Back On The Three Day Rule

I was looking at the likely reversal back up on Friday morning and obviously we have seen that and ES/SPX have broken back strongly over the multiple resistance levels in the 2660-70 area, weekly and monthly pivots, daily middle band 5dma and 50 hour MA. So now what?

Well in the short term a retracement seems likely and in my premarket video this morning at theartofchart.net I was projecting an ideal path of a higher high (over 2799 ES Jun) setting up a possible 60min sell signal on ES. Ideally ES would then retrace back to the monthly pivot at 2765 ES (2760 SPX) before either breaking back down through that into lower lows, or (more likely) finding support and retesting the rally highs in what would probably be the second high of a double top setting up a larger retracement into the low 2600s.

Here's how that short term divergence looks on the ES Jun 60min chart:

On the SPX hourly chart there is now a possible RSI 5 sell signal brewing.

SPX 60min chart:

That monthly pivot support on SPX / ES is a decent match with the SPX 5dma, now at 2768 and particularly important because the close back above the 5dma yesterday after the more than 2% decline has put SPX back on the Three Day Rule. On a close back below the 5dma today (extreme long shot) or tomorrow (potentially doable), I'd expect to see a retest of the low at 2722 before a retest of the rally high. We shall see.

SPX daily 5dma chart:

One other thing I mentioned in premarket video today was that in the event that NDX retested the rally high before the expected retracement here, that would set up a decent quality double top on NDX and increase the chance that a more significant lower high was being made on SPX here. NDX has retested the rally high now so that's worth noting too. Nonetheless I still think that a retracement and then higher high here are more likely than a break down directly.

NDX 60min chart:

Either way, SPX is likely in the process of forming a high that should at least deliver a backtest of the low 2600s, and I'm expecting the downtrend for that move to get going within a few days.

Looking For This Retracement Low

Everything that I was looking at on Wednesday has delivered except that SPX has not quite yet reached the H&S target at 2720. The daily RSI 5/NYMO sell signal fixed and reached target, the hourly sell signals on SPX and RUT both made target, and while SPX might need another marginal lower low to reached that 2720 target, this is the right area to see this retracement low, and it could already be in. So what now?

Well there are two obvious options here assuming that the retracement low is being made in this area. I'd expect either option to be complete within two weeks and for a larger decline to follow.  My preferred option would be a retest of the rally high with a marginal higher high. My one reservation there is that the three highs resistance that I was looking at before the high was made never broke, with the current high at 2816.88 just 0.06 below the top of that resistance at 2816.94. That being the case there isn't much room for a higher high unless that resistance breaks.

The other option here is that an H&S is forming, and that a right shoulder will form here with an ideal right shoulder high in the monthly pivot area at 2760. Depending on the time taken to rally, that might well be a decent match with the 5dma, currently in the 2766 area, and the 50 hour MA, currently at 2776. Either option should yield a reversal pattern that would take SPX back into the 2600-50 area.

SPX 60min chart:

RUT has been leading the decline and may be leading on the rally as well. Worth noting that there are possible buy signals brewing on both RSI 14 and RSI 5, and that the current retracement low has established a decent quality rising channel that may be support on the next move up.

RUT 60min chart:

Everyone have a great weekend! :-)