Bearish Engulfing Candlestick

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Yesterday was a good start for the retracement that I’m expecting to see here, with a daily bearish engulfing candlestick on SPY. I am concerned though that there was no daily RSI 5 negative divergence at the high, and am wondering whether the high will need to be retested. Either way the engulfing candlestick, while a strong reversal signal, needs to be confirmed with more downside in the very near future.

Some of you will have noticed that there is no daily bearish engulfing candlestick on SPX for yesterday and be wondering why that is. I looked into this oddity a while back and the answer is that there is a flaw in the data coming from S&P for opening gaps in either direction, with these not shown properly on SPX and some other indices. There was a significant gap up on Tuesday morning on SPX and if that were shown properly then the bearish engulfing candlestick would be clearly shown there as well. SPY daily chart:

131031 SPY Daily Patterns MAs

On the SPX 60min chart I am again concerned to see that there was no negative RSI 14 divergence at the high, and would note that the 50 area on the 60min RSI 14 is support in short term uptrends and resistance in short term downtrends. The 50 level was hit at the low yesterday so obviously the bears are going to need to get further to confirm the downtrend there. After a very short term top has formed however I’m seeing the 1740 area as the next decent support and the neckline for a possible larger H&S. SPX 60min chart:

131031 SPX 60min Trendlines and Levels

On the ES 60min chart I think that we are seeing either an H&S or double-top forming here. Of the two the H&S is my preferred option unless we see ES break back over the 1761 possible double-bottom trigger level that would target the 1770.25 area. The 50 hour MA is now in the 1762.25 area so a break over both would set up a retest of the highs. ES 60min chart:

131031 ES 60min Topping Patterns

On other markets USD has been rallying somewhat but I’m thinking that USD bulls may be starting the reversal party a little early. Looking at the six year GBPUSD and EURUSD I have obvious major declining resistance trendlines a little higher than either has reached so far. Here’s how the declining resistance trendline from 2009 looks on the GBPUSD daily chart:

131031 GBPUSD Daily Declining Trendlines from 2009

I’m planning to post some charts showing why I think the levels being tested in recent days on GDX and GC are a major inflection point, but for today I would just note that GC has been retracing as expected, having now formed and broken down with a target in the 1317 area. GC 60min chart:

131031 GC 60min Wedge and DT broken

CL rallied a bit as I was expecting and has then retested the lows. There is now a very possible double-bottom forming that might be capable of breaking CL over the current falling megaphone. watching that with interest. CL 60min chart:

131031 CL 60min Possible DB Forming

The setup today is very clear on ES. Key resistance is in the 1761/2 area, and a clear break over there would target a retest of the highs. A failure to break 1761/2 invites a test of the lows yesterday and, if broken, a move to test the larger possible H&S neckline at 1734.75. There is a higher than usual chance of a trend day today.