Educated WAG

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A rally started yesterday as expected, and stalled at the ES 50 hour MA for much of the day. ES traded through that over that overnight though and has rallied as high as 1851.25 at the time of writing. The obvious target is the daily middle band, currently at 1857.75 on ES and at 1863/4 on SPX. ES 60min chart:

140409 ES 60min Trendlines and MAs

As I was saying yesterday morning, the falling channel from the high on SPX was so narrow and steep that there should be another push down after this rally has ended. That need not go much lower, but it does suggest lower prices before there is a good chance of making a low. On the 60min chart I have other possible rally targets at the SPX 50 hour MA at 1872, and the retest of broken rising channel support in the 1868-72 area. I have marked in a possible third rising channel support level that could be support on the next move down and that is currently in the 1823-5 area.

One thing to mention there however is that when I have seen a series of channels breaking down into shallower channels, these have been near the end of strong trends. If that channel establishes then we could still see new highs, but most likely a significant high would be forming. SPX 60min chart:

140409 SPX 60min Trendlines and RSI

Of the other strong support levels in this area, the two main ones on the daily chart were tested yesterday, and they were the 50 DMA, currently at 1840, and the daily lower band, currently at 1836. There is a further support level slightly lower at the 100 DMA, currently at 1827 and a decent fit with my theoretical channel support in that area. SPX daily chart:

140409 SPX Daily Patterns BBs MAs

The other level to watch is the weekly middle bollinger band, currently at 1831 and very much the gateway to a larger pullback. A conviction break below would target the lower band , currently at 1773, and a test of primary rising channel support in the 1790 area. SPX weekly chart:

140409 SPX Weekly Patterns BBs MAs

My educated WAG for the next few days is that we see a test of the daily middle bollinger bands on ES and SPX, and possibly a bit higher, but without a conviction break above. After that I’m expecting to see another move down that will reach a big inflection point in the 1820-30 SPX area. If that breaks then we see a test of primary rising channel support in the 1790 area. If it holds then we rally further, very possibly to new highs.