A Moment Of Truth – Day 2

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The NFP numbers on Friday morning were a very big miss, with significant revisions down in the April and March numbers as well. All the indices tanked hard but double top support on SPX wasn’t significantly broken and most of the decline was then given back on Friday. That made Friday the third straight day on SPX that started with a decline and the ground up for the rest of the day in a 70% bearish rising wedge. The first two of those broke down hard the following morning. We’ll see how the third one does this morning. SPX 1min chart:

160603C SPX 1min Last Three Days

The key support level for those three days, and the key level I’m watching today is the 5dma, which closed Friday at 2099. Bears need a daily close significantly below it. SPX daily 5dma chart:

160603C SPX Daily 5dma

I’m leaning strongly bearish here, as SPX is just under 2011 resistance, in a setup that strongly suggests the second high of a double top for the move up from the February low, and with daily and 60min RSI 14 sell signals fixed on all of the main three equity indices that I watch, which are SPX, NDX and RUT. The short term double top on SPX should deliver a test of 2065 on a sustained break below 2085, and that would be an effective test of SPX rising channel support from the February low. If that breaks and we then see a sustained break below 2025, that would fix a larger double top target at 1940, slightly less than a 61.8% fib retracement of the move up from the February low. SPX 60min chart:

160603C SPX 60min

RUT has been the slowest to turn of the three indices but wedge support broke and a 60min sell signal fixed on Friday. RUT might need a retest of Thursday’s high to make the second high of a double top, but all three indices now look poised to reverse back down for a few days at least. RUT 60min chart:

160603C RUT 60min

This is a very short term bearish setup, and I was asked on Friday whether that meant that it would definitely break down. No, there is no such thing as certainty in the markets, ever. The odds do favor retracement here though, even if that is only to retest 2065-70 as support. If SPX (and NDX) channel support breaks then the retracement could be a lot deeper.