I was playing around with the SPX daily chart today (Wednesday) and found something very interesting. I was looking at the very strong resistance line that has turned the SPX back down all six times that it has been hit since September, and I traced it back to find that it extended back to the October 2008 low.
I then tried to see whether there was a line parallel to it that would form a channel and I found one that extended back to the November 2008 low. Here's the result with the new channel in red:
Looking at it there is little doubt in my mind that this has been the primary channel that the SPX has been trading in since August, and if we should make a new high from here, it seems likely both that the upper trendline would be the main target, and that the next touch of that trendline would most likely mark the next top.
This new channel's not altogether good news from a bear standpoint, as I was expecting that a break of the lower trendline of the blue rising channel at 1140 SPX would be confirmation of a significant change in trend, and it seems that we would need to break 1100 SPX as well, but it does give us a very solid target for a significant retracement and, when broken, would be likely to open the way to further downside.
We may just have made a very significant top this time though. I was watching the Vix carefully today to see whether it would close back within the bollinger band on the daily, that being the required second day of the three day Vix buy signal for equities, and we closed above it so there will be no buy signal this time, or not this week at least:
By the usual standards today's rally after the trend day yesterday seemed uncertain and weak. Perhaps change is in the air.
