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Yesterday morning ES tested the weekly pivot at 2035.5, and then SPX tested the 50 hour MA and then SPX was off to the races again. That 50 hour MA has held on five tests out of the last six trading days and until we see a break below it this uptrend is still very much intact. That first break below would normally also precede the main high, so that main high still doesn't look close here. SPX 60min chart:

Here There Be Dragons

I posted a chart on twitter last night showing pattern targets in the 2062-4 area and ES has exceeded that by quite a margin at the time of writing. If we see weakness on ES into the open the rising megaphone resistance trendline may yet hold as resistance. If (more likely) that ES gaps over it at the open then that's unlikely to be important today. SPX 5min chart:

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Yesterday was the 24th consecutive close above the 5 day MA. This has only been exceeded by runs of 25 days in 1991 and 1987, though in 1987 one close on the MA might have been a whisker below. If we were to see another daily close above the 5 DMA then that would match the record back to 1980, and possibly for the SPX lifetime, as I've only looked back as far as 1980. This has been an amazing run. One thing I would note from the four longest runs since 1980 is that they all failed into modest bull flag retracements before continuing upwards. We may see this break down below the 5 DMA today and if we do, that's worth bearing in mind. SPX daily 5 DMA chart:

Signs of Weakness

If we do see a retracement today, and the open looks likely to be very weak, then the obvious target would be the daily middle band. That closed yesterday at 2015.5 and is likely to go as high as 2020 today. SPX daily chart:

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Well the doji consolidation stats I posted yesterday gave 75% odds of a small retrace before (most likely) higher, but once again SPX took the lower probability path of the 25% chance of breaking up. It was a clear breakout candle so I have looked at the four of sixteen of these from the start of 2009 that broke up and the following days for these played out as follows:

  • Trend up day on day 2 for 1.5% gain. Short term high slightly higher on day 3
  • Modest gain on day 2. Short term high on day 4
  • Modest gain and short term high on day 2
  • Inside day in upper half of breakout candle on day 2. Short term high on day 4


Now this is only a sample size of four, but the lean is clear. These stats are suggesting that yesterday did not make a short term high, and that that a short term high should be made from today through Friday, and could be as much as 2% higher. Three out of the four closed green on day 2, and the fourth close was only slightly below the breakout candle close. The lean coming into today therefore needs to be bullish, though with the expectation that there should be a short term high this week that should then retrace into (75%) or near (25%) the doji consolidation area that SPX just broke up from.
What are the obvious targets above? Well my eye is drawn to the weekly upper band on SPX, which closed yesterday at 2064 and is within easy reach on any move over yesterday's high at 2056. Next big resistance is primary rising megaphone resistance, which I have in the 2080 area. SPX weekly chart:

The Path Less Travelled

Another possible upside target is the daily upper band at 2080. That's possible and would be a decent fit with rising megaphone resistance. Any higher on this move is most likely out of range. There was a clear break of the shorter term megaphone resistance trendline yesterday and that should follow through to the upside. I'm not treating this as a particularly significant pattern. SPX daily chart:

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We saw SPX made the fifth straight doji or near-doji close yesterday, and all five of the last daily closes have been in the 1938 to 1941 range, which is a rare thing to see. How rare? I've had a look back and not as rare as I was expecting. I'm considering these as being a minimum three days tight range consolidation on the daily chart, with a minimum of three doji or near-doji closes in that period. There are sixteen instances from the start of 2009 and they break down as follows:

9x - Modest retracement then into new highs
3x - Modest spike then full retrace back into doji area, then new highs
2x - Bear trend rally high
1x - Significant high
1x - Continuation

I've been looking for a modest retracement here before a move to new highs, and 75% of these previous examples saw a move down from the consolidation area. 75% of those then went to new highs and the other 25% went much deeper. Of the remainder three made a modest thrust up that was then fully retraced, before going to new highs, and just one of the sixteen continued straight up.

This makes sense as there is a price and time trade-off in consolidations/retracements and these five doji closes have been a retracement in time rather than price. It makes sense that any break down after would be the shorter for that. The odds are 75% for this resolving downwards and then 75% that we see a modest retracement followed by new highs, and 25% that a larger retracement has begun, though I'd note that two of the three significant highs made were rally highs in a bear trend, which isn't the case here of course.

On the daily chart resistance is holding and the obvious target for a modest retracement would be the daily middle band, now at 2004 and rising rapidly. SPX daily chart:

Price and Time

Short term strong support is still at the 50 hour MA, now at 2034 SPX. SPX 60min chart:

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The big news over the weekend is that Japan has moved back into recession. The country is a cautionary tale of what can happen when complacent central bankers/planners ignore dangerous asset bubbles and then assume that they can fix everything with stimulus spending, ultra-low rates and wallpapering the country with newly printed money. With GDP over 7% under the level in 1997, a debt at over 250% of GDP, and huge entrenched budged deficits the situation there looks hopeless without a major default to try to rescue an economy that arrogant and incompetent politicians and central planners/bankers have driven to ruin.

Fortunately nothing like that could ever happen in the developed economies of the west. :-)

Another day of grinding into a daily doji candle on Friday, making that the fourth doji close in a row and the fifth doji out of the last six daily candles. These candles are indecision candlesticks and show either consolidation or the topping process preceding a retracement. Given the stretched state of the market here I'm looking for retracement, though I'm doubtful about that retracement breaking below 2000. If SPX gets that far then the obvious target would be a test of middle band support, which closed at 1997 on Friday, up eight handles from the close on Thursday. SPX daily chart:

The Pied Piper of Tokyo

To get a retracement started SPX must first break below the 50 hour MA, which was strong support on both Thursday and Friday. If we see a decent break of that today (hourly close basis), then a retracement should be starting. SPX 60min chart:

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I had a really fun day after three days of dreary intraday tape this week, and it was great to have a two sided day. What had the bears actually achieved by the end of the day? Um ......... well .......


Not a great deal really. A marginal lower low was made on SPX for the day but while that might be interpreted as a downsloping H&S forming, it can equally be interpreted as a sideways megaphone forming here. We will need price to set direction today to see whether we are finished on the upside short term. If we get back to Bet The House, which is at 2043.50 ES today, then I'll be looking for short entries again. SPX 5min chart:

Setting up House in Crazytown

On the 60min chart the low yesterday was the first test of the important 50 hour MA support level since the break back up over it at 1890. That showed at least some sign of life on the downside, but wasn't inherently bearish. SPX 60min chart:

Setting up House in Crazytown

At the high yesterday SPX pinocchioed megaphone resistance slightly. If we spend much longer up here that trendline may start looking ragged, but I'm not expecting a sustained break over it before a more significant retracement. SPX daily chart:

Setting up House in Crazytown

I've mentioned a target at 88.80 on USD a few times over the last few weeks. DX has formed a triangle and broken up from that with a target in the 88.80 area, and I'm expecting that target to be made today or tomorrow. DX 60min chart:

Setting up House in Crazytown

 

Source: Springheel Jack

We have now spent an unprecedented (in the last ten years) five days now trading around the 'Crazytown' level at 70 points over the pivot. At 80 points over it is the 'Bet The House' level and ES hit that overnight and traded there awhile. That level can be overshot, but rarely for more than a few hours without a significant retracement starting. I am short from Bet the House and actively looking for that retracement here.

The resistance trendline on the daily SPX I've been looking for as resistance was hit on Tuesday, and we might see a higher high over that today. If this trendline holds that high would be marginal and should be the second high of a small double top. SPX daily chart:

From Crazytown to Bet The House

If we see that double top play out today the target would be a fairly modest pullback to the 2022 SPX area. It's worth noting that the ES weekly pivot is currently at 2017, which is a match with that level. SPX 1min chart:

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SPX hit my 1940-5 target range yesterday and at the moment seems to be failing there. That fail looks very bearish but I'll be assuming that this is a retracement only unless we break through the MA support cluster in the 1970-80 area to open up a possible retest of the 200 DMA at 1920, and then break hard through that on that retest. Until then I will be assuming that we are looking for a retracement before a move to new highs. SPX daily chart:

SPX Hits Megaphone Resistance

Immediate SPX support is at the 20 hour MA at 2035, and then the 50 hour MA at 2026. On a break below the 50 hour MA I'd be looking for a test of the 2001 low and the 2000 area. SPX 60min chart:

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SPX made another new all time high yesterday and is now very close to a hit of my megaphone resistance trendline. I'm expecting some resistance there. The daily RSI 14 is approaching 70 and the RSI 5 is extremely overbought, though the last move up killed off the negative divergence there. SPX daily chart:

Another Day, Another All-Time High

There is negative divergence across the board on the USD equity index 60min charts. SPX is breaking the support trendline from 1926 and a move below the 20 hour MA at 2031 should signal a retrace has started. Until then the chart is just suggesting retracement sometime soon. SPX 60min chart:

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I was looking at two important trendline support levels on Friday morning, and both of them broke down in the afternoon. The pattern from the 2001 low has fixed as a rising wedge and that should now be in a short term topping process. SPX 1min chart:

Trendline Support Breaks

Rising support from the 1926 low also broke down in the afternoon. Once the 20 hour MA breaks I'd be looking for at least a test of the 50 hour MA, currently at 2015. SPX 60min chart:

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