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In my post earlier this week I was talking about my post of 6th August 2021 when I was looking at the possibility that there would be a retracement this year to backtest a major broken resistance trendline on SPX, and the possible very bullish setup that a good retest would partially confirm, and I said I would look at that in more detail in my next post.
The trendline is the main resistance trendline on SPX on SPX from the low in 2009, shown on the chart below, and it was and is a really good trendline. The start was at the 2009 low, with touches at the lows in 2010, and highs in 2011, 2012, 2013, 2014, 2017, 2018 and 2020. It was so strong that I was expecting it to hold indefinitely until it broke in the wild move up after the 2020 low. This is the trendline I am looking to be backtested.
So what’s the pattern setup? Well, the corresponding support trendline was only two touches at the point it broke down in 2020, so if that was rising megaphone support, then the 2020 crash delivered a decent 50% retracement of the move up from the 2009 low and that may have been be the resolution and end of that pattern. There is however a possibility that the 2020 move established a new rising megaphone support trendline, and that is supported by the way that the resistance trendline broke at the end of 2020, with first a monthly test, then another monthly test with a poke above and close below at the end of the month, and then the break and monthly close above on the third test of the trendline.
On 5th July last year I was updating my SPX monthly chart and added a scenario for a retracement that I thought might take place in the next few months, and talked about that in webinars at theartofchart.net. On 6th August I then wrote a post about that scenario looking for a backtest of a trendline on the monthly chart that was in the 3800 area at the time. That trendline is now in the 3930-50 area, and that is my main target for the retracement we have been seeing so far this year.
The bulls delivered a strong rally yesterday and there is actually a decent looking setup for a break up here that might well then deliver a fast retest of the all time highs on SPX. A daily RSI 5 buy signal fixed on NDX at the end of last week, which I wasn’t taking particularly seriously in the absence of a confirming signal on SPX, but at the close yesterday a daily RSI 5 buy signal also fixed on SPX. Both signals could deliver a sharp push up here through some key resistance levels.
On the SPX chart very strong resistance is in the 4500 area, with the SPX daily middle band currently at 4498.
On Friday morning I was looking at the short term bull and bear options on SPX and at support and resistance levels being tested. The main resistance level was of course the weekly middle band, now at 4518 and with the SPX close on Friday at 4488, just above support at the daily middle band, there was a complete failure to break back up over that resistance.
In my last post I was looking for a retracement and looking at targets below for the likely backtest that was coming, and those initial targets have been hit, more or less. The main target was the mean reversion target at the 45dma, now at 4417, and the current low this week at 4450 isn’t quite a hit, but came close.