I was saying on Thursday morning that predicting the direction on a cycle trend day was a very chancy business and so it was on Thursday. Despite tiny up volume at the open on Thursday the low of the day was in the first few minutes, and while it wasn't a trend up day, buyers dominated the tape until the close. Thursday was an excellent example of a cycle trend day that wasn't a full trend day in all respects, very much including the unexpected direction.

Moving onto today, the first thing that I would note from the SPX 60min chart is that the very important 50 hour MA was gapped through on Friday and was retested as resistance at the open today. That's in the 2040 area now and a decent break back over that would open a retest of the current rally high at 2056.60. That would most likely make the second high of a double top though it might go a little higher in that event of course. If the 50 hour MA holds as resistance today, then on a break below Thursday's low I would have an H&S target in the 1990 area, and would be watching the possible larger H&S necklines in the 2005 and 1970 areas. SPX 60min chart:

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I was saying a couple of days ago that topping processes tend to start with a hard spike down and here we are. SPX and ES broke their rising wedges yesterday and then spent most of the day testing the strong support in the 2035 area that I mentioned in the morning. That has broken overnight and as long as that holds as resistance today, that opens up the downside towards the obvious targets at the big support levels and possible H&S necklines in the 2005 and 1970 areas. SPX 60min chart:

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I've been waiting patiently for the rising wedges on SPX and ES to confirm this week with tests of the wedge support trendlines and both have been tested and held so far this morning. It may be that these will hold today and if so, then we might well see a retest of yesterday's highs.

If wedge support breaks then there is quite a bit to suggest a trend down day today, though nothing fixed as yet. A support break like this would often go directly into a hard spike down, there is an open SPX 60min RSI 14 sell signal that is nowhere near target, the up volume so far at 16% is very low and at a level often seen on trend down days, and the short term buy signals that fixed at the first lows this morning are showing no sign of making target so far. On trend days most or all short term counter-trend buy or sell signals tend to fail. We'll see.

My bull/bear level for today is conversion of the ES weekly pivot at 2026.40, so about 2035 SPX. If bears can convert that to resistance then we likely trend down towards obvious targets in the 2020 and 2000 areas. That kind of move would start off a topping process here very nicely. SPX 60min chart:

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It is highly likely that SPX is close to the rally high here, or has made it already, and that at minimum SPX should now be the topping process for that rally. As well as the various patterns and divergences a 60min sell signal fixed at the open this morning, and the volume spike seen on Friday tends to be the market equivalent of the 'black spot' at predicting the imminent death of short term trends.

On the daily chart below there are nine previous instances of this kind of volume spike, and all of them were at or slightly before a significant high or low. The smallest move after the high or low was made on any of those nine instances was 80 handles on the bounce in December 2015.

Of the five previous examples before significant lows, four of those involved more than one volume spike before the turn, but all four previous instances before a high needed only one volume spike day. Three of those made the swing high that day and the other made a marginal new high four days later just 15 handles higher, before dropping over 100 handles in the five days after that. SPX daily chart:

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The ES weekly pivot is at 2025 this week and that is in the SPX 2034 area. I'm leaning towards a test of that area today or tomorrow morning because this generally gets tested during a trading week, and the RSI sell signals on the 15min chart and the RSI 5 sell signal on the 60min SPX chart are suggesting that we likely see that test in the next few trading hours before any significant further upside progress.

Longer term though there is currently no negative divergence on the 60min RSI 14 or on the daily chart RSIs so that is suggesting that the rally high is not yet in. SPX 60min chart:

Some Retracement Likely Today
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One thing you can generally count on after an FOMC that has moved the markets significantly, even when the news has been as huge as (ahem) Yellen's announcement yesterday that the four proposed interest tiny rate rises this year (that were never likely to actually happen) have been scaled down to two proposed tiny interest rate rises this year (that are never likely to actually happen), is that within 24 hours there should be a 'Return To The Scene Of The Crime' retest of the level before the news event. That level is at 2002 are there was a determined attempt to reach it overnight. Decent odds that we see that retest today:

Returning To The Scene Of The Crime

The short term setup at the close yesterday was pretty bearish, as you can see on my SPX 15min chart. There's a similar setup on NDX. This was one of the fifteen or so Wednesday update charts that I did last night for subscribers at theartofchart.net, and the wedge support test was at the 2014 level at the close last night. Obviously that trendline is rising so a test this morning would be at a lower level than a test this afternoon. SPX 15min chart:

Returning To The Scene Of The Crime

The main channel support trendline on SPX closed the day yesterday in the 2008 area, and that is rising at 9-10 handles per day. The top priority for the bear side this morning is to break that trendline. If it can be broken then I would be reading this as a likely rising wedge break, as an alternate possible wedge resistance trendline has been established and would be confirmed on a break below what would then be wedge support. A powerful daily RSI 5_NYMO sell signal is brewing on the SPX daily chart now but bears need to deliver some support breaks before it can fix. SPX daily chart:

Returning To The Scene Of The Crime

Today is a cycle trend day, so there are 70% odds that the day will be dominated by either buyers or sellers, though this does not always mean a full trend day up or down. As this is an inflection point it is particularly important to both sides to try and capture the day. The bears start with the advantage today. We'll see if they can manage not to drop the ball.

Source: Springheel Jack

FOMC is the big wild card today of course and it seems fairly clear that the market isn't expecting a rate rise for quite a while. I suspect that's exactly right but that is the likely reality rather than the perception. From the Fed perspective they have at least demonstrated last year that they can remember how to raise rates, and the credibility from that tiny uptick then gives any barking they do now about the possibility of them biting again with another tiny rate rise at least some credibility. The guidance given before this meeting today suggests that Yellen will be talking tough today on possible interest rate rises coming and if she follows through on that guidance then there may be a negative market reaction at 2pm. We'll see.

SPX didn't make the obvious target at the 2000 retest yesterday and isn't showing much sign so far of testing that today. Rising channel support close yesterday at 2000 so unless that test is in the first 90 minutes today that test would then be below channel support. That said, the rising channel on RUT broke down yesterday and I'm not expecting the SPX rising channel to survive the end of this week.

SPX 60min chart:

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SPX is doing the retrace I was looking at yesterday morning and I have a small double top target in the 2000 area, with possible support on the way in the 2003/4 area at the weekly pivot. Unless bears can convert the weekly pivot to resistance, and then break rising channel support in the 1990 area, then I'm expecting this retrace to be a final retrace before the move to the possible rally high, ideally under the 2035 SPX ceiling that I was talking about yesterday morning, but possibly just a retest of yesterday's high at 2024.57 and marginal new high, before at least a strong retracement and very possibly a rally high. SPX 60min chart:

The Low Before The High

ES Jun 60min chart:

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I've been working on various charts over the weekend and the first thing to mention today is that both of the rising wedges from the lows on SPX and RUT have now evolved into rising channels. That means that while there are still good reasons for both to reverse back down in this area, that there is no longer a pattern reason to expect either to be topping here, and on a sustained break over the current resistance areas on both, then there is another obvious target area above on both. I'll walk through the levels on each below.

On SPX resistance here is at the 200dma at 2020, the monthly middle band at 2032, and the 50 week MA at 2033. On a sustained break above these the obvious next target area would be around the IHS target in the 2082 area, which would be a decent match with the daily upper band, now at 2075. SPX 60min chart:

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That point is that on the three indices that I chart in detail on both RTH and their futures equivalents, the rally has delivered much the same pattern setup, albeit with them at slightly different stages. Mother duck, as it were, is SPX/ES, leading the others in this rising wedge that has broken down, formed a bull flag channel or megaphone for a likely retest of the high as part of a topping pattern, and then broken up from that flag. NDX/NQ and RUT/TF, the ugly ducklings trailing behind, both also need a retest of the high and likely marginal new highs to complete the structure. Neither are too far away now, but if they do that SPX may well be driven up into the 2020s. ES Mar 60min chart:

The Ugly Ducklings

NQ Mar 60min chart:

The Ugly Ducklings

TF Mar 60min chart:

The Ugly Ducklings

Either way we should be very close now to at least a short term high. The 200dma is at 2020 on SPX today and I'm not expecting to see a strong closing break over that. We'll see how that goes as so far this has been developing as a classic trend up day. Everyone have a great weekend :-)

Source: Springheel Jack

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