The NFP figures this morning were a decent beat and the US unemployment rate is now back down to 7%. Even though the Fed is clearly very gun-shy about tapering they may well feel that if they still don't taper now then they will lose a lot of their remaining credibility.

Will tapering actually matter much? In perception terms perhaps, but if QE is reduced by a few billion per month one has to wonder how much practical difference that would make. There is still likely to be a lot of QE coming into markets for quite a while yet regardless.
For today the bull and bear scenarios that I put forward yesterday are still both in play. On the bear scenario a slightly upsloping H&S is forming and the ideal right shoulder high would be in the 1802.5 SPX area today. On a move over 1805 this scenario would become steadily less likely. SPX 60min chart:

Two Chart Post

The bull scenario is that a sustained break over 1799.80 will trigger a double-bottom target in the 1820 area, and we may well see a gap up over 1799.80 at the open which would be suggestive of a gap and go trend up day setup. SPX 15min chart:


SPX tested the daily middle bollinger band hard yesterday but closed above it.

My main target support level is at the daily lower bollinger band and to make that is going to require a close below the middle bollinger band, ideally this week but possibly as late as next Monday. Meanwhile this area is an important inflection point and I have both bull and bear scenarios in play here. SPX daily chart:

cp 12-5-13

The bull scenario here is that the low yesterday completed a 50% fib retracement of the move up from 1746. On a sustained break over yesterday's high at 1799.80 SPX a decent falling megaphone would break up with a target back at the highs, and a larger W bottom would break up with a target in the 1820 area, very close to the daily upper bollinger band at 1819.5. This isn't my preferred scenario but it is very much in play and a sustained break back over 1800 should be respected. SPX 15min chart:


I'm going to have a quick look today at the trendline and bollinger band backdrop to the retracement this week.

At the high last week a tentative rising channel has now been established from the October 2011 low. This is important because as long as this channel lasts the next obvious move will be to test rising channel support, currently in the 1575 area. It is also important because since the October 2011 low two large rising wedges have formed and broken up with targets in the 1930-65 area, but if this larger rising channel holds then both of those patterns and upside targets will be superseded. That's not to say that SPX wouldn't reach those levels later in any case, but those targets would no longer be active pattern targets.

There are two important trendline support levels on the way back to channel support, and the first is at the retest of broken resistance on the rising wedge from the June low at 1560. That is currently in the 1755-60 area and is a decent fit with the daily lower bollinger band, currently at 1754. If that level is taken out with confidence then that rising wedge target will be greatly weakened and a path would open up to the second trendline support level which is rising support from the 1560 low, currently in the 1690 area. SPX daily chart from October 2011:

Trendline Overview

On the shorter term daily chart the low yesterday tested the daily middle bollinger band and it's possible that this retracement could fail there. If so then we would now see a break back up towards the daily upper bollinger band, currently at 1820 but until we see a break back over the weekly pivot on ES at 1805.1 I'm expecting more downside, with the obvious target at the daily lower bollinger band, currently at 1754. SPX daily chart:


I've been in Dubai over the holiday weekend and this morning I was taking this photograph from the observation deck on the 124th Floor of the Burj Khalifa (Khalifa Tower), which is the world's tallest building. There was quite a view and this was my favorite photo in part because the sun was behind and you can see the shadow of the tower cast over the comparatively tiny structures below:

looking down

SPX too is looking a bit toppy this morning and the late plunge on Friday has me expecting that we will see more weakness this week. The areas that I will be watching today are the possible H&S neckline at 1800 and rising support from 1746, currently at 1797. Until the latter is broken I am expecting to see retracement this week but won't be taking it for granted. SPX 60min chart:


I'm packing for the long weekend and travelling today, and many others will be doing the same, so volume into the end of the week is likely to be feeble. I will just post one chart today and this will most likely be my last post until Wednesday 4th December, though I'll most likely post the odd chart on twitter between now and then.

The main thing to watch today is the bear setup on SPX, which may or not play out obviously, but will command attention if SPX can take out yesterday's intraday low at 1800.77. The smaller double bottom marked would target the 1793 area on that break, and a test of rising support from 1746 in that area. If that were to break then next serious support would be at 1777. On a break below 1777 the larger double-top would trigger with a target in the 1746 area for a full retracement of the latest move up. SPX 60min chart:

Packing for the Weekend

I've mentioned a few times that the punch over the weekly upper BB on Friday 15th November should deliver a 4% retracement starting soon, and I have a decent looking topping setup right here as it happens.

On the SPX 60min chart that is a possible double-top at the high yesterday that would target the 1746 low (and possible H&S neckline) on a break below the last low at 1777.23 SPX. It may not deliver, or we may see another retest of the highs before it delivers, but this is a nice and classical reversal setup after last week's break below rising wedge support from the 1646 low. It's worth mentioning as well that 1746 would be an almost perfect 38.2% fib retrace of that move up from 1646. Just sayin '. SPX 60min chart:

Looking for Retrace Soon

Looking at ES there is obviously a possibility that we may see a retest of the highs before any short term high is made. If so I'd be looking for reversal there. If the short term high has already been made then I'd be seeing a break below yesterday's low at 1798.5 ES as confirmation that the short term high is in. ES 60min chart:


Back on the 30th June, with SPX at 1606, I did a weekend post arguing the case for a move to a rising wedge target in the 1965 area. You can see that post here.

That target looked ambitious then but as SPX has since risen over 200 points into the likely opening print today, that target no longer looks particularly ambitious. From a pattern perspective the only thing that would negate that target would be if that wedge turned out to be part of a larger pattern, and the only likely pattern would be an overall rising channel from the October 2011 low. There are a couple of possible alternates for that trendline but the ideal and highest trendline target would deliver a perfect rising channel, and that target looks to be in the 1810 area today. Here is that channel on a chart showing the major patterns formed since that October 2011 low. SPX daily chart from October 2011:

Big Inflection Point Week

SPX close within two points of both the weekly and daily upper bollinger bands on Friday, so I would count that as a close on both bands. In the event that we see a strong week on SPX this week,l and that SPX can break above strong trendline resistance in the 1810-12 area, then I have the maximum closing range for the weekly upper bollinger band in the 1815-20 area this week. SPX weekly chart:


Before I start today I'd like to nominate my pick for best chart of this week posted by anyone anywhere, and that was the RUT 15min chart that I posted on twitter on Wednesday night.

The version updated to yesterday's close looks like this. RUT 15min chart: 

Higher Probability Paths
Obviously the falling wedge on SPX broke up yesterday and the break below on Wednesday afternoon was just a bullish wedge underthrow, so the bizarre possibility I raised yesterday morning that bears might have overridden a strongly bullish scenario turned out not to be the case. The target for that falling wedge is at a retest of the highs and we may well see that happen today. SPX 5min chart:

Something very unusual happened yesterday.

There was a strong bull setup that ended the day looking as though it may have been steamrollered by the bears. That will need confirmation today, and might well not get that confirmation, but if it is confirmed it will be an impressive show of strength from the short side here. 

That setup was the falling wedge that I posted on twitter last night showing what may well be that 70% bullish wedge breaking down. The break downwards may just have been a strong bullish underthrow and if so we should see a break over wedge resistance in the next day or two and at least a test of the highs shortly thereafter. If SPX should dip back below wedge support today however, then most likely that wedge is breaking down with a target in the 1765 area and, as I said, that would be the most impressive bull setup failure that I have seen in quite a while. SPX 5min chart:

Dogfight at 1780 ES

So which was is this going to break today? There has been a strong recovery on ES overnight, and at the time of writing ES has recovered back over the weekly pivot at 1781.8 and retested that as support. ES has also recovered back over the 50 hour MA at 1784 and as long as that can hold as support the bulls are in with a shot today. I would put key resistance today at declining resistance in the 1791.5 area and the key support that the bulls need to hold at the weekly pivot at 1781.8. ES 60min chart:

Dogfight at 1780 ES

I have been using RUT as my canary in the coal mine over the last few days and while the setup on SPX gives the technical edge to the bear side in my view, the setup on RUT is strongly bullish. RUT broke up from a falling wedge yesterday morning and then returned to put in the second low of a possible double bottom at the afternoon low. It has formed a strongly bullish double-tap reversal (DTR) that I have pointed out and explained on the chart. As long as yesterday's low holds this is a strongly bullish setup. RUT 15min chart:

Dogfight at 1780 ES

Even if we see the highs retested and new highs made, I'm expecting a strong retracement soon and on the weekly chart that should be a decline of 4% or more as I explained on Monday after the punch over the weekly upper bollinger band on Friday. That would be a decent fit with a test of the weekly middle bollinger band, currently at 1708. SPX weekly chart:

Dogfight at 1780 ES

If we do see a break downwards today, I mentioned that the wedge target would be in the 1765 SPX area, a decent fit with a test of the daily middle bollinger band at 1771. The support level to watch however would be the 1650 SPX level, at the broken rising wedge resistance trendline from the June low that was retested at the last low. That would be a decent fit with the daily lower bollinger band which will soon hit the 1650 area, and is in my view the key resistance level below. As long as the bulls can hold the 1750 area they remain in control. if the 1750 SPX area is lost then a lot of potential downside will open up. SPX daily chart:

Dogfight at 1780 ES

I was asked overnight what my thought on TLT were after the strong move down there yesterday. I posted a TNX chart two days ago with the comment that I was expecting a strong move down on bonds (and up on bond yields) over the next few months and I suspect that is now starting. I'll be posting a TLT chart on twitter after the open. Gold also appears to be starting a serious move downwards and I'm expecting to see the whole precious metals complex carried down with it. I've been posting the perfect falling channel on GDX regularly in recent months and am posting it again today to show that this next move down may cut GDX by a third and undercut the late 2008 low at 15.48. Don't be long GDX unless that channel breaks up until at least the test of the 2008 low. GDX weekly chart:

Dogfight at 1780 ES

This will be an important day technically and could go either way. As long as the bulls can hold first the 50 hour MA on ES, and secondly the weekly pivot at 1781.8 I will be leaning cautiously bullish. Bears want to kill support at both and break back below the SPX falling wedge, at which point the advantage would be strongly back with the bears.

Source: Springheel Jack

I'm expecting to see a short term high soon, and that might turn out to be a very significant high that will last months.

Generally before a significant high we would see equities test the water, as it were, with a first decline before the main high. I suspect strongly that is what we are seeing at the moment, so I'm expecting this move to have limited further downside and to be followed by (probably marginal) new SPX highs in the near future.

On ES a decent quality falling wedge has formed from the recent high. I have resistance at 1788/9, with the 50 hour MA at 1788 and falling wedge resistance at 1789. Support yesterday was at the weekly pivot at 1781.8, and I have falling wedge support just under 1780. There is a possible double bottom forming that would target 1799 on a break over 1790.5. ES 60min chart:

Falling Wedge on ES

SPX closed well below the daily upper bollinger band yesterday, but of course the upper band was still tested intraday. If we see a day without such a test today then there will be a strong case for a test of the middle band, currently at 1769. SPX daily chart:


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