High Retests Likely

I mentioned in my post on Tuesday morning that the historical stats for the rest of this week leaned bullish, and that the stats for next week after the holiday all lean bearish, and after the low on Tuesday afternoon we've been seeing that deliver so far.

I capped the chart below after the close on Wednesday 14th with the very decent looking rising wedge that had formed from the low on SPX, and that looked as though that might break down on Thursday 15th, delivering a decent right shoulder high on a possible H&S right shoulder.

SPX 1min (after close 14th Feb) chart:

As it happened though the wedge continued forming on Thursday, with the support trendline finally breaking in the last hour, by which point there was not much space left between the support and resistance trendlines. So where does that leave us?

Well in terms of the wedge resistance trendline, that will be crossing the all time high at lunchtime of Friday, and the break down from the wedge support this afternoon may just be setting up and secondary wedge support trendline.

While the wedge may have topped out, the rally has taken us up close enough to the retest of the all time high that I'm thinking the most likely outcome is that this is hit on Friday to make a possible second high of a double top taking SPX into the bearish stats next week.

The overall pattern setup remains the same as the one I was looking at earlier this week, so you can see that in my last post on Tuesday 13th Feb.

SPX 1min (after close 15th Feb) chart:

I'm looking for topping patterns on the other equity indices too and if NDX failed right here then that might still be an H&S, but more likely we see a retest of the all time high there too, again setting up a potential double top.

NDX daily BBs chart:

Dow is also looking like an all time high retest is likely setting up a third possible double top.

INDU daily BBs chart:

IWM is an interesting one, as I was saying on Tuesday morning that I was looking for a break of the rising channel support trendline to kill off that bullish scenario on IWM. That didn't happen, so there is still an ongoing rising channel on IWM, which has rallied very strongly from Tuesday's low and might still be heading for channel resistance.

If that isn't what is happening here though, then this looks like another high retest setting up a fourth potential double top.

IWM 60min chart:

If all of these high retest are seen today, then there is a very decent chance that this will also set up decent negative divergence on the hourly and 15min charts, to go with the daily RSI 14 sell signals already fixed on all four. If it fails right here, writing shortly before the open, then there is limited negative divergence, and the double tops don't look great, but I've seen highs like this regularly before.

If we reach those retests today that will put SPX, NDX & Dow back at the top of all these inflection points and at any inflection point there is a chance that it will break in the direction that looks less likely. If we see a retest and fail though, then there will be a series of high quality double top setups that could deliver a larger retracement over the next couple of weeks. We'll see how that goes.

In terms of historical leans, as I mentioned, there is a holiday on Monday, and the four remaining days next week all lean bearish. If we are going to see any serious downside move, next week would be a great time to do that. For today the stats lean neutral to bullish, the day is Friday, which is not a good day to look for any serious downside move generally, and there are a lot of option expiries today, so the tape may be pinned after lunch at a level that doesn't change much the rest of the day. Everyone have a great weekend. :-)

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Taking Stock

One thing I always like to see on SPX the day after I call a possible high area is a big gap down and I wish that happened every time. Alas it does not, but it was nice to see that happen this morning.

In terms of the trendlines I was looking at in my post yesterday morning, SPX went a bit higher and hit the shorter term resistance trendline that I thought might need a hit. There was a nice rejection there that followed through hard this morning.

SPX daily BBs chart:

That delivered a very slight break over the main SPX rising megaphone resistance trendline though a break so marginal that I wouldn't call it an overthrow.

So if we are going to see the decline I'm looking for on SPX, what the the important levels to watch and key target areas?

Well the first important area on SPX is a double support level at rising support from the 4103.78 low, currently in the 4920 area, and the daily middle band, currently in the 4909 area. A break below the trendline should put us in a topping process for the move, and a break and conversion of the daily middle band to resistance opens the downside.

I'm looking for a topping pattern and that may require a high retest to set up a double top. An alternate topping pattern though might be forming with a test, and possible right shoulder bounce, of the possible H&S neckline in the 4850 area. That could set up an H&S that would look for the 4650 area.

In terms of downside targets there are two main target areas here if the wave up from the 4103.78 low has in fact now topped out. The first again is a double target and would be the bullish retracement option. By that I mean the obvious retracement option if SPX were to retrace to set up another leg higher into new all time highs and beyond.

That first target area is again a double target, and that is firstly a 50% retracement of the move up from 4103.78. I have that in the 4575 area, and that level is close to a backtest of the July 2023 high at 4607.07, an attractive target in the event that this is just a bullish retracement.

The second target is the bearish option, and that would be a test of the rising (megaphone) support trendline from the October 2022 bear market low, having just of course tested the corresponding resistance trendlines on all of SPX, NDX & Dow. That trendline is currently in the 4275 area. I'm a bit doubtful about reaching that but if we get a lot of bad news over coming weeks, then that target might be doable.

SPX daily 45dma chart:

NDX held the main resistance trendline nicely at the high yesterday, and declined to test the daily middle band in the 17478 area this morning. A break below opens a test of shorter term rising support in the 17425 area, and a break of that, and conversion of the daily middle band to resistance, opens the downside.

I'm keeping an open mind on downside targets, but would note that as with SPX and Dow, the obvious target would be at rising (wedge) support from the 2022 bear market low, currently in the 15300 area.

NDX daily BBs chart:

Dow also held the main resistance trendline nicely at the high yesterday and declined to test the daily middle band in the 38231 area this morning. A break and conversion of the daily middle band to resistance opens the downside.

I'm keeping an open mind on downside targets, but would note that as with SPX and NDX, the obvious target would be at rising (channel) support from the 2022 bear market low, currently in the 33375 area.

INDU daily BBs chart:

The IWM chart, very different to the other three, was the minority report I referred to in the title of my post yesterday morning. IWM has also been testing the daily middle band in the 195 area this morning, A break and conversion of that to resistance opens the downside there as well of course, but the level I am watching with particular interest is the support trendline on the rising channel on IWM that I was looking at yesterday morning. That is currently in the 193.5 area, and a clear break below that breaks the rising channel, which is what really opens the downside.

IWM 60min chart:

No  serious technical damage has been done on the US equity indices, but that is probably coming soon. The next big targets on the downside are the breaks and conversion of the daily middle bands on all four indices, so we'll see how that goes.

In terms of historical leans, the remaining days this week lean neutral to bullish, there is a holiday next Monday, and the four remaining days next week all lean bearish. If we are going to see any serious downside move, next week would be a great time to do that.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) 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.

Minority Report

The SPX daily upper band ride finished a few days ago. SPX has gone higher in the last week, but not quite reached the upper band again, and there is no particular reason to think that the daily upper band ride might resume.

SPX hasn't quite reached the obvious trendline resistance from the October 2023 low and, if that is going to be hit, I have that now in the 5045 SPX area.

SPX daily BBs chart:

When I  was looking at upside targets on SPX in my last post a week ago, the main one was the rising megaphone resistance from the bear market low in October 2022. That was hit on Friday, and SPX is now therefore in a significant inflection point. If we are going to see a decent retracement of the move up from the October 2023 low, then this is the obvious place to see that start. We could still see an overthrow to hit the short term resistance trendline too, but topping out in this area seems more likely.

SPX daily 45dma chart:

Main resistance has not just been hit on SPX here. A very nice resistance trendline from the 2022 bear market low has now also been hit on NDX and again, this would be the obvious place to see at least a decent retracement.

NDX daily BBs chart:

Dow has also hit a very nice rising channel resistance trendline from the 2022 bear market low. Again, this would be the obvious level from which to retrace.

INDU daily BBs chart:

What I don't have here is a big resistance trendline being hit on IWM. That is the minority report that is mentioned in the title. There is a decent looking rising channel in place from the October 2023 low with a lot of potential upside in there until that breaks. Since I capped this chart at the weekend the shorter term resistance trendline has been broken, as IWM is the only index that has still been heading higher so far this morning.

IWM 60min chart:

SPX has gone up some 930 handles from the October low in what has almost been a straight line, and that is not a situation that tends to last long. SPX is likely to deliver a decent retracement of that move up soon, and this is the obvious place to do that from. We'll see how that goes.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) 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.

Likely Retracement Coming Soon

I'm expecting to see a retracement of the move up from the October lows start soon, and there are some targets I wanted to see made on equity indices before that happened. The last two of those were made on Friday.

The first of those was a retest of the all time high on NDX, and we saw a new high there on Friday, with a very nice looking overall rising wedges from both the 2022 low and the October 2023 low. This looks ready to turn soon.

NDX daily BBs chart:

The second of those, less important but still significant, was a retest of the all time high on DAX, the main german index, and that too was hit on Friday. As with NDX that has set up a very nice looking possible short term double top.

DAX daily chart:

So is SPX ready to turn? I remember in a premarket video a couple of weeks ago I was asked whether SPX was stretched enough against the 45dma to suggest a retracement coming imminently, and I replied that SPX could easily do 5000 before that was the case. The high on Friday was at 4975.25 and that was 4.83% above the 45dma. It could go a bit higher as over 5% wouldn't be unusual.

SPX daily vs 45dma chart:

SPX came off the daily upper band ride last week and returned to make a high on Friday slightly above it. The upper band ride is probably not resuming but if the upper band is hit again today I'd be looking for that hit in the 4980-5 area.

What I'm mainly looking at on the chart below though is the rising wedge from the October low. I have been watching three higher probability possible resistance trendlines from that low and the first has now been broken in a way that does not look like a bearish overthrow. The next option is a very high quality one and SPX may well be heading there. I have that currently slightly over 5000 SPX, and that trendline may need to be tested before a retracement of the move up from the October low can begin.

SPX daily BBs chart:

Looking on the hourly chart, showing a larger view of SPX from the 2022 low, there is double trendline resistance in that area, and I'd be looking for a hit this week in the 5010 to 5025 area ideally. After this week we have a few days that are seasonally weak so that wouldn't be a bad time to see a short term high. If we do see that move and the retracement start my preferred target would be a backtest of the August 2023 high at 4607.07.

SPX 60min chart:

Whatever happens the tape has been looking more interesting over the last few days and this may well be a fun month or two to trade. On the bigger picture I would note that presidential election years tend to close green, and the January barometer has delivered a result also suggesting a green close this year. That's worth noting, and I'm planning a post looking at the January Barometer indicator later this week.

I've stopped using a custom domain for my blogger posts so the address for those has reverted back to https://channelsandpatterns.blogspot.com/

If you are enjoying my analysis and would like to see it every day (including a daily premarket video) 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.