I was concerned yesterday morning that SPX would fail to break down through the 1939 to 1945 support area, and that failure there would likely lead to a significant rally. SPX made the H&S target at 2045 and that was the low for the day, leaving a a setup for a rally at the close that has reached as high as 2060 on ES overnight. Looking at SPX, NDX and RUT I’m expecting that rally to go higher in trading hours today with the first obvious target at likely falling wedge resistance on SPX, currently in the 2070 area. On a break up from the falling wedge I’d be looking for a retracement into one of the 38.2% (2070 if over wedge resistance then), 50% (2077), or 61.8% (2085) fib retrace targets. SPX 15min chart:
On the SPX daily chart the setup here is straightforward. The current SPX low is at 2047, very close to the H&S target at 2045. As the daily middle band has been converted to resistance the daily lower band is now a solid target at 2039, and that is supported by the 50dma at 2040. A break below these opens lower targets. SPX daily chart:
A possible 60min buy signal is brewing on ES, which is a concern for bears here. One was also brewing on TF at the time I capped this chart and that has now fixed. ES is stalled at 2040 at the moment and I’m wondering if that might hold. The top priority for bears today is to break that and convert it to resistance. ES Jun 60min chart:
I’m not much on trading correlations but I was struck by two other charts this morning that could favor bulls today. The first is CL, which broke declining resistance this morning after establishing a rising wedge turned channel. That channel support is now close to being retested at 43.5, but if that holds then the current retracement on CL is likely over, and CL has been trading with a strong positive correlation to ES in recent days. CL Jun 60min chart:
My other concern here is ZB, which has been trading inversely correlated to ES in recent days, as it often does. ZB is testing bear flag resistance and that resistance has not yet broken, though ZB hasn’t yet broken down decisively from it as yet either. If CL breaks up hard and ZB breaks down hard here then that might be a tough headwind for bears to push through. ZB Jun 60min chart:
There is obvious support on SPX in the 2039 to 2045 area. Bears need to break down through that and convert it to support here or the possible double bottom setups here might deliver a strong rally.
Yesterday went almost entirely according to plan. All the short term buy signals that fixed on Friday afternoon made target, and SPX tested the broken H&S neckline and the 50 hour MA at the high. Where SPX went off script was the close slightly above the daily middle band, which caused some technical damage that needs to be repaired by a decent close back below the middle band today. At the time of writing that looks likely. SPX 60min chart:
Well here we are. The rising wedges from the February low on SPX, RUT and NDX have all broken down now, and today is the first trading day of the most historically bearish part of the year running through to the end of October. Most of this week leans bearish historically as well, apart from today, with Dow up 13 of the last 18. With Friday closing on multiple short term buy signals I’m looking for rally today and maybe tomorrow, and for the downtrend to resume after that. Tuesday and Wednesday are the cycle trend days this week and at least one of those should be a trend down.
I posted the chart below on twitter last night showing the falling wedge that has formed on SPX from the current swing high, and commenting that this setup will usually be a bull flag that would resolve up into at least a retest of that previous high. I considered the various aspects of this setup and gave 80% odds in favor of a retest of the current 2011 swing high.
However I did note that when a setup like this does break down then that would often take the form of a breakaway gap down through support that was not filled. SPX has gapped down through daily middle band support at the open today, and that gap has not yet been filled. If this is a serious support break then that gap most likely won’t fill. If it does fill and we see a daily close today at or over the daily middle band (currently at 2075/6), then support will have held and that would strongly favor a retest of 2111 next week. SPX 60min chart:
That was a very nasty bull trap last night. As the markets closed yesterday the IHS that I was looking at on ES yesterday morning had completed and broken up and SPX closed back above the 50 hour MA. I did note on the ES chart below that I did for theartofchart.net chart service subscribers last night that the breaks needed to survive the night, and they didn’t do that, with ES invalidating the IHS and making a new retracement low in globex.
So what now? Well that was a failure at resistance and next up is to see whether SPX and ES can break support. The globex low was at a test of the daily middle band on ES and I’m expecting to see a test of the daily middle band on SPX in trading hours today. Support on SPX is very clear, with a possible sloping H&S neckline in the 2078 area, the current retracement low at 2077, and the daily middle band at 2075. If SPX can sustain a break below these then the H&S target is in the 2040 area, the daily lower band is in the 2035 area, and I have possible larger H&S necklines in the 2030 and 2020 areas that I’d be watching for possible support. SPX daily chart: (more…)
Apologies for the late post today. A very busy morning.
The FOMC news today is likely to be that there is no news, that interest rates won’t be rising this month, and there’s no press conference after 2pm to add spin to the announcement. Nonetheless markets will likely move on this absence of news, and I’ve been considering which way that might go. The bad news though is that there are decent setups in both directions here.