Flags - As Above So Below

I'm in the throes of moving house at the moment and am struggling to get posts out so there may be just one a week or so until I've finished in three or four weeks. It looks like I may actually need to take a whole week off at the end of the month which would be the kind of holiday where I do no charting at all for a full week. That would be the first time in a long long time but might be a good thing, even if I'm not really a holiday person.

Just to mention before I get started, we are holding our Black Friday sale at theartofchart.net on annual memberships. This means that instead of the usual two month discount, for the duration of the sale there is a four month discount. If you're interested the sale page is here and it is important to remember to use the blackfriday coupon code when checking out, though if you forget we can fix that afterwards. On to the markets.

I'm still keeping an open mind on direction here, but there are now two good quality candidate bear flag rising wedges formed from the lows on SPX and Dow. I'm watching these with great interest to see what happens now.

In the short term I have marked in a small H&S on the SPX 15min chart that broke down yesterday and could be failing here. On a break back over the right shoulder high at 4002.19 we would likely see a retest of the short term high at 4028.84 and perhaps make the second high of a larger double top there.

A new high with confidence would likely take SPX to the next major resistance levels, which are the SPX 200dma now at 4069.91, and main falling channel (and possible bull flag) resistance from the high, now in the 4105 area.

SPX 15min chart:

There is still a fixed RSI 14 sell signal on the SPX hourly chart, and generally I would expect these to make target, but if we see a short term high retest the signal would likely survive that. If the H&S pattern does make target then that is in the 3885 area, and possible bear flag wedge support now in the 3810 area.

SPX 60min chart:

SPX last tested the daily upper band on Wednesday, so the daily upper band ride has finished for now and if the H&S does make target, or a subsequent double top breaks down, the next big support level would be at the daily middle band now at 3855/6.

SPX daily BBs chart:

The other high quality possible bear flag wedge is on Dow, and there is another H&S that broke down there. I captured the chart below before the open but this H&S failed at the open, and that may well be an indicator that the H&S on SPX will fail too. Watching that with interest.

INDU 15min chart:

There is more on the Dow daily chart though. The current short term high has established a possible falling channel from the high, but a new high with any confidence would eliminate that. That wouldn't be a huge fail, but in the absence of that there is certainly a decent argument that Dow has already broken up from a bull flag wedge looking for a retest of the all time highs. The small retracement that we saw yesterday was a backtest of that broken flag resistance. We'll see.

On the bear side there are possible RSI 14 and RSI 5 sell signals brewing on the Dow daily chart. If we do see a break to the downside then those will fix and bolster the bear case here.

INDU daily chart:

We'll see how it goes on the flag setups here. This includes the possible bear flags from the lows and also of course the possible bull flags here from the all time highs. It may be that we will need a test of the bigger resistance levels above and, if so, the main decision on direction will be made there.

We are doing our monthly free big 5 and key sectors webinar at theartofchart.net on Thursday 24th November at 5pm EST and it should be interesting. If you'd like to attend you can register for that here,  or on our November Free Webinars page.

One last thing to mention is that as of last weekend our free Weekly Call service at theartofchart.net is up 60% YTD and up 763% since inception in Q4 2016. That can be followed with auto-trades at our partner Striker Securities if you are a subscriber on the Daily Video Service or Triple Play services at theartofchart.net. Either of those also includes access to our private twitter feed and my premarket videos every day, and also access to the auto-trade option on our Follow The Leader service, up 168% so far this year last time I checked. Just sayin'.

Descriptions of all our services can be found here, and as I mentioned, we are running a Black Friday sale on annual memberships at the moment.

My next post should be on Monday or Tuesday before the open. Everyone have a great weekend. :-)

Strange Days

My apologies for this being the first post this week. I'm moving very soon and am very busy with that.

As of the close yesterday the bear setup here to get SPX back to double falling channel support in the 3340 area was looking very nice indeed. The smaller falling channel wasn't broken by the last bounce, and at the close yesterday another Three Day Rule signal fixed looking for a retest of the last low at 3698.15 before any retest of the last high at 3911.75. Now the last Three Day Rule failed, but as that was the only fail of likely over 150 of these signals fixed since the start of 2007, I was thinking that it would likely be a long while before the next fail.

That changed this morning with the better than expected CPI news, with first an opening gap up over channel resistance for the falling channel from the rally high at 4325.28. After that SPX then broke back over 3911.79, delivering the second Three Day Rule fail since the start of 2007, just a few days after the first fail.

This has done some serious damage to the short term bear bear case here and at minimum significantly reduces the odds that SPX makes it back to the 3340 area on the next leg down.

SPX daily 5dma chart:

On the daily chart there have been two clear closes below the daily middle band in recent days, and both delivered a rejection back over the middle band the next day. That is two failed breaks down and now SPX is doing the obvious next thing, which is to retest the previous high at 3911.79, and the key resistance there at the weekly middle band, now at 3904 SPX.

You can see the broken falling channel from 4325 on the daily chart below and I would also note that there is still an open daily RSI 14 buy signal. If we do see a decent break higher, I would also note that the next big resistance levels would be the 200dma, currently at 4082, and main falling channel resistance from the all time high, currently in the 4100 area.

SPX daily chart:

On the weekly chart if we see another fail at the weekly middle band the next big test would be a test of the 200 week MA, currently at 3625, and if that breaks and converts to resistance then the main falling channel support in the 3340 area is still the next obvious downside target, but there are other more bullish options developing now.

SPX weekly chart:

A strong break up directly over the weekly middle band here wouldn't deliver much of a bottoming setup, though of course that may happen anyway. There is now another option that may be developing here however that could deliver a really high quality bottoming setup, as the rally to 3911 was close to a 50% retracement of the decline from 4325, and the retracement from 3911 was then close to a 50% retracement of the move up from the 2022 low at 3491.58.

There is currently a very high quality double top setup here that on a break down under 3698.15 would look for a retest of the 2022 low at 3491.58. If support was found there that would set up a possible high quality double bottom that on a sustained break over today's high would look for a retest of the August rally high at 4325. That would then test resistance on a much larger (and possible oversized) potential double bottom that on a sustained break back over 4325 would look for a retest of the all time high. I'm not looking for that all time high retest anytime soon, but it is an interesting looking setup.

Summing up, we may well see another fail here at the weekly middle band, and then a retest of the 2022 low, but if that held as support again then we would have the setup for a potentially really impressive rally on SPX.

SPX 15min chart:

On the bigger picture the Fed obviously suggested last week that the current cycle of interest rate rises may be enough to dampen inflationary pressures, and that the rate rises would likely end soon, and that may mark the high in this interest rate cycle. Personally I think that is just wishful thinking, but the CPI numbers this morning were supportive and this might be enough to deliver that move back to 4325 over the historically bullish leaning rest of the year.

There is something else as well. TNX went through the possible IHS neckline in the 30 area, and the next one in the 40 area, but it has stopped so far at the possible IHS neckline at 43. We might see a decent rally on bonds here to set up the next move down, ideally with TNX retesting the 43 high while SPX retests the 3491 low to set up the larger rallies on both equities and bonds that we may see next. We'll see.

TNX weekly chart:

I'm still liking a fail here at the test of the weekly middle band but, if seen, the next move down may well fail to deliver a conviction break below the 200 week MA, currently at 3625, and may reverse back up strongly at the retest of the 2022 low at 3491. If so, we will have a setup for a very powerful rally into the end of the year.

If we see a break and conversion of the weekly middle band directly here then the next big resistance is at the 200dma and main channel resistance, both currently in the 4080-4100 area and converging. A subsequent break over those would open a possible move into a retest of the all time highs.

If SPX should manage to break the 200 week MA with conviction then the move down to main channel support in the 3340 area is still on the table. If that is tested and holds then I'd then be looking for a return to main channel resistance, currently in the 4100 area and likely to be in the 4000 area by the end of the year. If we don't see a big rally sooner, then I'd be looking for that big rally there.

Bigger picture I don't think that there is much chance that this inflation dragon has been slain by the Fed's actions so far this year, and I think that will become obvious in the coming months. After that we will likely see further declines on bonds and equities. In the meantime though there is some breathing room here for possible big rallies on equities and bonds, and we may well see those.

We are doing our monthly free public Chart Chat at theartofchart.net on Sunday at 4pm EST and it should be interesting. If you'd like to attend you can register for that here,  or on our November Free Webinars page.

My next post should be on Monday or Tuesday before the open. Everyone have a great weekend. :-)

The Road to 3340 SPX

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On to the markets.

Having made it that far, I was saying that the obvious place for the rally to fail, if of course it was just a rally, was at the weekly middle band, and we saw a hard fail there yesterday. It isn't a done deal necessarily, but it was a textbook fail and has opened a very obvious target below in the 3340 area IF, and this bit is really important, SPX can deliver a conviction break of main support at the 200 week MA, now at 3619. We've seen a couple of pokes down through that so far this year, but to reach the 3340 target area, we would have to see a sustained break.

SPX weekly chart:

When the high at 3886 was made I said that a good way to close out this rally, if it was just a rally, would be to retrace enough to deliver a significant decline on the daily RSI 5, then retest the high to deliver a divergent RSI high and both get a possible RSI 5 sell signal brewing and set up a small double top, then SPX would break back down, fixing the daily sell signal and likely ending the rally. That went exactly to plan and the daily RSI 5 sell signal fixed yesterday, and has not yet reached target.

I also said on Monday sustained break back below last week's low at 3803.79 would look for a target in the 3705-20 area, and that target was hit this morning.  SPX is now testing the 50% retracement level for this rally, and if that breaks down then that opens a possible retest of the 2022 low at 3491.58.

SPX daily chart:

As well the test of the 50% retracement level for the rally, SPX is also testing the daily middle band here, currently at 3730, that needs to break to open lower targets. The daily lower band is currently at 3529, so in effect a break and conversion of the middle band to resistance clears the path to a retest of the 2022 low on the daily chart.

SPX daily BBs chart:

On the hourly chart SPX reached the RSI 14 sell signal target this morning. I also drew in a possible resistance trendline a few days ago that was the theoretical falling channel resistance from 4325 that would be an ideal fail level for this rally, and it was hit at the high.

That has established a clear falling channel from the 4325 rally high that is within the overall falling channel for the decline this year. I have marked both on the daily chart above. That is particularly interesting because the two channel support trendlines are due to intersect in the 3340 area in late November.

My inner math geek would be very happy with a test of both trendlines exactly as they intersect, but I've seen a few of these over the years and that rarely happens. What would be more usual would be a test of larger channel support near the end of November after the trendlines cross, and a hold of that larger falling channel support would set up a possible strong rally in December back into the 4000 - 4075 area at channel resistance.

Let's not get ahead of ourselves though. First SPX would need to deliver a sustained break of the 200 week MA at 3619, and then the 2022 low at 3491 to open up the obvious trendline target in the 3340 area.

SPX 60min chart:

The rally formed a decent quality rising wedge that was likely a bear flag that has now broken down. A rally at the 50% retracement level could hold into a retest of the rally high at 3911.79, but given that would now break the falling channel that has been established from the 4325 high, that seems unlikely. If seen, that might be a prelude to a break up further.

We are seeing a modest rally here. I'm expecting this to be a bear flag before SPX breaks the daily middle band and heads lower.

SPX 15min chart:

So far the bear scenario back into at least the retest of the 2022 low is playing out perfectly. If that remains the case then the next big inflection point will be at that retest, which might of course be the second low of a double bottom. We'll see how this develops on the way down.

I'm not yet sure whether we are doing our monthly free public Chart Chat at theartofchart.net on the coming Sunday or the one after so once I know I'll mention it on my twitter.

My next post should be on Monday or Tuesday before the open. Everyone have a great weekend. :-)