On Wednesday night, after some seriously wild action had settled down a bit after hours, I made some educated guesses in my trading room about what ES/SPX might do over the next few days. Some of these I also talked about on twitter then and yesterday morning. They were as follows from ES 1842-3 at the time:
1. ES was making the second low of a double bottom targeting the 1855 area (Topped at 1857)
2. That move should make the second high of a double top (target 1821 area) (bottomed 1815)
3. An (Thursday) AM low would be made on SPX in the 1830-40 ES area (low was 1828)
4. SPX would then break up from an IHS with a target in the 1920 area (pending)
5. That 1920 area would be reached on Thurs/Fri this week (pending)
6. SPX would reverse back down hard to hit the 1789 double top target (pending)
6. That double-top target would be hit Tues – Thurs next week (pending) (more…)
I remember a trader describing some of the days with really wild swings in the 2011 pullback as angry badgers days, and that has stuck with me since as an oddly appropriate way to describe wild days with big declines and strong rallies as the markets head lower in a strong downtrend. After Friday, and looking at indices around the world, there is every reason to think that we are in another strong downtrend here, and if that’s right then all longs are now very dangerous and all rallies should be shorted until SPX reaches the 1800 target area where it may find support.
On the daily chart SPX put in a fourth day of the second lower band ride from the highs, and put the low in at the test of the 200 DMA, and slightly above main double-top support at 1904. On a sustained break below 1904 the double-top target would be in the 1789 area and I’m not seeing much reason to think that target wouldn’t be made. SPX daily chart: (more…)
The very strong decline yesterday caught me by surprise, as we had a very nice setup to retest the highs and a strong daily buy signal to back that up. I was expecting SPX to hold the 1940-50 area in line with fib retracement targets and that didn’t happen. So where does that leave us this morning?
Well in terms of the buy signal these are most immediately bullish in the context of a supportive pattern setup. We had one yesterday morning and we don’t have it now. The very nice double bottom setup is badly, and most likely fatally, damaged. I’m not a big believer in triple bottoms, which are rare, and tend to be raised as a possibility mainly when a possible double bottom is in the process of coming apart. The falling megaphone target back at the highs was only really interesting in the context of that double bottom. My megaphone targets as counter-trend patterns are the standard range of fibonacci retracements, and this one has already retraced slightly over 50% of the megaphone move. (more…)
It has been a great run long and short over the last few weeks, and within reasonable tolerances, I’ve called every turn on SPX since I went on holiday in mid-June. Does this mean that what I am expecting to happen here must happen? No, it doesn’t work like that. As I was saying on Friday, the downside scenario is the higher probability path here, and I’m giving 75% odds of a bearish resolution here. That means that I am giving the bulls 25% odds of breaking up to new highs on SPX, and of collapsing the bear scenario that I have been following as it has formed over the last few months. 25% is not a small percentage and it could very much happen. No-one should mortgage the family farm to go short here.
I call the market very well, but no-one can know the future. Anyone who says they do is either deluding themselves, or trying to delude others, or both. Always consider the possibility that any trade can go the other way, and have a plan for that too:
I posted the chart below on twitter last night, and that shows SPX making the double-top target at 1937.70, then underthrowing falling megaphone support before rallying hard to form a nice looking IHS targeting the 1980 area.
I have to say I wasn’t wild about the low, which was in the right area but unusually didn’t show positive RSI divergence on any timeframe, but as long as the IHS breaks up today I’ll be taking that 1980 target seriously, and would note that the 50 DMA is now at 1975, and the 61.8% fib retrace and the daily middle band are both currently at 1985. This target would be a reasonable rally target and this would clear the pattern setup nicely for the next and likely much larger move down. SPX 5min chart: (more…)
I was saying on my daily SPX chart yesterday that if we were going to see a move directly to the double top target at 1937.70, then I was expecting that move to start yesterday, and obviously that’s what we saw. The low yesterday was at 1941.7, and we may well make that full double top target today.
This move was an important point of recognition and I think it is likely now that the market is starting a 10% or more correction, though we haven’t yet had the full confirmation of that move that would come with a conviction break below the 1904 low on SPX. That 1904 level is the support level on a large double top that would target the 1789 area on a break below 1904, and that 1789 level is very close to both the 23.6% retracement level for the move up from October 2011, and rising support from that same low. (more…)
SPX put in a sixth day riding the daily lower band yesterday, with a touch of the lower band at the low and a hit of falling megaphone resistance at the high. SPX daily chart:
At the high we saw the test I was expecting of falling megaphone resistance, and that overthrew slightly at the high to test the 50 hour MA. After that the day was mostly downhill. So what does this mean? (more…)