High Retests Likely

I mentioned in my post on Tuesday morning that the historical stats for the rest of this week leaned bullish, and that the stats for next week after the holiday all lean bearish, and after the low on Tuesday afternoon we’ve been seeing that deliver so far.

I capped the chart below after the close on Wednesday 14th with the very decent looking rising wedge that had formed from the low on SPX, and that looked as though that might break down on Thursday 15th, delivering a decent right shoulder high on a possible H&S right shoulder.

SPX 1min (after close 14th Feb) chart:

As it happened though the wedge continued forming on Thursday, with the support trendline finally breaking in the last hour, by which point there was not much space left between the support and resistance trendlines. So where does that leave us?

Well in terms of the wedge resistance trendline, that will be crossing the all time high at lunchtime of Friday, and the break down from the wedge support this afternoon may just be setting up and secondary wedge support trendline.

While the wedge may have topped out, the rally has taken us up close enough to the retest of the all time high that I’m thinking the most likely outcome is that this is hit on Friday to make a possible second high of a double top taking SPX into the bearish stats next week.

The overall pattern setup remains the same as the one I was looking at earlier this week, so you can see that in my last post on Tuesday 13th Feb.

SPX 1min (after close 15th Feb) chart:

I’m looking for topping patterns on the other equity indices too and if NDX failed right here then that might still be an H&S, but more likely we see a retest of the all time high there too, again setting up a potential double top.

NDX daily BBs chart:

Dow is also looking like an all time high retest is likely setting up a third possible double top.

INDU daily BBs chart:

IWM is an interesting one, as I was saying on Tuesday morning that I was looking for a break of the rising channel support trendline to kill off that bullish scenario on IWM. That didn’t happen, so there is still an ongoing rising channel on IWM, which has rallied very strongly from Tuesday’s low and might still be heading for channel resistance.

If that isn’t what is happening here though, then this looks like another high retest setting up a fourth potential double top.

IWM 60min chart:

If all of these high retest are seen today, then there is a very decent chance that this will also set up decent negative divergence on the hourly and 15min charts, to go with the daily RSI 14 sell signals already fixed on all four. If it fails right here, writing shortly before the open, then there is limited negative divergence, and the double tops don’t look great, but I’ve seen highs like this regularly before.

If we reach those retests today that will put SPX, NDX & Dow back at the top of all these inflection points and at any inflection point there is a chance that it will break in the direction that looks less likely. If we see a retest and fail though, then there will be a series of high quality double top setups that could deliver a larger retracement over the next couple of weeks. We’ll see how that goes.

In terms of historical leans, as I mentioned, there is a holiday on Monday, and the four remaining days next week all lean bearish. If we are going to see any serious downside move, next week would be a great time to do that. For today the stats lean neutral to bullish, the day is Friday, which is not a good day to look for any serious downside move generally, and there are a lot of option expiries today, so the tape may be pinned after lunch at a level that doesn’t change much the rest of the day. Everyone have a great weekend. 🙂

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