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Yesterday was a very dull trading day that almost achieved complete meaninglessness, avoided only because SPX held above the daily middle band all day, closing 12 points above the middle band. SPX is therefore consolidating above the daily middle band and the next obvious target on the daily chart is the daily upper band, now at 1897. SPX daily chart:

Bullish Tuesday vs Key Resistance

Before SPX can make an attempt at testing the 1897 high however, it will first need to break up through resistance at the last rally high at 1872.53. The intraday high yesterday was at 1871.89 which was just short of a test. The double-top target is a whisker higher at 1873 of course.

What are the odds that 1872.53 resistance will be broken? I suggested 70/30 in favor of a break to someone last night and I'd put that higher this morning. Tuesdays have been extremely bullish lately, even through the sideways action that we have seen so far in 2014, and everything seems set up here for a break above to at least test the current 1897 high. We may well see 1872.53 broken in the first few trading minutes today. SPX 60min chart:

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SPX made some progress towards the double-bottom target at 1873 on Thursday. That is in effect a retest of the last rally high at 1872.53 and is the last serious resistance between SPX and a test of the current highs. SPX 60min chart:

The H S forming on NDX

Though the gain on Friday was modest the bull case still strengthened somewhat as SPX closed six points above the middle band after a day where the middle band held as support. SPX daily chart:

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Yesterday morning SPX gapped over the 50 hour MA at 1843, double-bottom resistance at 1844, and the 50 DMA and falling channel resistance at 1847. Those held as support for the rest of the day and the opening gap didn't fill, so as long as they hold as support this morning the next step is to proceed towards the double-bottom target at 1873, in effect a test of the last rally high at 1872.53. SPX 60min chart:

Doodled Megaphone
At the low on Tuesday I drew in a half-doodled possible megaphone on my SPX 1min chart. I didn't mention it yesterday morning but it had my attention after the AM high yesterday was at megaphone resistance. We could see a test of 1872.53 within that megaphone today. SPX 1min chart:
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Returning to the setup today we have two remaining main options for the rally here, and my first and preferred option so far this week may well be steamrollered at the open. On that option I have resistance this morning at the SPX 50 hour MA at 1843, double-bottom resistance at 1844, the 50 DMA at 1847, and falling channel resistance at 1846-8. I posted the chart below on twitter yesterday night and the other resistance level I mentioned then was declining resistance from the high on ES which I mentioned would be a decent fit with SPX falling channel resistance this morning. That's still the case, but that broke overnight and is now at 1841.25 ES, some seven points below ES at the time of writing. If that remains the case then SPX will gap over all of these significant resistance levels at the open, and trigger a double top target in the 1873 SPX area. SPX 60min chart (from yesterday night):

Tug of War

If that happens then that brings us to my other main rally option, and that is a blend of the next two resistance levels above at the SPX daily middle bollinger band, which closed yesterday at 1859, and the last rally high, which peaked at 1872.53. There's a chance that we could see a failure at the daily middle band of course, but the obvious intraday target is a test of 1872.5 as the double-bottom target is at 1873. What I would look for then if we see a gap over 1848 SPX at the open that doesn't fill, is a run to test 1872.53, and then we see whether the daily middle band at 1859 SPX can hold as support. If bulls can recover back over the daily middle band and break the last rally high at 1872.53 then they should be back in the saddle and looking to test the 1897 high. SPX daily chart:

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I was explaining yesterday why I think that the current move on SPX is just a rally within a downtrend that has not yet bottomed out. That means that I am watching the significant resistance levels above in the expectation that one of those will be a brick wall at which SPX will reverse into the next move down. Yesterday the rally closed at 1830, on the weekly middle band that broke on Friday and is significant short term resistance. It may be that the rally will stall there, though we might also see a break over that resistance and then a return to close back on or underneath it by the close this week. SPX weekly chart:

Rally Resistance Levels

On the SPX daily chart the important resistance levels are the 50 DMA at 1845 and the middle bollinger band at 1860, which is the highest of the rally targets that I am watching here. SPX daily chart:

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Friday's close saw a punch below the weekly middle bollinger band, and that was a bearish candle, as I mentioned it would be on Friday morning. SPX weekly chart:

Weekly Middle Band Punches
Generally speaking I would take the target from a punch below the weekly middle band like this one to be either the weekly lower band or a major weekly MA (50, 100 or 200), if there was one of those above the lower band which there isn't currently. 
 
I've had a look back through these historically, and have looked at examples where the punch has come after a touch of the weekly upper band, and found 45 examples going back to the start of 1980, of which 4 out of 5 went on to hit the weekly lower band or a major MA in the subsequent weeks. Of these:
  • 34 went on to hit the lower band
  • 4 hit a major MA and reversed back up there
  • 7 reversed back up to the upper band
I also had a look at the weeks after those bollinger band punches and of those 45, 19 rallied the following week, and 5 of those were among the 7 examples that returned to the upper band. 
 
Takeaways here are that SPX is 80% likely to hit the weekly lower band in coming weeks, and that there is a slightly under 50% chance of seeing a positive week this week. There is a 20% chance that SPX will return directly to the weekly upper band but this is helped a lot by a cluster of these in the 1986-91 period. If I had taken my sample for the last twenty years only, then the only time this happened out of 22 examples going back to 1994 was in August 2013. 
 
On the SPX daily chart the open and close on Friday were both under the daily lower band. The overnight action on ES is strongly suggesting that a rally has started and the rally targets on the daily chart are the 50 DMA, currently at 1843 and declining slowly, and the middle band, currently at 1861 and declining rapidly. SPX daily chart:
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Well I was saying yesterday morning that the bears needed to reverse Wednesday's break up quickly yesterday and so they did. It's been a while since I saw a decent bull setup like that trashed as thoroughly and quickly as that was, and that is certainly food for thought.

After the break back under the daily middle band we returned to the original schedule that I outlined on Tuesday morning, which was that the move into Wednesday's close was a rally, to be followed by a new wave down resulting in a lower low, and so here we are this morning.

We now have a pattern for this move down from 1897 SPX, and it is a falling wedge. I posted it last night on twitter and here it is on the SPX 60min chart below. You can see that falling wedge support is currently intersecting the theoretical alternate rising channel support that I showed on Wednesday morning, and if this is just another pullback, then the obvious low would be at that intersection in the 1825-7 SPX area today. We could see SPX go lower, as falling wedges sometimes underthrow before breaking up, but the low would need to be a few points lower at most.

Falling wedges are 70% bullish of course, so classically the odds of a break up targeting a retest of the 1897 SPX high are 70%, and the odds of a break down targeting (in effect) the 1737 SPX low are 30%. Considering the overall background I'd be inclined to put that closer to 50/50 in this case. SPX 60min chart:

Are We Having Fun Yet?

The close today is very important on the weekly chart as it is of course the weekly close. The weekly middle band is at 1830 SPX and bears want a conviction break below it today. Ideally 1820 SPX and lower but at least under 1825 SPX. SPX weekly chart:

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That was an interesting day yesterday and SPX reached the targets I was talking about in the morning at the retest of the 50 hour MA and broken rising channel support. The high falls between two fibonacci retracement targets but otherwise is a model rally high. SPX 60min chart:

Breaking Back Up

BUT ...... SPX wasn't showing any sign of turning there, and on the daily chart SPX punched back to close well over the daily middle band. Unless that is reversed quickly this morning then the next obvious target is the upper band, currently at 1891.5. The SPX middle band closed yesterday at 1863.5 SPX and is important support today. SPX daily chart:

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A rally started yesterday as expected, and stalled at the ES 50 hour MA for much of the day. ES traded through that over that overnight though and has rallied as high as 1851.25 at the time of writing. The obvious target is the daily middle band, currently at 1857.75 on ES and at 1863/4 on SPX. ES 60min chart:

Educated WAG

As I was saying yesterday morning, the falling channel from the high on SPX was so narrow and steep that there should be another push down after this rally has ended. That need not go much lower, but it does suggest lower prices before there is a good chance of making a low. On the 60min chart I have other possible rally targets at the SPX 50 hour MA at 1872, and the retest of broken rising channel support in the 1868-72 area. I have marked in a possible third rising channel support level that could be support on the next move down and that is currently in the 1823-5 area.

One thing to mention there however is that when I have seen a series of channels breaking down into shallower channels, these have been near the end of strong trends. If that channel establishes then we could still see new highs, but most likely a significant high would be forming. SPX 60min chart:

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SPX fell again to hit major support in the 1840 area yesterday. The very narrow and steep falling channel from the high broke up on positive 15min RSI divergence, and this is a very natural area to see a rally. What I would add there though is that a channel that looks like this one is very rarely a complete move. I am expecting a rally and then a further decline of whatever size to start from the top of that rally. SPX 15min chart:

Back Online

Where might that rally go? Well if we see that rally then I'm looking at the 38.2% fib retracement at 1863 as my primary target and the 50% fib retracement at 1869 as my secondary target. Either is a decent fit with the obvious daily chart target at the daily middle bollinger band, currently at 1864. The bears are in control until we see a break back over that middle band. SPX daily chart:

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