Back on the morning of Tuesday 7th July I drew the arrows below on the SPX daily chart as a possible path for the strong rally I thought we were likely to see in the near future. The rally went a little higher than I expected, but so far that has been a pretty decent guide for the market action since then. Have we therefore now seen a significant high? Maybe, but we'll need to see whether bears can break back down below 2044 to trigger the double top target in the 1954 area. In the short term I'm looking for a topping pattern here to take SPX lower to an area from where we might see that double top support test. SPX daily chart:

shj chart

How's the chart I posted yesterday looking? Well SPX broke below the 50 hour MA yesterday and established a short term floor at 2110. If that holds then I'll be looking for a retest of the highs before another leg down towards the 2086-8 area on a break back below 2110.


SPX is finally retracing from a rising wedge from the last lows. I'm not expecting a huge move here as this looks more like the first move down to establish short term double top support. SPX looks likely to gap under 50 hour MA support at 2115 and there is then strong support in the 2099 to 2103 area. Both the 38.2% fib retracement and very attractive looking possible rising channel support (blue dotted trendline) are currently in that area and we might well see that tested in the morning before a strong rally. SPX 60min chart:


Another day of grinding up yesterday and it's possible that we'll see the same today, though Dow has been down nine of the last fourteen July Opexes and SPX has been down six of the last seven Fridays. If not today, then the historical stats for Monday are bullish and the stats for Tuesday and Wednesday next week are bearish.

The optic run charts are now more clearly bearish than they were yesterday. There are now well established resistance trendlines on SPX, INDU and TRAN, and I have sketched in possible channel support trendlines for the coming retrace, if we are seeing channels form rather than wedges or megaphones. Scan 3x 15min SPX INDU TRAN charts:

July Opex

I have a decent looking rising wedge on NDX, nothing worth mentioning on RUT except a possible double top forming & not much reliable on NYA. All indices except TRAN have made their double bottom targets and made their buy signals targets. All indices except NDX have possible 60min and/or daily RSI 5 sell signals brewing. Scan 3x 15min NDX RUT NYA charts:


On Tuesday last week I put forward a favored scenario for a strong rally that would make a high in the 2115-20 area. The following day I noted the strong daily buy signal that had fixed, and on the Thursday I called the double bottom with a target at 2123. Looking at ES that 2123 target may be made at or near the open today.

Quite a few of you will have read those posts as SPX was testing the 2040s, and those of you that didn't think that I was having bullish delusions most likely thought that was a credible bearish scenario. Fast forward to today and almost everyone is seeing this as a bullish breakout that will likely result in new highs. That was always a possibility of course, but has anything actually changed in the interim apart from the big rally that I predicted having now happened? I drew the arrows on the daily chart below on Wednesday last week and as you can see, SPX is pretty much where I was expecting then. SPX daily chart:

Inflection Point Test

Looking at my optic run indices they are ambiguous about a big fail here, which does improve the chances that the high will be retested. Most of them were also showing clear flaglike setups after the retracement yesterday afternoon so the gap up today isn't unexpected. Scan 3x 15min SPX INDU TRAN charts:


The move up this week hasn't gone quite as I expected. As I said on Monday morning, there were and are 90% odds that the triangle that broke up on Friday would make a thrust out that would be fully retraced within days back to, depending on the draw, at least the 2080-5 area. I was expecting that retrace on Monday or yesterday, to be followed by another move up, but it hasn't happened yet.
There is obviously a 10% chance that the triangle retrace won't happen of course, but 90% odds are really pretty high so I'm assuming that we will see that retracement until demonstrated otherwise.

On the daily chart, the RSI5_NYMO buy signal made target yesterday and if we are to see a retracement then the obvious target is a retest of the daily middle band in the 2090 area. On a bull scenario we would go through that intraday and close the day back over it. On the bear scenario SPX would close back under the middle band, and not come back anytime soon. SPX daily chart:

The Triangle Issue

The 60min (RSI 14) buy signal also made target yesterday, and some weakness this morning would fix a 60min RSI 5 sell signal. SPX 60min chart:


Today I've done an optic run of the 15min charts of the main US indices to get an idea of how the next few days are likely to develop. I've discarded the smaller SPX double bottom that I've been showing as a possibility, and the bottom line is that of the six double bottoms on these six indices, not one has yet made target. Given that SPX, Dow and NDX have already broken the 61.8% fib retracements the obvious conclusion is that the falling wedges that broke up on five of the six indices below are full reversal falling wedges, with targets at lower lows from the previous highs or tests of those highs.

The SPX double bottom target is 2123 is a good fit with that scenario. Neither of the daily RSI5_NYMO or 60min buy signals are close to making target yet, so that backs up a scenario where the short term high is not imminent. Scan 3x 15min SPX INDU TRAN charts:

Optic Run

Scan 3x 15min NDX RUT NYA charts:


I was hoping that we would see much or all of the move to the triangle target on Friday as otherwise I feared that SPX would gap up into the target on Greek news. Annoyingly that's what happened so the Greeks ate my lunch again.

Is the Greek negotiation saga finally over? Well maybe. The deal struck however is harsher than the one rejected by the Greeks in their referendum two weeks ago, and it remains to be seen whether Tsipras can sell it back home.

Is this a good deal for the Greeks? Not as far as I can see. As far as I am aware almost all the money will go to paying interest and rolling over existing debt. The Greek economy will continue to be sacrificed on the Euro altar, when the truth is that the best way for Greeks to start on the road back to prosperity is to default on the huge debts that they can never hope to repay, leave the Euro and make a new start outside the Euro straitjacket. In the meantime Greece is like the ancient Greek mythological villain Tantalus (possibly the inspiration for the fictional Dr Hannibal Lecter), who was damned in Tartarus to be in eternally close proximity to food and drink that he could never reach.

Tantalus Ate My Lunch

On SPX the triangle target was made at the open, and the larger falling wedge that broke up on Friday has now retraced 61.8% of the falling wedge move. The key resistance zone that I was looking at on Friday morning runs from the daily middle band at 2088 to the 50 DMA at 2099, and the HOD at the time of writing is at 2097.87. This could be the high or close to the high of the current move, and when this thrust up ends we should see shortly afterwards a full retrace of this thrust back into the 2075-80 area. SPX 15min chart:


Well this is all looking familiar. Yesterday closed down hard after a day of relentless selling with a close just under the 200 DMA, and SPX is looking set up to gap up big overnight. Is it Groundhog Day? No, I don't think so, though the similarity is certainly very striking. At the end of the day though yesterday was just a very odd looking inside day, with no break either of Wednesday's high or low, SPX daily chart:

Not Quite Groundhog Day

The inside day is part of a triangle which it is now obvious that SPX has been forming for much of the week. This means that the double bottom that I was looking at yesterday morning is still in play, but there are now two other pattern targets lower, both of which are higher probability. I'm expecting a break up and the targets for that are on the chart. In the less likely event (IMO) of a break down, then the triangle target would be in the 2015 area, which is a match with the H&S target I posted last week. After the thrust out of the triangle there is then a better than 90% probability (Stan's stat) that the thrust will then be fully retraced in the next few days, which favors a fail at one of the 2093 or 2103 targets, in effect either a fail at the daily middle band of the 50 DMA. SPX 15min chart:


I posted a chart on twitter last night showing the falling megaphone that formed during the day and the triangle that formed and broke down near the close. What happens to a short term pattern like this overnight? Well that rather depends on where the open is the next day. If there is no gap then the pattern will often play out as though it had never been interrupted. If the market gaps away hard then the pattern becomes irrelevant.
Back in the old days you'd have to wait until the open to find out whether the pattern was a fine carriage or just a pumpkin, but nowadays the futures can tell us which is more likely and this triangle, sad to say, is going to be a pumpkin.

That leaves us with the 79% bullish falling megaphone, with a likely gap up over megaphone resistance and with ES at 2061.5 at the time of writing, possibly having made the full pattern target in the 2068 SPX area as well. SPX 1min chart:

Schrodinger's Pumpkin

So where does that leave SPX this morning? Well I was saying near the lows yesterday that I was expecting the move to make the second low of a double bottom that would target the 2123 area on a break back over 2084.  That scenario's obviously still looking pretty good this morning and the next step would be for bulls to test double bottom (and range) resistance in the 2083-5 area and see if they can break it. We may in any case see a bounce off that level at the first test today unless this is a gap and go trend up day. SPX 60min chart:


For me yesterday was possibly the most fun day of the year so far, and had the low of the day just continued down another three ticks on ES to test the globex low at the open on Sunday, would have come close to perfection, as I had a buy order there. It seems fairly obvious, Greece headlines permitting, that SPX is going with my preferred option that I laid out before the open yesterday and both the daily RSI 5 buy signal, and the strengthened 60min buy signal, that I was talking about as possibilities in that post had fixed by the close yesterday.

ES fell hard overnight but the rising wedge that formed from the lows yesterday was obviously topping out by the end of the day. I'm looking for a retrace into one of the main fib retrace targets which are the 38.2% fib at 2068.57, the 50% fib at 2063.88 and the 61.8% fib at 2059.19. On a move significantly below 2059.19 I would be wondering about a possible full test of yesterday's low. SPX 1min chart:

Daily RSI5_NYMO Buy Signal Fixed

I was looking for the stronger 60min buy signal and daily RSI 5 buy signal but what surprised me somewhat was that there was also a NYMO buy signal, delivering a very strong daily RSI 5_NYMO buy signal. I've talked about these before and these are very reliable signals indeed. No signal is perfect though and the biggest fail in recent years was the one of these that fixed in the powerful rally in early October last year the day before the main decline into the October low started. We do therefore need to see some follow through to confirm this signal, but it's a strong indication that SPX may indeed make the rally into 2119 that I was talking about yesterday morning. SPX daily chart


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