Rising Wedge Support Broken

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REPOST of Jack’s commentary………this time with extra-special 3-D charts!

President Obama was keen to assure the world yesterday that he was committed to talking. So much so that a statement to that effect seemed to be released about that every hour yesterday. He also called Speaker Boehner and held a Press Conference to reiterate that he was determined to talk ………. about his refusal to negotiate with the Republicans about the budget or debt ceiling until they had unconditionally conceded on both.

By the end of the day I think he had driven the point firmly home that if the US government reopens or default on US default is avoided, it won’t be due to any readiness to compromise on his part, and at the close yesterday SPX closed below rising support from last November, which was the primary support trendline and also the support trendline for the rising wedge on SPX from the June low.

I can’t see any reason to think that yesterday was a significant low. The weak positive divergence on the SPX daily and hourly RSIs was eliminated by the end of the day, there is no positive NYMO divergence, and SPX just broke a very major support trendline.

What then are the downside targets? On the SPX daily chart the first target is obviously the August low at 1627.47. That is the valley low / trigger level on a possible double-top targeting the 1525 area, and while the August low holds there is still a chance of seeing new highs this year. If that breaks then obviously the next support levels are the 200 DMA, currently at 1598.28, and the June low at 1560.33. It is a very rare year when the SPX 200 DMA isn’t tested, and is increasingly likely now that this isn’t going to be one of those rare years. SPX daily chart:

131009 SPX Daily Rising Wedge Broken

Another real rarity is a failure to see at least a near miss of the weekly lower bollinger band on SPX in a calendar year. The only two years when this has happened in the last fifty years were 1964 and 1995. The only two years since 2000 that haven’t seen at least two hits of the weekly lower BB were 2003 and 2009. The weekly lower BB is currently at 1595.17, very close to the 200 DMA. SPX closed below the weekly middle BB yesterday, though only a close at the end of the week counts as a real break below of course. SPX weekly chart:

131009 SPX Weekly Patterns BBs MAs

On the SPX 60min chart you can see the definite break and close below rising wedge support yesterday. Falling channel support was the obvious immediate downside target but wasn’t reached at the low yesterday. SPX 60min chart:

131009 SPX 60min Rising Wedge Broken

Looking more closely at the falling channel on SPX, falling channel support is in the 1650-3 area if hit today, and I’d normally expect to see that hit before any substantial rally happens. That may therefore be hit early on today. SPX 60min chart 1Mo:

131009 SPX 60min Falling Channel

On the ES 60min chart I also have a falling channel, though of lower quality. Channel support there is in the 1641 area. One thing I would add is that the weekly S2 pivot is at 1651.9, and that is decent support. ES may well close the week back above it. The 50 hour MA is currently in the 1662.5 area and may well be the target and reversal level for any rally today. ES 60min chart:

131009 ES 60min Trendlines and Pivots

SPX closed the day yesterday seven points under the daily lower bollinger band, and may well open below it today. A close back above it would look cautiously (and short term) bullish, but while SPX trades below it there is a lot of available downside. When SPX is above the upper bollinger band, rises are generally limited to 5 to 7 points per day. The equivalent is not the case under the daily lower bollinger band and much larger moves can be made.

The technical landscape shifted yesterday as the SPX rising wedge broke and Obama made it perfectly clear that he is refusing to negotiate with the Republicans. The Republicans aren’t currently prepared to surrender without concessions, so for the moment the government is shut down without any real negotiations to reopen it. Consumer confidence is cliff-diving and in the absence of any movement the US will default on its debt within a couple of weeks. There is obviously the possibility of a waterfall decline here, and primary trend support just broke. Be careful.

I am trying a new text format on my charts to improve clarity, with white backgrounds to the text, mixed case lettering and larger text size. Feedback as to whether people find the notes on the charts easier to read would be most welcome.