Upside Targets

As I was saying in my last post, SPX should be back into an upwards cycle by the end of October and that would be likely to end by the end of November. SPX has duly now made new all time highs and is likely to go higher. Let's have a look at the most obvious target area.

On SPX the initial rising wedge from the 2346 low is likely expanding into a larger rising wedge. Rising wedge support is now therefore in the 2915 area. The obvious overall target would then be the original rising wedge resistance, now in the 3110 area, and due to be in the 3130 area by the end of November. I would note the interesting fibonacci relationship here, in that if you take the move from the December low to the June low, and then add the same again to the June low, then the sum is 3111, which strengthens this area as a swing high target.

SPX daily chart:

Obviously after the strong move up over the last two trading days that target area is pretty close, and it could be that we are going to see the first test of that soon and then spend the rest of November topping out. We'll see.

SPX 60min chart:

There is an obvious target for this move on NDX as well, and I was interested to see that was hit this morning. That could be the start of a bearish overthrow, or NDX could be expanding up into an alternate resistance trendline. What is obvious though is that at the close on Friday there was a lot of negative divergence on the hourly and daily charts and by the close tonight most or all of that divergence will have been lost. SPX and NDX may well have higher to go this week.

NDX 60min chart:

Stan and I are doing three free public webinars at theartofchart.net this week, all of which are well worth attending if you are so inclined, and all of which can be found on our November Free Webinars page. The first is after the close on Wednesday at 5pm EST, and is a special webinar with Striker Securities looking at the history of the futures and commodity markets. One for the market history buffs, of which I am definitely one. The second is after the close on Thursday again at 5pm EST, and is on 'Trading Commodities - Setups And Approaches'. This is looking at some of the extremely interesting commodity trades setting up over the next year or two, in what is likely in my view to be the strongest of the main market groups over that period. The third is our monthly public Chart Chat on Sunday at 4pm EST. There we will be looking at the usual wide range of markets and instruments, and will be looking at the likely targets for the down move that we will be looking for after this current upward trend ends by the end of November.

Much Ado About Nothing

ES has spent the whole of October in a low cycle but so far the action has been all sideways, with a strong rally last week taking SPX back close to the highs on the hope of a China deal. There was a China deal, albeit more of a glorified breathing space while more talks continue on the many tricky points of contention on which there seems to have been little or no progress so far, and there was good news for Soy and Lean Hogs, which are now cleared for purchase by China. With the asian swine epidemic having had such a severe effect on herds Lean Hogs particularly look like a very interesting long here.

In terms of equities though it's hard to see much holding SPX up here in the wake of the China talks, and with the low window having extended somewhat due to this sideways action, SPX is still in a low cycle until the last week of October, before a high cycle into late November and then a low cycle into March/April next year. The pattern setup looks good for a decline into the low window and I'm leaning towards a subsequent all time high retest into the high window at the end of November, possibly to make the second high of a double top.

In the short term ES formed a high quality rising wedge within a larger rising channel with the wedge breaking down on Friday. Key support is the monthly pivot at 2963.50 and ES has been trading slightly above that most of today. I'm expecting that to break, but it seems that might not happen today.

ES Dec 60min:

Ideally though that break would happen today as the daily middle band on SPX is just below monthly pivot, now at 2959, and on a break back over the daily middle band like the one we saw next Friday that is not going to be sustained, then the usual rejection back below comes in the form of a strong rejection candle on the next trading day. If the middle band is backtested today and holds as support, then we could well see a retest of Friday's high next.

SPX daily chart:

Is there a case for going a bit higher before going lower? Well yes. SPX could be forming an overall  bullish triangle here and, if so, the next obvious target would be triangle resistance, now in the 3015-20 area, before a retracement that might then only take SPX back halfway to triangle support in the 2830-5 area. That's a possible scenario here, but not the likeliest one. The setup for more downside without that however would be much improved by a break and conversion of the 2960 area back to resistance.

SPX 60min chart:

One way or the other SPX will likely move back onto an up cycle by the end of October , and the longer SPX spends going sideways in the meantime, the less ambitious any downside target should be. If we see a definite turn down in the next day or two then a target back in the 2800 area still looks doable.