I identified the rally pattern from Friday as a 70% bearish rising megaphone after the AM low yesterday and posted that on twitter. Hopefully everyone caught that. After the megaphone broke down in the afternoon there was a swift move to make the full SPX double top target at 1914, and to test the weekly middle band, also at 1914, and the 100 DMA at 1912. That is a strong support area and it held yesterday in trading hours, though given the weak overnight action it could break at the open today. SPX weekly chart:
The question now is whether there are decent prospects for a low around this level, and the picture there looks mixed so far. On the bull side support at 1914 held well yesterday with a low at 1913.77 SPX. There is a possible double bottom in play here now and encouraging positive divergence on both the daily RSI 5 and the 60min RSI 14. On the bear side there was no real rejection at the low yesterday and the low was taken out with some force on ES overnight. While the rising megaphone target was made at the retest of the lows, in this context it may well be a bear flag pointing lower. The retest of broken rising wedge support at the high on Monday is also suggesting lower. SPX daily chart:
If there is a low in this area then first confirmation of the low would come with the break of main decline patterns, and on SPX that is a break of falling megaphone resistance, now in the 1930 area. That would be a signal to go long or at least prune shorts heavily. On a conviction break over Monday’s high the double bottom target would currently be in the 1970 area. SPX 15min chart:
On RUT I would be looking for a break above falling channel resistance, now in the 1130 area. If we don’t see that then for a number of reasons the next obvious target is major double top support in the 1082 area. That is very key support some 2% lower than yesterday’s close. The SPX equivalent would be the 1883 level. RUT 60min chart:
Oil is close to making the 96 target that I gave on 15th June. That is a strong double support level and may well hold. I’ll be looking for a low in that area. WTIC daily chart:
The decline yesterday afternoon was prompted by speculation that Russia is preparing to (officially) invade the Ukraine. I think that’s unlikely but if that was to happen then I’d expect any long setups in play then to get trashed. Putin could swing this inflection point for the bears here:-)
Unless we see a strong reversal back up before the open I’m expecting a gap down today and at least a test of yesterday’s low. There’s a very good chance that the open gap will fill as I’d expect at least a test of the daily lower band (from below) during the day, and that should be in the gap fill area this morning. Bulls want to break back over 1930 to break declining resistance on SPX and make a low here much more likely. Bears want to break with some conviction below the 100 DMA at 1912 and test the 1900 area to open up a move to 1883.
