Bulls had a good day yesterday and delivered a conviction break back over the 5dma. As the decline was more than 2%, that puts SPX back on the 5dma Three Day Rule. The 5dma is currently in the 5350 area and on a daily close back below today or tomorrow, requiring a clear break of more than 2.00 handles below the 5dma at the close, then historically the odds are very high that the low 2322.25 at will be fully retested before a retest of the last significant high, which here is the ATH at 2400.98. This is a very impressive performer as a statistic, of about 60 examples since the start of 2007 there were only two that failed to make a lower low, and those were both very near misses while triangles were forming.
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Important Resistance Levels
SPX filled the gap from Friday’s close yesterday afternoon, but there is still more to be done to confirm the low. The next test up on SPX is to break the 50 hour MA, currently at 2354 and SPX is testing that at the moment. If broken the next levels are an intraday higher high over the last rally high at 2358.92 and a daily close over the daily middle band, currently at 2367. The 2359 high is a possible IHS neckline so we could see a right shoulder retracement there. If so the ideal right shoulder low would be in the 2336 area, with the 2333-6 area being decent established support. SPX 60min chart:
Candidate Low
A big gap down this morning from Friday’s close at 2343.98, not quite filled at the time of writing with the high so far today at 2343.79. Unless SPX fails hard here this is a strong candidate low for at least a few days, and the resistance levels I’m watching are the gap fill, then declining resistance in the 2348 area, then the last rally high at 2358.92. On a break over that I’d expect a test of falling megaphone resistance currently in the 2382 area, and on a break over that the obvious target would be a retest of the all time high at 2400.98, very possibly to make the second high of a double top. SPX 60min chart:
Roll On The Weekend
I’ve been suffering with a bad back all week, and this has been disrupting my sleep so I’m hoping to catch up on sleep at the weekend, which I’m very glad is starting in a few hours. In the meantime ES is just chopping around waiting for nuggets of news about the progress of the Healthcare bill, which at the time of writing seems unlikely to pass today.
Yesterday’s high has held so far on SPX and yesterday’s high was of course a very obvious level for the rally to fail, so that may well continue to hold. If so SPX should at minimum retest Wednesday’s low and I’ll be watching possible trendline support now in the 2330 area. On a break over yesterday’s high there are multiple resistance levels in the 2365-70 zone. SPX 60min chart:
The Rally Is Flagging
The rally that the bulls failed to manage yesterday has been delivered today, with SPX sustaining some trade above the daily lower band, though albeit not by a lot. So far the rally has retraced 50% of Tuesday’s decline while forming a very nice rising channel. So far this is a classic bear flag setup that on a break of channel support should at minimum deliver a retest of yesterday’s low. SPX 5min chart:
