The One That Got Away

By -

SPX punched over the weekly upper band again on Friday for the second punch above the band in the last three weeks,. I don’t want to overemphasize this as a topping signal, but it goes without saying that these punches tend to happen when SPX is looking rather overbought, and on the four previous examples that I have marked on the chart below from the 2011 low, none rose significantly further before a consolidation or retracement period lasting four weeks or more. This would not generally be a place to look for a strong push upwards.

In terms of the primary rising channel, the high on Friday at 1963.91 was just short of my 1965 wedge targets, and was a test of primary rising channel resistance. I had a look at this using the thinnest possible trendlines over the weekend and there is very little play left in the trendline. Even a move to 1970 now would risk breaking it. SPX weekly chart:

140623 SPX Weekly Primary Channel and BBs

So what if the primary rising channel does break up? It’s rare but it happens, and I’ll be showing you a very good example where it has happened before at the bottom of today’s post. If it breaks up then my conservative target for SPX will be the wedge turns channel resistance trendline that is currently in the 2010 area. If that doesn’t hold then the full target for the rising wedge from 1737 breaking up would be the 2160 area. SPX daily chart:

140623 SPX Daily Rising Wedge

TRAN is showing some slight signs of weakness at the close on Friday, but that may not be significant. If the SPX primary channel holds a break of this current rising channel on TRAN should signal that a significant decline has started. TRAN 60min chart:

140623 TRAN 60min Rising Channel

I’m going to be doing a dedicated post on precious metals this afternoon, but I’m posting the silver chart from that post here as well because it has a very good example of a past two year primary rising channel that broke up in late 2010. That was the start of a major move that saw the silver price double in the next six months into the 49.82 high and then start a decline that retraced that entire move over the next two years. I’m not saying that the same thing would happen here if this channel breaks up, but this is what I had in mind when I said a few days ago that a break above the primary rising channel on SPX might signal a big acceleration to the upside. If the SPX channel does break that will NOT be an attractive shorting opportunity. Silver weekly chart:

140623-PM Silver Weekly Falling Wedge Broken Up

I’m favoring a significant decline starting this week, ideally after an intraday test of the 1965-70 area. The stats on my post-FOMC setup that I was looking at last week would favor that intraday high being made today or tomorrow. If we see any break above 1975, sustained or otherwise, I would advise being extremely cautious with shorting SPX as for me that would open up possible targets above 2000. The intraday high on Friday was only a point below my 1965 wedge targets, and there is very little room under primary channel resistance, so it’s possible that high may hold this week.