I was sorting out an issue with my sons' school this morning so today's post is both later and shorter than usual. Fortunately the setup really doesn't get much easier than the choice the market needs to make this morning.

The low yesterday was at the falling channel support I posted yesterday morning, and the low this morning retested that a little lower. So far that channel support has held. If it continues to hold then I currently have falling channel resistance in the 1937/8 area, not far below the daily middle band at 1946. That's a nice looking target area. The open 15min RSI 14 and RSI 5 signals support this rally scenario.

If the falling channel breaks down then the downside targets open up, and the path to a retest of the 1820 low opens up three to four days earlier than it would if SPX was to retest it within the falling channel. SPX 15min chart:


It has been a choppy few weeks, but on the weekly chart the whole period has been part of a weekly lower band ride that is now starting week 8. The weekly lower band closed last week at 1918 and SPX looks likely to open close to it.

The weekly 3SD lower band closed last week at 1849 and Stan and I are thinking we could see that level tested and possibly lower this week. SPX weekly chart:

Panic Low Retest Coming

In terms of the pattern structure here the overall decline is within a falling channel with channel resistance in the 1995 area and channel support in the 1770 area. A lot of these channels evolve into falling wedges, so we may well not see a test of channel support on this current move.


SPX only made the 23.6% fib retracement of the falling wedge that broke up yesterday, forming a bear pennant/triangle from the falling wedge low that has broken down this morning. This kind of retracement is indicative of a strong trending move and suggests also that the falling wedge is evolving into a larger pattern, which I am cautiously assuming is a larger falling wedge.

If so then falling wedge is in the 1907 area at the time of writing, and declining at about 14 handles per day. If hit this morning that would coincide with decent support in the 1903-11 range and we might well see a strong bounce there.

Longer term the full bear pennant target is in the 1860 area, which is a good fit with a retest of the panic low at 1867. Bigger picture falling channel support is currently in the 1780 area, and that may be the ultimate target for this move. SPX 60min chart:


I posted short term falling wedges on twitter last night, and these are 68% bullish of course. On the 68% bull option I'd be looking for a retest either of the daily middle band in the 1955 area, or on a break above that I'd be looking for a retest of broken rising wedge support, the 50 hour MA, and the 5 day MA, all in the 1969/70 area. SPX 60min chart:

Falling Wedges Testing Resistance

The daily middle band at 1955 should be strong resistance today, but that is daily closing resistance. A pinocchio through it intraday would be fine as long as the close is back under or at the middle band. SPX daily chart:


A few minutes after the close yesterday I tweeted an H&S target in the 1953 SPX area on a sustained break under 1986. With the large gap under the H&S neckline overnight, that's a target worth remembering today.

The market has now had a few hours to digest yesterday's revelation that the Fed is still as fearfully timid about even a slight push on the economic brakes as it is recklessly bold at flooring the accelerator at the slightest sign of trouble. Having climbed back onto my chair after falling off it with the shock of the announcement that the Fed is still too scared to raise rates by even 0.25% six years into this 'recovery', I've been looking at the impact of this momentous news on the pattern structures on the equity indices.

The good news for bears is that the setup is now a lot more obviously bearish. Both of the ascending triangles on SPX and Dow have evolved into decent rising wedges, the rising wedge on RUT has evolved into a bigger rising wedge, and TRAN may have too, although it might just be a bearish overthrow of yesterday's rising wedge. With no clear pattern on NDX (but a clear rising wedge on NQ), and an unchanged symmetrical triangle on NYA, this is now clearly leaning bearish. Scan 3x 15min SPX INDU TRAN charts:

Fed Shocks World

Scan 3x 15min NDX RUT NYA charts:


The bulls had an excellent day yesterday and broke back over the daily middle band. This opens up the upside on a further break over 1988-93 resistance, unless we see a rejection candle today that breaks back under the daily middle band. This would be a rejection candle and would normally reverse most or all of yesterday's breakout candle. The daily middle band is at 1960 at the start of today. SPX daily chart:

Bears Need Rejection

Is there a possible setup for retracement here? Yes, very much so. A rising wedge formed yesterday and broke down at the close. That's backed up by a 15min sell signal and sets up a retracement to the main fib retrace targets for the wedge which are in the 1970, 1966, and 1961 areas. I'm expecting to see that retracement and if SPX finds support at 1961 or above that holds today, then we see more upside and the full test of the 1988-93 area. If SPX drops under 1960 then I'd be looking for yesterday's daily candle to be mostly or fully retraced, and a close well under the daily middle band. SPX 1min chart:


Just for a change of pace today I'm going to do my SPX post without any SPX charts, as I think I can get the point across better with Dow and ES charts today.

Just to clear up one issue I'm getting every morning before I start, I'll just say that I am still expecting a retest of 1911 before a break over 1988 on the basis of my 5DMA Three Day Rule. Could this be the first failure since the start of 2007 on that stat from dozens of examples? Yes, in the sense that every instance has a possibility of failure, but I'm not seeing any strong reason to expect failure in this instance as yet.

The best formed triangle from the panic low is on Dow, so I'll lead with that today. The Dow triangle was breaking down slightly at the close yesterday, but that's not unusual in a triangle and may not be significant. If Dow breaks down hard today then the triangle target will be in effect at a retest of the panic low. If Down breaks up through the (red dotted) declining resistance trendline from the pre-panic rally high, then I'd be looking for a likely test of triangle resistance. That trendline has pinocchioed slightly at the open this morning. INDU 60min chart:

Significant Inflection Point Here

On ES (SPX futures, add ten handles at the moment for rough SPX equivalent level), a smaller triangle has formed within the larger triangle and should break up or down today. A sustained break up through triangle resistance, currently at 1954 and the weekly pivot at 1951.2 should deliver a retest of the last highs in the 1980 area, and the retest of the last high at 1988 on SPX. A sustained break below triangle support at 1936 should deliver a retest of the last low at 1899, and the retest of the last low at 1911 on SPX. I need hardly say that I'm leaning towards seeing the retest of 1911 SPX next but this could go the the other way. My stat doesn't exclude a test of 1988, it excludes a break over that level.

Anywhere up to that level is ok. ES 60min chart:

Significant Inflection Point Here

I'm expecting to see a break out of this inflection point level today, and am leaning 75%/25% towards that break being downwards. If this breaks up I'd be looking for likely failure at the retest of the last high at 1988 SPX.


I have no great love for triangles, as I've mentioned a few times before, and this year has produced a bumper crop across the equity indices, which is tiresome. We've been kicking around in the current one for three weeks now, and as ever, it has been an annoying bore.

So where do we start this week? Well everyone seems convinced that SPX is going to break up to a retest in the 2020-40 area, and I'm still very doubtful about that for two main reasons:

1. My 5DMA stat requires a retest of the 1911 low before a break of the last 1988 low. Could the stat fail to deliver here? Yes, any historical stat can fail, but having seen dozens of these 5DMA Three Day Rule setups since the start of 2007 I have yet to see one fail, and I'm not seeing any compelling reason to think as yet that the first fail will be here. From an odds perspective, if fifty solo lemmings leap off a cliff and drown, then the working assumption for the fifty first lemming leaping off the cliff should be that it will drown too. That isn't destiny, that's just math. As ever there is a possibility that it could go the other way, but most likely it won't.

2. On the six equity index charts below I have three ascending triangles, two rising wedges, and one symmetrical triangle. What these patterns have in common is that the targets on a break up would not be in the 2020-40 SPX area or equivalent. The targets are all close to retests of the current 2015 highs, except for TRAN, which would target a retrace back to the June highs, as TRAN has been declining since an early all time high last year. My doubt is therefore less that SPX may not want a retest of the 2020-40 area, and more doubt that on this pattern setup that SPX would reverse there if reached. The obvious target on SPX at that point would be at the retest of the all time high. The same would apply to both INDU and NDX particularly, with more room for lower highs on RUT, NYA and obviously TRAN. Scan 3x 15min SPX INDU TRAN charts:

The Year of the Triangle

In terms of judging when these setups are breaking I'm looking at the NDX chart, with gap resistance above and gap support below. Whichever of those gaps fills first is most likely going to be the breakout direction. Scan 3x 15min NDX RUT NYA charts:


I've had a lot of questions about the 5DMA Three Day Rule, particularly as SPX bounced yesterday, and I feel a need to explain my position here. This stat has somewhere between 40-60 instances since the start of 2007, and not one of those has failed to make target at the retest of the previous low, with 95%+ then making lower lows from there. Does this mean that I know that 1911 will be retested? No. Does this mean that I believe 1911 will be retested? No. I just consider that on the history, such as retest is very likely. No stat is perfect and one day this stat won't deliver I'm certain. The odds of that being this time however are low.

Nothing is certain. No-one ever knows what will happen. If you need to talk to someone who can talk with certainty and belief about the future then you need to be talking to a priest rather than an analyst, and that priest is unlikely to be telling you where SPX or oil will close tomorrow. Everything about the future in the markets is a matter of relative probabilities until it happens. The probability of this stat failing here is very low, but absolutely not zero. Anything can always go the other way. Nonetheless on the balance of probabilities I am expecting to see that test. SPX daily 5DMA chart:


The decline yesterday was a hard fail at the retest of the daily middle band on many indices, and the close yesterday, and the open today was significantly under the SPX 5 day MA. On my 5DMA three day rule stat we should now see a retest of the last low at 1911, and 95%+ a lower low there, before there is another test of yesterday's high at 1988.63. I have found no exceptions to this rule since the start of 2007 from at least 40 instances so I'm expecting a retest of 1911 soon, very possibly today. SPX daily 5DMA chart:

Daily Middle Band Retest Fails

If we see the retest of 1911 then Stan is looking for the next short term low in the 1880-90 area, and then most likely a large bounce there before new lows. SPX 60min chart:


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