Back On The 5dma Three Day Rule

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The decline from 2378.36 to 2328.95 wasn’t big, but it was over 2%, if only just at 2.08%. That means that with the daily close back over the 5dma yesterday SPX is back on the 5dma Three Day Rule, which states that on a daily close back (more than 2 handles) below the 5dma on either of the two trading days after the break back above, the last swing low below the 5dma (at 2328.95) should be retested before the last swing high above the 5dma (at 2378.95) is retested. This is a very strong statistic, though in this case the preceding move obviously wasn’t large. The 5dma is currently at 2347 and may close several handles away from that number depending on what happens before the close. SPX daily 5dma chart:

170421 SPX Daily 5dma

Support for this (probably) backtest is at the daily middle band at 2352 and the 5dma at 2347, both on a daily closing basis, and the 50 hour MA at 2345. The break over the daily middle band yesterday needs to be confirmed with a close above today. SPX 60min chart:

170421 SPX 60min

The futures charts below were done before the open for Daily Video Service subscribers at theartofchart.net. If you are interested in trying our services a 30 day free trial is available here.

On ES before the open I was concerned that ES had held support at broken rising wedge resistance overnight, as that was supporting a break through triangle resistance in the 2368 area towards a rising wedge target at 2379. Obviously that’s no longer a concern. I’m leaning towards a test of triangle resistance before likely continuation down, but that’s not strictly required if ES doesn’t recover some of the losses so far today. ES Jun 60min chart:

170421 AM ES Jun 60min

A 60min sell signal fixed on NQ just before the open today and hasn’t made target yet, mainly as NQ hasn’t actually dropped much so far. There is a small double top target at 5425 that has not quite been made and short term rising support is now in the 5419-20 area. NQ Jun 60min chart:

170421 AM NQ Jun 60min

A 60min sell signal fixed on TF well before the open and that hasn’t made target yet either. With the NQ sell signal that is suggesting some more downside, but it’s not unusual to make a higher high before making the signal target, so it may be that we see a reversal back up without making those targets. TF Jun 60min chart:

170421 AM TF Jun 60min

If we do see more downside on SPX/ES today and that holds into the close then that would be very bearish, albeit only into a retest of 2328.95. There are obvious targets above on NQ (IHS target at 5465 then possible ATH retest) and TF (IHS target 1384.75 area) that haven’t yet been reached, and I’m doubtful about seeing the downtrend resume without making those targets. If we retest 2328.95 directly from here then that might be the second low of a small double bottom.

Everyone have a great weekend :-)

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