monthly chart where you can see that the move up this year has almost perfectly reached a possible IHS neckline, and that bonds rally could deliver a right shoulder to complete that pattern to then take bonds a lot lower lower and yields a lot higher.

I've been wondering how that could be possible in this inflationary and economic background and the markets over recent weeks may be giving us an answer as to how both that equities high retest and strong bond rally might be achieved here.

TYX monthly chart:

A few weeks ago I was looking at USD and was expecting to see USD top out and fail hard in the 104-5 area, but was noting that USD is in a perfect longer term rising channel and that if USD was to break over 104/5 and convert that to support, then the next obvious target would be channel resistance in the 112 to 112.5 area.

USD has now broken up and may be on the way to 112, though in the short term there may well be a retracement and another backtest of that broken resistance. As USD has been breaking up there have been strong declines on most commodities, and if USD continues higher then they may well go lower.

If this is sustained then the headline inflation numbers may well drop sharply and that decline may well be sustained for several months. That could open a time window to deliver these moves on both equities and bonds before commodities and inflation most likely start rising again and likely deliver further declines on both equity and bond markets.

Just a theory at this stage, but that may be the way this goes, and in the absence of that it is a little hard to see how we could see all time high retests on equities and a strong multi-month rally on bonds as the charts are suggesting but as ever, might not otherwise might that leap from potential to actuality.

USD weekly chart:

We are doing our monthly free public Chart Chat on Sunday at 4pm Eastern Time and that should be pretty interesting. All are welcome and if you'd like to attend you can register for that here or on our July Free Webinars page.

Everyone have a great weekend :-)

After The Holiday

I hope everyone had a great Independence Day weekend. For some obscure historical reason that isn't a public holiday over here in the UK, but as I work US hours I had a very pleasant long weekend.

I'm going to look at the short and longer term prospects for SPX here, and I'll start with an important longer term chart, the SPX monthly chart where there has now been a monthly close below the key support & resistance trendline on SPX since the 2009 low.

That opens the possibility for further downside and we may well be seeing that either sooner or later.

SPX monthly chart:

In the shorter term though, there are high quality bull flag setups on the US indices I follow, on SPX, NDX & Dow Industrials. On foreign indices there are others on Nikkei and DAX, and the DAX flag appears to have already broken up. This doesn't mean that we are going to see across the board all time highs retested on these (excluding Nikkei where that is still the 1990 high), but it remains a significant possibility from this pattern setup.

If we are going to see that then a retest of the current 2022 low would improve the short term bottoming setup and I'm thinking we may see that retest today or tomorrow, with the historical stats leaning significantly bearish today.

Main short term resistance on SPX is at the daily middle band, now at 3871, and that would need to be broken and converted to open the upside and a possible test of main downtrend resistance at the weekly middle band currently at 4186. A break and conversion of that would open the path to a possible retest of the all time high.

SPX daily chart:

The other short term resistance that I am watching here on SPX is the 5dma, currently at 3830, and that was resistance on Friday. A daily close back above that would put SPX back on the Three Day Rule, and if we were to see that today, then a break back below it on either of the next two closes would set up a possible retracement low retest.

SPX daily 5dma chart:

On NDX, as with SPX, the bull flag setup is a high quality falling megaphone, and NDX is now between the 50% and 61.8% retracement levels for the move up from the 2020 low. A move much below the 61.8% fib retracement level in the 10590 area would weaken the bull flag setup.

NDX daily chart:

There is another high quality bull flag falling megaphone on Dow, and all three have solid positive divergence on the weekly charts, with a weekly RSI 5 buy signal already fixed on NDX.

INDU daily chart:

There is an opportunity to retest the 2022 low today or tomorrow as while the bullish stats on Friday delivered, there was no significant break to the upside. The stats for today lean significantly bearish, and after that the stats lean bullish until July opex on Friday July 15th, which again leans significantly bearish. The significantly bullish leaning days in the meantime are tomorrow, and Wednesday and Thursday next week.

If we do see a retest I would love to see the second low of a modest size double bottom be established there but I would add that if we are going to see a hard break down to start trashing the lovely bullish setup that has formed from the highs, then that would be an ideal time to start that too. We shall see.

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