Breakaway Gaps

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Yesterday’s large gap into a trend day up off Monday’s retracement was a rare candle so I had a look at similar examples back to the start of 2012 to shed some light on what we can expect to see next. The candles I was looking for:

1. were not immediately after multi-week bottoms so continuation rather than reversal breakaway gaps
2. were at the end of 1-5 day retracements within larger uptrends
3. gapped up substantially and then closed well above the opening print

I found seven previous examples back to the start of 2012 and of those:

– 2x made highs within two days into multi-week reversals
– 1x made a high in six days into a multi-week reversal
– 4x weren’t close to any substantial reversal

The odds favor continuation here for at least a few days and, much as I would like to see a decent retracement here, the odds favor that SPX has now started the final move towards my 1965 wedge target that I posted last June.

SPX touched the weekly upper bollinger band again yesterday, and should be able to close as high as 1885ish this week without a rare and bearish punch over the weekly upper band. SPX weekly chart:

140305 SPX Weekly Patterns BBs MAs

The SPX daily upper band is less solid resistance, but is above the weekly upper band, currently in the 1890 area. That’s within range this week but the daily upper band is rising rapidly so if we are going to see that hit this week the odds would favor seeing that today or tomorrow. The chart shows the overhead room available within the current primary rising channel. SPX daily chart:

140305 SPX Daily Patterns BBs MAs

The rising channel on SPX broke on Friday and I haven’t identified a successor pattern yet.l I would mention that this can mean that that we are making a bigger high here before a deeper retracement and if we see a move below 1860 I would be considering that option. In the meantime though I do have a successor pattern on Dow, and will be looking every day at possibilities on SPX. INDU 60min chart:

INDU 60min Rising Channel v2

Backing up my maximum weekly close level in the 1885 area is the ES weekly R2 pivot at 1882.5. Any significant intraweek move over this closing ceiling area will look very shortable. Unless we see that I’m leaning long, and unless we see a break back below 1860 I’m not going to be looking for another retracement of any significance until SPX is well over 1900.