Limbo Dancing

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SPX followed through to the downside yesterday and we have now seen the opposite of the many V shaped recoveries that we have watched on SPX over the last two years. It has been a while since we have seen one of those. SPX closed back under the daily lower band, confirming the end of the rally. SPX still needs to break under last week’s low at 1926, and under that I have the 38.2% fib retracement of the 2014 rising wedge at 1912, and both main double-top support and the 200 DMA at 1904. For the full retracement scenario back under 1800, that 1904 level is the important level that must be broken. SPX daily chart:

141008 SPX Daily Trendlines BBs MAs

Until 1904 is broken and held then there is still a bull scenario on the table here. I’ve looked at that on the 60min chart as one of three main options and it’s worth bearing in mind. We have no open downside pattern targets here until we see that break below 1904, so we are in the void I have mentioned a few times between the double top target at 1937.70 and 1904. There is still considerable room for surprises in this area. SPX 60min chart:

141008 SPX 60min Falling Megaphone Options

Oil is reaching my target area for a low, and that is in the 87.5 area on CL, which I’m expecting to see hit in trading hours. There is a very good chance of a reversal in this area, though if we should see CL decline under 86, we might well be seeing this downtrend extend, so this is very much an area limited decent long entry. WTIC daily chart:

141008 WTIC Daily Patterns

I was surprised that Monday’s high was not retested, and I’m still not entirely convinced that we won’t see another strong bounce. For the moment though my working assumption is that SPX has started another lower band ride, and until we see some evidence to the contrary I’m looking for AM highs that sell off for the rest of the day on a move to test key support in the 1904 area. The 1926 low needs to be broken today to kill off the chance that we are seeing a deep wave 2 retracement at the start of a bigger picture bull move.