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I’ve been distracted this week by a divorce hearing yesterday morning, but that’s out of the way now and I’m doing two posts today. This first one is talking about short term upside targets across SPX, NDX, IWM and INDU and the second one later today will be looking at the bigger picture case for a backtest of the 3750-3800 SPX area soon, and the potentially very bullish implications if we were to see that happen.
For now on SPX the wedge resistance trendline is in the 4400-10 area, and the retracement over the last couple of days could set up a very decent possible RSI 5 sell signal if SPX heads directly to that target from here.
Obviously SPX broke up at the last inflection point and may well be on the way to the resistance trendline I mentioned in my last post, currently in the 4400 area.
I’m still leaning towards seeing a decent backtest of the 4000 area over the summer sometime and ideally that backtest would reach the 3800 area. I’ll explain why that is in another post over the holiday weekend and if we were to see that retracement, and then found decent support there, it would set up a potentially very bullish scenario for another leg up.
In the shorter term, the rising wedge from March 2020 broke down on the last retracement and if that break was just an expansion of the wedge, then we should see that test of wedge resistance in the 4400 area next. If seen I will then redraw the wedge support as unbroken.
I remember a reader describing me a few years ago as an ‘if, then’ analyst, and that was a pretty decent description, as nothing is ever certain and markets move from one inflection point to the next, where there is another ‘if, then’ decision to be made.
I was talking in my last post about the possibility that SPX would break up into a high retest, and it did, so the H&S is no longer forming, and the setup on SPX is now a possible nested double top setup. I went though decades of charts on SPX a few years ago and calculated that some 70% of highs and lows on SPX were some kind of double top or bottom so that isn’t necessarily bullish so far.
In the short term a very decent quality rising wedge has formed from the last low at 4164, so I’m expecting that to break down and at least deliver a retracement. If we see a retracement back to the 4164 low, that is now double top support on the smaller of the two nested double top setups.
I was looking at something unusual in my premarket video at theartofchart.net this morning and that was a large number of H&S patterns both bearish and bullish. I don’t generally post my work here outside the equity indices but I’ll make an exception today as these are worth a look, and all really coming out of the reaction last week to the Fed indicating that tapering of COVID measures is starting soon in the US.
The first of course is the possible H&S forming on SPX that I was writing about yesterday. This is in the ideal right shoulder area and SPX is now in the inflection point seeing if this will now break down. If it doesn’t I’ll be looking for the high retest, but the historical stats and setup here are favoring a break down.
Friday was very weak, particularly for a big opex Friday, and SPX broke down through the daily middle band, currently 4215 area, the 50dma, currently 4183 area, and on ES even briefly broke down below the monthly pivot. We are seeing a rally this morning and I was giving the ideal rally high area on my premarket video at theartofchart.net in the 4230-5 SPX area. The odds look good for a reversal there into lower lows.