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My last post was a couple of weeks ago now and in that time the retracement that I was expecting has been playing out, though the main target, rising support from the March low, now in the 3745 area, has not yet been tested, and may well not be before we see a high retest.
Why is that? Well the patterns forming here look like bear flags, and while the low this morning overshot my ideal bull flag channel support on SPX by five handles or so, the action today has only strengthened the case that the next move is likely to be a retest of the all time high on SPX.
Before the open this morning I was noting that hourly buy signals had fixed on ES, RTH and YM, and since then hourly RSI 5 buy signals have fixed on SPX and IWM, with another brewing on INDU. There is a lot of upward pressure building here, and as well as the clear bull flag , the retracements so far on RTY, DAX & ESTX50 all also have the look of bull flags forming.
Investors often refer to “the canary in the coal mine.” As the world’s largest company, I would say that Apple is a very important canary which is worth watching closely. Take note of two things about recent activity: (1) its bullish breakout has completely flopped (2) it is even breaking below its supporting trendline of the right triangle pattern.
Firstly my apology for the lack of an update last week. As I’ve mentioned, I’m negotiating my way through a difficult divorce at the moment, and some weeks are harder than others. On the harder weeks I struggle to get any posts done. As the weeks and months pass everything should be resolved and I can just move on and I’m really looking forward to that.
So what has happened since my last post? Well I noted wryly that I lost several twitter followers as soon as I published my last post, and I assume that was because I was looking for a support break and retracement on SPX, and that is exactly what we have seen. I think that the low we have just made is what I would call ‘the low before the high’, just a sort of stretching of recently unused muscles before a larger retracement gets going, and I’ll be looking at possible targets for that retracement in my next post.
I was saying in my last post on Friday afternoon that the low made that day looked nice, with touches of the daily middle band and shorter term (from Nov low) rising wedge support on SPX. I was leaning towards seeing a retest of the all time high, which we have seen and more.
Now the rising wedge support touch on Friday was confirmation that the obvious rising wedge resistance trendline was the obvious target on a break up to a higher high with any confidence, and that was tested in the last hour yesterday, and then retested at the high this morning. That second retest held the resistance trendline again and SPX reversed on a high quality 15min RSI 14 sell signal:
For those who don’t know, GEX stands for Gamma Exposure. It is an options-based LEADING indicator that is derived through a calculation of all the gamma at all strikes and expirations on any given day in the S&P500 Index. The chart is free to access and can be found here.
High Gamma = high pushback against selling and Low Gamma = low pushback against selling.
As of Friday’s close, Gamma Exposure hit a very low point. A key point in a couple of ways.
The first is that it was less than 1.5B. When gamma gets this low it tends to be associated with falling prices and increased volatility.
The second is that GEX broke its uptrend line. I’m the only one I know of that uses it this way. You see, a little while back, I was doing some ongoing testing and analysis of the GEX and noted that it seemed to trend along with the SPX. Out of curiosity, I drew some UTL’s and plotted what happened when they broke down. I was surprised and amazed at the results. It was consistent going all the way back to the start of the data in 2011. Red dots are when GEX is <1.5B (GEX above, SPX below).