It’s simple: the pattern below, representing the Dow Jones Composite, will break to the downside next week, and all holy hell will break loose. Strap in.
The setup here on the last trading day of January couldn’t be much simpler. SPX bounced strongly at the daily lower band and range support at the low yesterday and on the bull scenario SPX now breaks back above the daily middle band at 2031, and on a further break of 2064 we see a retest of the highs. On the bear scenario we see a hard fail here or at the middle band test and, on a break below yesterday’s low, the next big support level is at 1957 at the 50% fib retracement and the weekly 50 MA. SPX daily chart:
The annoying thing about late stage bull markets and in particular the formation of long term tops is that they take forever to play out. Navigating increasingly volatile swings accompanying the final throws of a dying bull cycle takes considerable amounts of patience, discipline, as well as skill. Like Bob The Horse reminded us the other day: Bear markets go out in a bang and bull markets go out in a whimper.
Now the dirty little secret about early stage bear markets is that the last bear standing is usually a bull. Yes, you read that right. Traditionally it’s not weak handed bears who take down a bull market, it’s simply a lack of buyers. Guess what – all those snarling bears who were printing some mighty coin in 2008 are long gone, wiped out during their persistent attempts to call a top when there was nothing but green candles ahead. I myself have seen their (virtual) faces disappear right here – one by one they simply vanished. The few who survived the ravages of one of the most significant bull markets in history relented and changed their approach just in time before their accounts had melted away like late winter snow in the glows of a spring sun.
Just a very quick post this morning as I needed to take my daughter to the orthodontist and only got back a few minutes ago.
A rare day yesterday with a strong decline sustained into the close, rare in itself but very rare on FOMC day. The wind may be changing. The bulls had to break back up over the middle band and totally failed to do that.
This break back below the SPX daily middle band delivers two downside targets. The first is possible range support in the 1990 area, with the daily lower band just below it at 1987. If that fails then the obvious next target is the 50% fib retracement of the move up from 1820,l and that is at 1957. SPX daily chart:
I’ve been having a few technical problems this morning with my main computer, and currently have no ability to edit charts at Stockcharts and browser access only to my main broken. I should have these issues fixed later but for now I’ll be using charts I did yesterday and a futures chart for CL.
There are clear bull & bear scenarios here and I’m leaning strongly towards the bear scenario, but with the strong awareness also that there is a huge wild card today in the shape of the Fed at 2pm, so I’m keeping an open mind.
The bull scenario is on the SPX daily chart that I posted on twitter yesterday afternoon, and that is showing that the low yesterday was a decent retest of broken falling wedge resistance from the all time high. If that low holds we would now see a break over range resistance at 2064 and at least a test of the all time high. SPX daily chart:
The rising channel that I showed yesterday morning didn’t survive much past the open. The rally from the AM low was strong, though fitful but I was thinking that things might just e back on track for more upside, though I was concerned that the rally from the lows failed at each of the three retests of broken channel support. I closed the day thinking that the uptrend was fragile, but might just get past 2064 into the highs retest area.
Overnight though ES has fallen hard, and at the time of writing is a clear 25 handles under the close, and well below yesterday’s intraday low, which on SPX is double top with a target in the 2016/7 area on a break below it. SPX 5min chart:
I’ve been up since 4:30 a.m., thanks to one of my dogs. Mojave wanted to go for a walk. It was obviously too early. So, bright pup that he is, he walked over to the other side of the bed, pressed the “on” switch to the floor lamp, and bang, that got me up. He does that whenever he really wants to head outdoors, sleep be damned.
So I’ll just say that I’m delighted, of course, at all the red on the screen (although someone needs to remind me to stop trying to short TLT; its bull market, I suspect, is going to continue for months on end). Let’s hope the selloff sticks for a change. The big question, ultimately, is whether the horizontal on NQ continues to provide support at about 4080. It will take a major disappointment to break this line. Something along the lines of…….oh…….Apple after the close this afternoon. Will it happen? I doubt it, considering how strong the Apple chart looks. But – – one can always dream.