In summary the reason I was so doubtful was because although bulls had delivered the two main targets I'd been looking for on a bull break, namely a definite break back over the daily middle band at the close, and a break over declining resistance from the high, those breaks weren't really supported by much else.

Neither RUT nor NDX had even tested their daily middle bands and what troubled me most was the three perfect bearish patterns on SPX (megaphone), RUT (wedge) and NDX (wedge), that were all intact and none of which had even overthrown. One thing I really don't expect to see on a bullish break up is three perfect bear flag patterns on these three indices that I follow closely. Obviously that was casting the bull break into serious doubt.

Now I've mentioned before on a number of occasions that a break back through a middle band needs confirmation in the next time period, that being the next day on a daily middle band break. When these breaks fail they tend to fail with a strong reversal candle immediately afterwards that breaks back below the middle band with confidence, often retracing much or all of the previous candle. At the time of writing, it looks likely that we will see such a candle today, and that the daily middle band, currently at 2079, will break back down on the close today.

If so, does that mean that the bull case is then as trashed as most were assuming that the bear case was last night?. Well ...... no. There are three key levels that I'm watching here that bears need to reconvert  to resistance and they are first the ES monthly pivot at 2063.80, being tested at the moment and in the 2068/9 SPX area, then the ES weekly pivot at 2053.40 (2058/9 SPX area) and most importantly there is a candidate breakaway gap level at Monday's close at 2058.69, which is a good match with the ES weekly pivot but it needs to be borne in mind that the spread between ES and SPX tends to vary during the day, and that one is very much an SPX target. Once that gap is filled then the possibility of a bullish breakaway gap at yesterday's open is eliminated and bears just need to reconvert the ES weekly pivot to resistance to start the likely next leg down. Bears didn't deliver that today, but they need to tomorrow, or if SPX trades sideways tomorrow, Friday morning at the latest really. Ideally that support would be broken with a breakaway gap down through it tomorrow morning, though that isn't required.

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The tape was pretty uncertain yesterday and the flush at the close fixed 15min sell signals on RUT and NDX that had me very much wondering whether the rally had already topped out. Happily that wasn't the case and both SPX and ES are now close to a test of the ideal rally target at the daily middle band, currently at 2072.5 on ES and 2079 on SPX. That doesn't need to be tested exactly, the current AM high at 2075 at the time of writing would do just fine.

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The ES chart was capped before the globex open last night.

The rally that I was expecting on Thursday morning failed early, and it's possible that the one that started on Friday afternoon might do the same, but if it doesn't I am still looking for a right shoulder to form on the same possible H&S pattern that I was looking at on Friday. It's a decent looking setup and I've detailed the three main rally options on the chart below in my order of preference. The third option is a possible retest of the swing high at 2111, and I'd give that option only 20% odds here, mainly because I know that it's always best to keep the possibility of a retest in mind as an option. SPX 60min chart:

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The rally that looked very likely to happen yesterday morning never happened, with bears dominating the day and every promising looking start to a rally killed off quickly. How does that look this morning? Well it still looks very promising, but so far today the bears are also dominating the tape. Will there be a rally to set up a right shoulder for a larger H&S on SPX? Well there is a ton of positive divergence here, but the failure yesterday tells us that this market is trending strongly and that may persist through today as well. A strongly trending market (not talking about trend days) can just run over all counter-trend setups and divergence until the market is good and ready to turn. For today a break above the current HOD at 2051.53 would be a promising sign that a decent rally here might be possible.

For what it's worth the rally setup here still looks great, and the current retracement low on SPX is now a lot closer to the ideal neckline on that H&S, which is at 2034. We'll see how that goes today but SPX could just continue down, so any rally would be more interesting for the short entry at the rally high, than this possible long entry at what might or might not be a short term low. We'll see.

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I was concerned yesterday morning that SPX would fail to break down through the 1939 to 1945, and that failure there would likely lead to a significant rally. SPX made the H&S target at 2045 and that was the low for the day, leaving a a setup for a rally at the close that has reached as high as 2060 on ES overnight.

Looking at SPX, NDX and RUT I'm expecting that rally to go higher in trading hours today with the first obvious target at likely falling wedge resistance on SPX, currently in the 2070 area. On a break up from the falling wedge I'd be looking for a retracement into one of the 38.2% (2070 if over wedge resistance then), 50% (2077), or 61.8% (2085) fib retrace targets. SPX 15min chart:

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On the SPX daily chart the setup here is straightforward. The current SPX low is at 2047, very close to the H&S target at 2045. As the daily middle band has been converted to resistance the daily lower band is now a solid target at 2039, and that is supported by the 50dma at 2040. A break below these opens lower targets. SPX daily chart:

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Yesterday went almost entirely according to plan. All the short term buy signals that fixed on Friday afternoon made target, and SPX tested the broken H&S neckline and the 50 hour MA at the high. Where SPX went off script was the close slightly above the daily middle band, which caused some technical damage that needs to be repaired by a decent close back below the middle band today. At the time of writing that looks likely. SPX 60min chart:

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Well here we are. The rising wedges from the February low on SPX, RUT and NDX have all broken down now, and today is the first trading day of the most historically bearish part of the year running through to the end of October. Most of this week leans bearish historically as well, apart from today, with Dow up 13 of the last 18. With Friday closing on multiple short term buy signals I'm looking for rally today and maybe tomorrow, and for the downtrend to resume after that. Tuesday and Wednesday are the cycle trend days this week and at least one of those should be a trend down.
SPX gapped down on Friday though the daily middle band and never filled that gap. Daily middle band support has been broken. The daily RSI5_NYMO sell signal made target, not far from where it fixed, but the daily RSI 14 sell signal that was brewing has now fixed. After a likely rally / consolidation here, SPX should continue down. SPX daily chart:

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I posted the chart below on twitter last night showing the falling wedge that has formed on SPX from the current swing high, and commenting that this setup will usually be a bull flag that would resolve up into at least a retest of that previous high. I considered the various aspects of this setup and gave 80% odds in favor of a retest of the current 2011 swing high.

However I did note that when a setup like this does break down then that would often take the form of a breakaway gap down through support that was not filled. SPX has gapped down through daily middle band support at the open today, and that gap has not yet been filled. If this is a serious support break then that gap most likely won't fill. If it does fill and we see a daily close today at or over the daily middle band (currently at 2075/6), then support will have held and that would strongly favor a retest of 2111 next week. SPX 60min chart:

Gap And .......

SPX daily chart:

Gap And .......

ES Jun 60min chart:

Gap And .......

Everyone have a great weekend :-)

Source: Springheel Jack

That was a very nasty bull trap last night. As the markets closed yesterday the IHS that I was looking at on ES yesterday morning had completed and broken up and SPX closed back above the 50 hour MA. I did note on the ES chart below last night that the breaks needed to survive the night, and they didn't do that, with ES invalidating the IHS and making a new retracement low in globex.

So what now? Well that was a failure at resistance and next up is to see whether SPX and ES can break support. The globex low was at a test of the daily middle band on ES and I'm expecting to see a test of the daily middle band on SPX in trading hours today. Support on SPX is very clear, with a possible sloping H&S neckline in the 2078 area, the current retracement low at 2077, and the daily middle band at 2075. If SPX can sustain a break below these then the H&S target is in the 2040 area, the daily lower band is in the 2035 area, and I have possible larger H&S necklines in the 2030 and 2020 areas that I'd be watching for possible support. SPX daily chart:

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