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I posted a couple of charts on twitter last night showing the very interesting setup here on ES and SPX. The setup on SPX is the falling wedge that I've been showing in recent days and the double bottom with a target at 2054. I mention on the chart that the target area would be a 61.8% retracement of the falling wedge and that might be the top of the rally there, if indeed this is just a rally. SPX 60min chart (posted last night on twitter):

The Battle of the Middle Band

The ES chart I posted had an almost identical falling wedge, which is remarkable given that ES tends to have different highs and lows, and traded well over double the number of hours over the period that the pattern formed. What is different though is that the rather choppy rising wedge from Friday's low on SPX is a perfect rising wedge on the ES chart. This gives that chart a rather more bearish cast as rising wedges are 70% bearish. ES 60min chart (posted last night on twitter):

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Yesterday closed green but was nonetheless a significant technical fail for the bulls, as there was a very strong bottoming setup that needed the opening gap to hold, and it was filled within minutes with a strong rejection from the opening highs. Most of the subsequent dump was then retraced but it remains to be seen whether the bulls can recover back to that opening high at 2029.

If SPX can recover that far then the important resistance levels today are that high at 2029, falling wedge resistance at 2037, and main resistance is at the meeting of broken rising wedge support, the 50 DMA, and the daily middle band all in the 2045 area. SPX daily chart:

Tired Looking Bulls

If we are going to see a fail into new retracement lows from here, then yesterday's action set up a double bottom that could deliver that on a break below yesterday's low at 2004.49. SPX 60min chart:

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In the short term the possible opening gap over resistance that I was suggesting as likely is looking likely at the time of writing. If that persists into the open then the important thing to remember today is that the bulls most likely own the tape today unless the opening gap fills, in which case we might well see a very strong decline instead, and a new retracement low wouldn't be unusual. ES 60min chart:

Likely Breakaway Gap Over Resistance Take 2

CL has held long term rising support on a weekly close basis, though with a worrying intra-week pinocchio. The setup here looks pretty bullish and the next obvious target is main falling channel resistance in the 58/9 area. We would often see a retest of the lows at this stage and if we were to see that here then that might well set up a double bottom with a target in the right area for a falling channel test. I'd also draw your attention to the big RSI divergence which is suggesting strongly that a big low on oil is close or already made. CL daily chart:

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One of the first things that I mentioned on Friday morning was that it was important for bears to deliver a conviction break below the weekly middle band at 2014 to open up the next targets below. With the open at 1992 that didn't look that hard but the close at 2019 failed to deliver that important support break. SPX weekly chart:

Sound and Fury

On the daily chart the candle was a bullish engulfing candlestick, though Bulkowski doesn't rate these particularly highly, noting the high failure rate both the next day and over the next few days. In the context of the recovery over the weekly middle band though, it wasn't a good technical day for the bears.

There's more. I've mentioned before that when a rising wedge breaks down, the usual target of a full retracement only generally happens in the case of a substantial trend reversal. In the case of an ongoing bull trend the main targets are instead the 38.2%, 50% or 61.8% fib retracements, with the occasional 23.6%, and these are areas to look for signs of lows and combinations of these with other big support levels.

In this case we saw a very marginal new low on Friday, at the daily lower band and the 38.2% fib retracement, with a strong rejection at that marginal new low. It isn't pretty but there is also clear positive divergence on both the daily RSI 5 and NYMO, which on a strong enough further move up would trigger a daily RSI5/NYMO buy signal. SPX daily chart:

Sound and Fury

Are we going to see that strong further move up? Well there has't been much sign of that move since the globex open on Sunday but there are certainly reasons to think that there may be from a look at the 60min chart. The first thing I would note there is that I have now confidently identified the pattern for the decline from the high, and that pattern is a 68% bullish falling wedge, though I would note that stat also means that these wedges break down 32% of the time. The next obvious target within that wedge is wedge resistance in the 2041 area, and the wedge is mature enough that a break out from the wedge could be expected at any time.

Backing up the obvious next target is the W or double bottom that has now formed at the current lows. On a sustained break over 2021.35 this pattern would have a target in the 2054.58 area, and if that target was made then that would obviously be a break up from the falling wedge. SPX 60min chart:

Sound and Fury

Taken together what we saw on Friday was a combination of several things that I generally look for at a significant low, and that at least has to be taken seriously, even if I am highly skeptical about a substantial bull move starting from here.

Why am I skeptical? Well no-we one can know the future, and we could of course see a big break up, but the rising megaphone (called an ascending broadening wedge by Bulkowki) from 2011 (first chart in this post) is a 73% bearish pattern, and exactly the same applies in terms of targets after a break down from these patterns as I was saying above about rising wedges, so I'd expect a break down, then a retrace to the 38.2%, 50% or 61.8% fib retracement targets, with a possible fail in the 23.6% area. As the last hit of a megaphone trendline was the resistance trendline, the obvious next target is therefore wedge support, currently in the 1865 area. That is the obvious target for this retracement.

On the upside megaphone resistance, currently in the 2120 area, looks very solid. By itself it is a rarity to see a trendline like that break up, but this resistance trendline, shown on the monthly chart, goes right back to the 2009 low, having acted as support from the 2009 low to the 2011 high, and strong resistance since the 2011 low. I am very sceptical about seeing this solid and long term trendline break up, particularly with the increasing negative divergence on the monthly RSI 5 and 14 and the MACD threatening to cross bearishly for the first time since 2012. A break down through support would seem more likely. SPX monthly chart:

Sound and Fury

So what's the takeaway here? Well the immediate setup is bullish and the odds I gave for the four main scenarios here that I gave on twitter on Friday night were as follows:

20% - An immediate hard fail either without a break above double bottom resistance or shortly after that break. These fails are fairly common after bullish engulfing daily candles. A break down from the falling wedge would then target the 1880 area, which would be a good fit with the obvious retracement target at at megaphone support in the 1865 area.

40% - A break up to test any or all of falling wedge resistance in the 2041 area, the 50 DMA at 2046, the daily middle band at 2049 and of course the double top target at 2054.58. A break over falling wedge resistance can still just be a bearish overthrow under 2064.43, and on this option there is a hard fail under there at one of these resistance levels. A break down from the falling wedge would then target the 1880 area, which would be a good fit with the obvious retracement target at at megaphone support in the 1865 area.

20% - A daily close much over the middle band at 2049 or any break over the last breakout high at 2064.43 should deliver a retest of the current all time highs and possibly a marginal new all time high. There would then be a fail for there with a new slightly higher double top with a target that is again a decent fit with the obvious retracement target at megaphone support in the 1865 area.

20% - Divided between two options for a new bullish wave up, with half to a break over strong trendline and weekly upper band resistance in the 2120 area, and half to a slow crawl up under strong trendline resistance to a fail later in the year. The odds for this last option would be lower except for the reality that it has been a bad mistake to underestimate the bullish options in recent years. There is also the ECB meeting on Thursday, where it seems they may have found a way to do QE on a substantial scale without the Germans being on the hook in the event of further sovereign defaults in the Euro zone.

The strongest way to break up from the short term setup would be to gap over double bottom resistance and to push up strongly from there, That's not a guarantee of new highs of course though, as shown by the IHS that broke up in that way less than two weeks ago to make the 2064.43 high and failed either to make the full IHS target at 2069, or to hold the break over the IHS neckline more than a couple of days.

Source: Springheel Jack

Yesterday I was talking about the strong resistance overhead and what I was talking about was rising megaphone resistance from the 2011 low. That should be strong resistance now and in fact is even stronger than it looks, as on the monthly chart that resistance trendline is anchored at the 2009 low. I am not expecting that resistance line to be breached, with the possible exception of a bearish overthrow, until this rising megaphone has broken down and made target at a fib retracement in the 38.2% to 61.8% fib retracement range.

That's not to say that SPX couldn't rise further within this pattern, the pattern is rising by about 20 handles per month and would end this year in the 2350 area, I'm just saying that with strong resistance now in the 2120-30 area, and rising at only 20 handles per month, there can be no strong trend up move that would start here and last more than a couple of weeks. To get that sort of move SPX needs to retrace further to create some headroom, and ideally test or break rising megaphone support, now in the 1865 area.

We could see an important milestone in this decline made today if SPX can close well below the weekly middle band at 2014. If we see that conviction break then that would open up the 50 week MA at 1948 and the weekly lower band in the 1908 area as targets. SPX weekly chart:

What Can't Go Up ....

There is a significant level on the downside today as well and that is that, while ES has made new retracement lows in globex, that new retracement low hasn't yet been seen in trading hours. As long as that remains the case the gently rising channel that was established at the low on Wednesday remains unbroken, and the scenario I mentioned yesterday of making another new all time within this topping process remains open. A break of that low in RTH will kill that scenario, which would be reassuring. SPX daily chart:

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When I was presenting my mixed picture yesterday morning I wasn't really considering the possibility that both my bull and bear scenarios would then play out in sequence, but that's what happened with the bull scenario playing out and failing at the declining resistance trendline from the all time high, and then a hard rejection and break below the previous day's low. This was in effect an attempt to recover over both rising wedge support and the daily middle band and that attempt was crushed, again. SPX daily chart:

The Bottom Line

The wild action has continued overnight with a move to 1996.25 ES, then a 23 handle rally to 2019.5, and then a 34 handle plunge to the globex low at 1985.25. ES is rallying from there at the time of writing.

So where does that leave SPX today? Well obviously the bulls are having very serious performance issues and the fail at declining resistance yesterday gives two obvious trendline targets for the current move. The first is possible triangle support, and I have that in the 2000 SPX area. If that fails then the obvious target would be falling channel support, currently in the 1972 area at the retest of the December low. SPX 60min chart:

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The bulls had a very bad day yesterday, and on the daily chart there was a conviction break below the 50 DMA and the middle band, as well as breaks of lesser support at the 100 DMA and already broken rising wedge support. Generally speaking after a break of this kind I'd be looking for a touch of the daily lower band before another break back over the middle band, and if we are to see that then that is currently at 1975, just above the December low (and double top support) at 1972. SPX daily chart:

Mixed Signals and Oil Break

Also lost was support at the 50 hour MA. That's now at 2036 and I'll be looking for some resistance there this morning. There may be a falling channel now from the all time high and I'll be keeping an eye on that. SPX 60min chart:

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A surprisingly bearish day on Friday and I've been reading a lot of bearish commentary over the weekend. I'm not convinced, even though the close on Friday was certainly weak. The main points I took away from Friday's close were as follow:

  1. The high to low during the day was almost exactly a 38.2% fib retrace of the move up from 1992
  2. The close was one point below the daily middle band
  3. The close was on the 50 day MA
  4. The close was three points above the 50 hour MA
  5. The close was fifteen points above the 5 day MA
None of these look inherently bearish and while the bears may follow through and do some real technical damage today, I don't think they managed to do much damage on Friday. SPX daily chart:
Seriously Whippy
If the bears can take out the big support cluster for the close on Friday, they can do some significant technical damage by closing today well below the daily middle band (now at 2046) but the main target below has to be the open breakaway gap at 2025.90. As long as that gap remains open that was a very bullish break that strongly suggests a retest of the highs. Until that gap is filled I will be working on the assumption that at SPX should get to at least the 2070-80 area before the next significant decline begins. SPX 60min chart:
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SPX did an impressive breakaway gap up yesterday and almost made it to my IHS target at 2067. I have further targets in the 2084-6 area from the falling megaphone that broke up on Wednesday and the rising wedge from the low. SPX 15min chart:

So Now What?

On the 60min chart the obvious next move is to retest the high and if we see a failure there that would set up a double top targeting the 1880-90 area. Depending on the time taken to reach that target that might be a good fit with a hit of rising megaphone support on the main pattern from the 2011 low.

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This has been a strange week, particularly yesterday, but direction should become clear this morning, and unless the bears can dominate the first hour enough to fill the (currently +17) opening gap, then that direction is likely to be up to pattern targets starting in the 2067 area.

The situation here is unusually complex, but I'll break it down into the component parts to explain it. The bigger picture is of course the rising wedge from the 1820 low that broke down on Tuesday. Now the first thing I look for when a wedge like this breaks support is a topping pattern, generally either a double top or an H&S. I wasn't looking for one here because there is already a very decent quality double top formed here, but it seems that we may well be about to retest the highs in order to form another (smaller) double top here as well, or (less likely in my view but worth bearing in mind) to break up from this rising wedge with a target somewhere in the (cough) 2350 - 2400 area. SPX 60min chart

Likely Breakaway Gap over Resistance

The bull setup here, as posted by me on twitter yesterday afternoon, is that a falling megaphone from 2086 has formed and broken up. An IHS has also formed which would target the 2067 area on a sustained break over 2028. At the time of writing ES is suggesting an open in the 2042 area so that would be a big breakaway gap over IHS neckline resistance, which as long as that gap is not filled, is the most bullish way in my view to break over a strong resistance level. SPX 5min chart:

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