Testing The Water

I was writing on Friday about the nice looking rally setup on SPX and NDX particularly but obviously SPX was close to first resistance at the daily middle band and I was doubtful about that being broken on Friday, and it wasn't broken then, or indeed yesterday.

This morning though, SPX has gapped over the daily middle band, currently at 3059, and the next targets to the upside have opened up, though this rally may reached a sudden end tomorrow at FOMC when, in all probability, the Fed will fail to announce that interest rate policy will be softened over the rest of the year.

SPX daily BBs chart:

Resistance at and just above the daily middle band is on the weekly chart, and can't of course really be broken until the close on Friday. The 50 week MA is now at 3966 and the weekly middle band is now at 3977.

SPX weekly chart:

I'm watching three main US equity index charts on this rally and the first is SPX, where SPX is close to a test of declining resistance from the Feb highs, now in the 4009 area. On a break above there are open alternate double bottom targets in the 4030 and 4040 areas.

SPX 15min chart:

On NDX a high quality bull flag setup has broken up with a target at a retest of the February high at 12881. Not much currently to suggest that target won't be made, though I do have some negative divergence on the hourly RSI 14.

NDX 15min chart:

The third pattern is a high quality IHS on Dow which has broken up with a target in the 33150 area. Typically this would either head to the target, or fail back into the IHS low at 31.7k.

INDU 15min chart:

For the obvious reasons I'm skeptical about this rally surviving FOMC tomorrow and Thursday, but in the short term I'd expect to see at least some more upside.

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ChatGPT Apocalypse Postponed

ORIGINALLY POSTED AT THEARTOFCHART.NET ON FRIDAY 17th MARCH

I had been reading on and off for a month or so that ChatGPT had been forecasting a market crash on the Ides of March this year, and so was watching that with very mild interest yesterday to see whether this latest claimant to the Nostradamus throne might have any luck, but the day passed without a crash as expected. Predicting apocalypse is a famously tricky endeavour. Better luck next time I guess.

I was remarking though in my premarket video yesterday at theartofchart.net that for a day where everyone seemed to be leaning bearish, there were some surprisingly nice looking bullish reversal setups. One of those was the possible double bottom on SPX, which has now broken up with a target in the 4025-4040 range and backtested broken double bottom resistance this morning.

SPX 15min chart:

There was also a possible hourly RSI 14 buy signal brewing on the SPX chart that fixed yesterday and has not yet reached target. These generally reached target and that favors at least some more upside here.

SPX 60min chart:

I posted a very decent looking bull flag channel/wedge on NDX on Wednesday last week, and as NDX has been relatively strong in this latest decline, that had not broken down, and then also broke up yesterday. This is a high quality flag with three touches on both support and resistance, and has broken up with a clear target at a retest of the February high at 12881. I'm not seeing anything currently to suggest that won't make target.

NDX 15min chart:

There is however some very significant resistance on the way to these upside targets on SPX, particularly today as today is the last day of the week. The first of those is the daily middle band, currently in the 3968 area and effectively tested at the highs yesterday and so far today.

SPX daily BBs chart:

The SPX weekly middle band is in the same area, currently at 3967, so this is a strong double resistance level. That is also backed up by the 50 week MA, currently at 3975, and both of these levels are important on the weekly close basis today, though a break back above both today could of course be rejected next week.

SPX weekly chart:

I've been watching the bank troubles this week with some interest. One thing that has really changed over the last couple of decades is that bank runs can happen a lot faster now that money is now generally transferred electronically. There aren't the queues that used to be the marker of a bank run.

Another thing is something I wrote about as a risk a decade or so I think, and that is that stuffing banks full of long term bonds with very low coupons as their capital base would likely end badly when interest rates normalised as they would then be sitting on huge capital losses that would become a big problem if they were forced to liquidate those assets (in a bank run for instance) rather than hold them to maturity.

The solution seems simple though. As long as the Fed is prepared to stand behind the banks and provide liquidity this problem, mainly created I would note by the Fed, shouldn't be an issue. This is an issue however in a situation where a bank becomes insolvent for other reasons but it is a fix that can be applied without lowering interest rates (inflationary), large bailouts (inflationary) or printing money (inflationary). At the moment therefore this currently minor bank panic doesn't look that serious to me, though I could be mistaken.

SPX is testing some serious resistance here and it may be that if that resistance is going to be broken, then that won't happen until Monday. This is a nice bullish setup to go at least a bit higher in the short term though and it may well play out. We'll see.

On Sunday last week we did our monthly free public Chart Chat at theartofchart.net, and if you missed that you can see that here, or on our March Free Webinars Page.

Everyone have a great weekend :-)

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

No Improbability Drive

I was saying on Wednesday that the decent looking bullish setup was still there, but in the light of the Fed Chairman's candid comments about future policy over the last few days a significant drive higher was looking improbable. I was looking for a test of weekly pivot at 4007 and then a fail there if we were going to see the bull scenario fail. SPX made it back to 4017 and failed hard, so the bull scenario, while not quite entirely dead, is now looking increasingly unlikely.

On the weekly chart, the bear scenario looks for a break back below the 50 week MA at 3990 and the weekly middle band at 3969. A rally today is likely, but for a clear move onto the bear scenario here I'd like to see a weekly close today below the weekly middle band at 3969, and lower lows next week. If we see that then the obvious target would be the 200 week MA, currently at 3726, and the key support level for SPX. A break and conversion of that level would open potentially much lower targets.

SPX weekly chart:

On the daily chart the RSI 5 buy signal reached the possible near miss target so I'm now disregarding that.

SPX daily chart:

So where is the short term support that is keeping the bull scenario breathing for the moment?

Well the first level is the broken declining resistance that has already been backtested as support, and that was being tested again at the low yesterday. A sustained break below 3900 should eliminate that as a support level.

SPX 60min chart:

The other level I was watching before the RTH open today was the bull flag channel support on SPX, but that has now broken, which leaves the bullish pattern scenario from Monday now hanging by a very thin thread. If this flag has in fact broken down, then the pattern target for that break is in the 3600 area.

SPX 15min chart:

The other bull flag that has broken down is on IWM, which broke yesterday. That just leaves the flag setup on NDX with support currently at 11700, though with the SPX and IWM flags already broken I'm already almost entirely disregarding that.

IWM 15min chart:

In practical terms the bullish pattern setup has already failed and the downside scenario is now the likely one with a target at the 200 week MA in at 3726 and possible support there. A break and conversion of that level opens up further downside targets.

In the short term I'm thinking we might see a retracement to backtest the weekly middle band at 3969 on SPX to see whether it holds as resistance. If SPX closes below that today then that further strengthens the bear scenario here.

On Sunday this week we are doing our monthly free public Chart Chat at theartofchart.net, and if you'd like to see that you can register for that here, or on our March Free Webinars Page.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

The Dove That Didn't Coo

I was writing about the very attractive looking bull flag setups on SPX, NDX and IWM that are setting up possible tests of the February highs. We saw the retracement that I was expecting then but SPX has broken back below the weekly pivot at 4007 on the press conference yesterday by the Fed Chairman.

The markets are very used to doveish noises being made by the Fed, but these are not normal times, and the Fed has been stepping up to their duties to fight inflation with real enthusiasm. Powell has been trying to get this point across and in his press conference yesterday restated his view that interest rates would be unlikely to top out at under 6%, that the stronger than expected economic data recently was only hardening the Fed's hawkishness on interest rates, and added that unemployment might need to be two million higher to deliver the slowdown necessary to deliver lower inflation.

Looking at bonds this morning I'm still not sure that the markets believe that the Fed is serious about this, but I believe Powell. Unless he steps up to the plate on inflation here he risks becoming a cautionary example for the next generation of economists and central bankers, and he doesn't want to risk that.

To open the downside however there are a couple of key levels that need to be converted to resistance. The daily middle band now at 4049 is holding as resistance already, but SPX also needs to break and convert the 50 week MA now at 3992, and the weekly middle band, now at 3972. These are being tested now and that break and conversion opens the downside.

SPX weekly chart:

The daily middle band was tested as resistance at the highs this week and held. If we are to see a break up, then that needs to be broken and converted to support.

SPX daily BBs chart:

How much further upside should we see? Well the flags I posted on Monday are all still in play and on the SPX 15min chart there is a possible bull flag channel from the 4195 high, and the obvious next target within that flag would be channel resistance, currently in the 4090 area. A decent quality double bottom broke up on Friday with a target in that area and is still valid.

SPX 15min chart:

On NDX there is another decent looking bull flag channel, and again there was a decent quality double bottom that broke up on Friday with a target in that area and made target. The resistance trendline broke slightly and if we see that break again that will look significantly bullish into a retest of the February high.

NDX 15min chart:

There is a third bull flag setup on IWM, not a channel and this one has already broken up, with a possible target back at a retest of the Feb high at 199.26, and an IHS target that broke up on Friday in the 194.7 area. That IHS target is close to failing though, and a move below the right shoulder low at 186.12 would look for a full retracement back to 185.78.

IWM 15min chart:

We may be about to see this bullish leaning setup fail this week, with the uncertain outlook for the economy, more interest rate rises coming, and the Fed being unusually honest about their bearish leaning plans for interest rates. About 30% of bull flags break down of course, and I see that happen regularly. We shall see.

In the short term I'm hoping to see a retracement to backtest the weekly pivot on SPX at 4007.25, to see whether it holds as resistance. If SPX breaks back up through it with confidence then the bullish scenario back into the February highs retests is still on the table. I'd enjoy trading that but under the circumstances I'm doubtful.

On Sunday this week we are doing our monthly free public Chart Chat at theartofchart.net, and if you'd like to see that you can register for that here, or on our March Free Webinars Page.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.

A Cluster Of Flags

Support has been tested hard over the last couple of weeks on SPX, and the week before last there was a potentially interesting break below the 50 week moving average, currently at 4002, and then a test of the weekly middle band, now at 3960. Had SPX managed to close last week again below the 50 week MA, that would have been an important technical break down, and any subsequent break below the weekly middle band might have opened a serious break to the downside.

However SPX rallied on Friday to close well above the 50 week MA, so the break lower was rejected, and support at the weekly middle band has held the last two weeks. So where does that leave SPX?

SPX weekly chart:

At the low last week there was clear positive divergence on the daily RSI 5 on both SPX and NDX. That fixed on the late week rally into two daily RSI 5 buy signals, neither of which has reached target yet, so I'm expecting to see at least some more upside on both.

SPX daily chart:

How much further upside should we see? Well I was updating my charts at the weekend and, while I'm thinking we might see some retracement in the next day or two, there is a decent looking bull flag channel formed on the SPX 15min chart from the 4195 high, and the obvious next target within that flag would be channel resistance, currently in the 4098 area. A decent quality double bottom broke up on Friday with a target in that area.

SPX 15min chart:

On NDX there is another decent looking bull flag channel, and the next obvious target within the flag would be channel resistance, currently in the 12440 area. Again there is a decent quality double bottom that broke up on Friday with a target in that area.

NDX 15min chart:

There is a third bull flag setup on IWM, not a channel and this one has already broken up, with a possible target back at a retest of the Feb high at 199.26, and an IHS target that broke up on Friday in the 194.7 area.

IWM 15min chart:

We could see this bullish leaning setup fail this week, with the uncertain economy, more interest rate rises coming, and two Fed speakers this week, but this is very much a bullish leaning setup, leaning towards at least some more upside and very possibly setting up a retest of the February highs across the board on US indices, though that could just be establishing a series of bearish double tops of course.

In the short term I'm hoping to see a retracement to backtest the weekly pivot on SPX at 4007.25, that could set up a nice long for the rest of the week that could take SPX up a couple of hundred handles. I'd enjoy trading that so we will see.

On Sunday this week we are doing our monthly free public Chart Chat at theartofchart.net, and if you'd like to see that you can register for that here, or on our March Free Webinars Page.

If you are enjoying my analysis and would like to see it every day at theartofchart.net, which I co-founded in 2015, you can register for a 30 day free trial here. It is included in the Daily Video Service, which in turn is included in the Triple Play Service.