SPX made a marginal new all time high yesterday and the odds against the bulls on the historical 5 DMA run stats improved in their favor, as only three of the previous five examples returned to make a new high. Two of those still failed at that marginal new high however, and if we should see failure again here then there is now a very nice looking double top setup that would target the 2023 area on a sustained break below Monday's low at 2049. SPX 60min chart:

A Long and Winding Road

Looking at those three past examples, the one in 1979 made a marginal new high (0.15%) on the second day after the break, then chopped around for four days within a 1% range before a two day decline that took SPX down 4% from the high. SPX daily chart 5 DMA run 1979:


I wasn't looking for the strong rally yesterday but I had mentioned in my posts on both Monday and Tuesday the possibility that the current high might be retested to make the second high of a double top, and that is what we should be looking at here. A lot of people were assuming that the retrace was complete yesterday evening but it's too early to say that, and the historical odds are still stacked against that outcome here.

The reason for that is in part the SPX daily sell signal that triggered on Monday, which has an impressive track record, but is even more so on the historical performance after the break of the five  20+ day runs above the 5 DMA since 1961, and after a close look this morning the stats for these are below:

  • 1979 - Marginal higher high on 2nd day after break, then 4 days tight range, then two day decline 4.1% (high to low)
  • 1986 - Low made day after close below 5DMA - 2.5% decline high to low
  • 1991 - Marginal higher high on 2nd day after break, another marginal higher high on 6th day after the break, then two day decline 2.25% high to low
  • 1996-1 - 3 day 3.8% decline high to low after break, then retest marginal lower high on 6th day after break, then lower low. Decline 5.5% high to low
  • 1996-2 - 10 day 6% high to low decline after break, then retest marginal lower high 18th day after break then 3.9% decline into marginal higher low at end December

In summary the stats for these previous examples tell us that the smallest retracement (high to low) after the break was 2.25%, and the largest was 6%. The current retracement is only half of the smallest previous example at 1.13%, They also tell us that when the high was retested after the first move down on these five examples, two failed at marginal lower highs, two more failed at marginal higher highs, and in only one case (after a 2.5% retracement), did the uptrend resume.  Were any of these in December? Yes, the largest and longest retracement from these five examples was in December.

The short term pattern setup here is also (cautiously) bearish. After the break up yesterday morning the rally formed a rising wedge which broke down near the close. I'd be looking for a retest of yesterday afternoon's high and perhaps a move to test 2070, where I have possible bull flag channel resistance. If SPX goes higher then I'd be looking for a fail slightly above or below the current all time high. SPX 5min:

It Can Always Be Different This Time (But Usually Isn't)

One thing that has caught my eye at the current retrace low is the bounce off broken megaphone resistance on the daily chart. I don't think that level is of great significance but it's definitely interesting that it bounced there. If we do see a resumption of the uptrend I'll be looking at that more closely. SPX daily chart:


The big news yesterday was that a daily RSI 5 & NYMO sell signal was triggered. This is the thirtieth of these sell signals since the start of 2007 and 20 of the previous 29 made the target at the 30 level on the daily RSI 5. For this and other reasons I am looking lower here, though given the RSI 5 close at 42 yesterday we could see that signal target made in the 2030s or even possibly the low 2040s as long as the low was sustained into the close. SPX daily chart:

Daily RSI5_NYMO Sell Signal

Main uptrend support at the 50 hour MA was broken at the open yesterday and SPX closed below it. Unless we are going to see a retest of the highs to make the second high of as double top I'm expecting that to be respected (currently at 2062) until the end of this retracement. As alternative topping patterns I have possible H&S necklines in the 2040 and 2030 areas. SPX 60min chart:


Thanksgiving week is typically bullish, but the week after is not. The chart below shows this very well and the stats for today are obviously bearish.
Mondays have been down 8 of the last 12, and that the first trading day of the month, for a long time a fairly automatic green close, has now been down 9 of the last 12. Altogether the historical stats are weighing in heavily against the bulls today:

The Week After Thanksgiving

I had been thinking that we would most likely see the end of the record run of daily consecutive closes over the 5 DMA today, but that happened at the close on Friday, ending the run at the new SPX lifetime record of 29 consecutive daily closes over the 5 DMA set at the close last Wednesday. That's an all-time record for the last 91 years of SPX data. SPX daily 5 DMA chart:


With Thanksgiving here I'll mostly be catching up with paperwork over the rest of the week. The globex action this morning has been very interesting and profitable, but my expectations for the rest of the day aren't high.

SPX turned in a 28th consecutive daily close above the 5 day MA, and though I've only been able to check this myself back to the beginning of 1962, I understand that is a new lifetime record for SPX since 1923, beating out the previous record of 27 closes above set in (cough) 1928. I'm certain that this move here is at least as much a sign of a healthy bull market as the 1928 record was, and would note that SPX doubled in value in the months after that last record was set, though there was some bearish action after that. At some point this record-breaking run will have to end, but this being Thanksgiving week might extend the run a couple more days. The 5DMA closed yesterday at 2060. SPX daily 5 DMA chart:

The Day Before Thanksgiving

If this wasn't Thanksgiving week the short term outlook would be bearish, with a broken rising megaphone and two nested double tops in play here. It remains to be seen whether bears can make any headway in this slow tape, but if they can I'm keeping an eye on the open ES gap at 2061.75 and strong support at the weekly pivot at 2055.3 ES and last Friday's low at 2054.75 ES. As I have the SPX 60min moving average currently at 2055/6 (SPX), this is the key support area short term. SPX 5min chart:


SPX closed above the 5 day MA yesterday and that took the number of consecutive closes above the 5 DMA to 27, which is a record as far back as my decent daily data goes back to the end of 1961. I was saying yesterday that this might be an all time record and Zero Hedge posted an article after the close yesterday confirming that, and adding that it equals a 27 day run in 1928. If we see another close above today then that would beat even that into a new SPX lifetime record.

There have been five previous runs of 20 or more closes above the 5 DMA going back to the end of 1961, and I've noted the stats on all of those for what happened after the end of the run in the short term, and also what happened over the next year. Those stats are on the chart but in summary the end led into a retracement of between 2% and 7% with the median retrace at 3.5%, and all of the previous five were up over the following twelve months, though as Tyler Durden noted, that wasn't the case in the case of the run in 1928. Even in that case however the market doubled again before it halved, so regardless history is telling us to expect more upside after some retracement. SPX daily 5 DMA chart:

Unquenchable Exuberance

The weekly upper band rose slightly more than I expected to 2079 and that is likely to be strong resistance this week. SPX weekly chart:


I've done more work on the daily closes over the 5 DMA stats this morning and taken these back to 1970, during which time there have been only five previous examples. On Friday SPX closed above this for the 26th consecutive day and matched the longest previous example during this period which was in 1986. As and when we see SPX close back below the 5 DMA we can expect a minimum 2%+ retracement there but otherwise the historical stats were not at all bearish and I will be talking about these more tomorrow. Meanwhile the stats are on the chart below. SPX daily 5 DMA chart:

Running The Numbers

SPX hit the weekly upper band on Friday. This can only rise at 7 - 10 points per week and tends to be very strong resistance on a weekly closing basis. This is likely to limit upside over the next few weeks though SPX may well ride the band upwards. It just isn't likely to be that fast. SPX weekly chart:


Yesterday morning ES tested the weekly pivot at 2035.5, and then SPX tested the 50 hour MA and then SPX was off to the races again. That 50 hour MA has held on five tests out of the last six trading days and until we see a break below it this uptrend is still very much intact. That first break below would normally also precede the main high, so that main high still doesn't look close here. SPX 60min chart:

Here There Be Dragons

I posted a chart on twitter last night showing pattern targets in the 2062-4 area and ES has exceeded that by quite a margin at the time of writing. If we see weakness on ES into the open the rising megaphone resistance trendline may yet hold as resistance. If (more likely) that ES gaps over it at the open then that's unlikely to be important today. SPX 5min chart:


Yesterday was the 24th consecutive close above the 5 day MA. This has only been exceeded by runs of 25 days in 1991 and 1987, though in 1987 one close on the MA might have been a whisker below. If we were to see another daily close above the 5 DMA then that would match the record back to 1980, and possibly for the SPX lifetime, as I've only looked back as far as 1980. This has been an amazing run. One thing I would note from the four longest runs since 1980 is that they all failed into modest bull flag retracements before continuing upwards. We may see this break down below the 5 DMA today and if we do, that's worth bearing in mind. SPX daily 5 DMA chart:

Signs of Weakness

If we do see a retracement today, and the open looks likely to be very weak, then the obvious target would be the daily middle band. That closed yesterday at 2015.5 and is likely to go as high as 2020 today. SPX daily chart:


Well the doji consolidation stats I posted yesterday gave 75% odds of a small retrace before (most likely) higher, but once again SPX took the lower probability path of the 25% chance of breaking up. It was a clear breakout candle so I have looked at the four of sixteen of these from the start of 2009 that broke up and the following days for these played out as follows:

  • Trend up day on day 2 for 1.5% gain. Short term high slightly higher on day 3
  • Modest gain on day 2. Short term high on day 4
  • Modest gain and short term high on day 2
  • Inside day in upper half of breakout candle on day 2. Short term high on day 4

Now this is only a sample size of four, but the lean is clear. These stats are suggesting that yesterday did not make a short term high, and that that a short term high should be made from today through Friday, and could be as much as 2% higher. Three out of the four closed green on day 2, and the fourth close was only slightly below the breakout candle close. The lean coming into today therefore needs to be bullish, though with the expectation that there should be a short term high this week that should then retrace into (75%) or near (25%) the doji consolidation area that SPX just broke up from.
What are the obvious targets above? Well my eye is drawn to the weekly upper band on SPX, which closed yesterday at 2064 and is within easy reach on any move over yesterday's high at 2056. Next big resistance is primary rising megaphone resistance, which I have in the 2080 area. SPX weekly chart:

The Path Less Travelled

Another possible upside target is the daily upper band at 2080. That's possible and would be a decent fit with rising megaphone resistance. Any higher on this move is most likely out of range. There was a clear break of the shorter term megaphone resistance trendline yesterday and that should follow through to the upside. I'm not treating this as a particularly significant pattern. SPX daily chart:


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