SPX had a strong day yesterday but has given it all up overnight. 15min RSI 14 and 60min RSI 5 sell signals are brewing and may well fix this morning. This is a possible rally high, especially as SPX tested the 50% fib retrace target at the high yesterday.

The important support levels on SPX this morning are rising support in the 1910 area and the 50 hour MA in the 1905 area. If SPX breaks below those levels then the rally bear flag has broken and the first big target is a retest of the January low at 1812. While those levels hold SPX still has a shot at reaching the 61.8% fib retrace target at 1978. SPX 60min chart:

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SPX failed to get back to 1990 by the January close, so I'm calling this year for the bears on my first three days of January stat. I outlined this setup on 7th January and you can see that post here. Of the six years in the last 43 years where this stat has fixed at the end of January the best two performers were up 3% and 1%, last year was marginally red, and the remaining three were down 10%, 11% and 39% (2008) respectively. The odds are now against anything better than a flat close this year.

In the short term ES has broken up from an ascending triangle and I'm expecting broken resistance at 1912 ES (~1917/8 SPX) to be retested this morning. That might not happen as it has already been retested overnight, but we'll see. The full triangle target is in the 2020 area, but these are bad at making target and Bulkowski recommends using a target at 61% of the full target. That would put this target in the 1978 area, which may well still be overambitious. ES Mar 60min chart:

Some More Upside Likely

There is still a 60min buy signal that has not yet made the full target and I'm expecting that to be made. I like the IHS target at 1970 SPX as a target and that should be in the right range for a rally high this week. SPX 60min chart:

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SPX has been compressing for a few days now and we are going to see a move very shortly. I'm leaning long for that move but it's possible both that any new high will be marginal, on the possible rising wedge option, or we may go straight down through support, on the double top option. Only if bulls can convert possible wedge resistance into support does the IHS target open up as a target, and even then there is significant resistance both at the daily middle band in the 1930 area, and possible channel resistance in the 1940 area. SPX 15min chart:

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The key support areas I am watching today are the 50 hour MA at 1884 and the ES weekly pivot at 1868 (approx 1875 SPX). If bears can break these and convert them to resistance then we may well be on the way back to test the low at 1812 SPX. SPX 15min chart:

Looking Down?

NDX 15min chart:

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I mentioned on twitter last night after the close that the bulls narrowly managed to avoid a 5dma three day rule breakdown with a target at a retest of the lows. There was more downside overnight that reached my ideal target on ES at a retest of the 1850 area and ES then reversed back up hard there. There is a strange myth that globex highs and lows always need to be retested soon after. I've been watching that for a while and have seen little evidence to support this, and there's no need to see that here.

Stan called the 1850 target and that should be the B wave low on this ABC rally. Where is C going? Well that's where it gets interesting.

The first thing to notice on the ES, NQ and TF charts is the very large mostly formed IHS patterns on them. These are now all fully formed and testing their pattern necklines. If they break up then that would make the obvious target for the C wave at a retest of the 100 week MA, currently at 2008 SPX. That is a very important resistance level in bear markets and was an obvious target area for any strong rally here. I would be very pleased to see that tested.

ES, NQ, TF, CL, and ZB looked particularly interesting this morning & I mainly traded CL today, as the setup there was the nicest, and I managed to capture most of the move up from the open.

ES Mar 60min chart:

Bold Numbers

NQ Mar 60min chart:

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SPX broke back over the 5dma on Friday with considerable conviction, so today and tomorrow are the other two days on the 5dma Three Day Rule, explained on the chart below. In essence though, if we should see a daily close significantly below the 5dma either today or tomorrow, currently at 1880, then a retest in the very near future of the low at 1812 would be very likely. I have found no exceptions to this rule since the start of 2007 on something like forty instances where there was a Three Day Rule breakdown.

I would add that there are now fixed RSI5_NYMO and RSI 14 buy signals on SPX so I am expecting more upside. That doesn't rule out a retest of the lows but if we see the initial retracement today that I'm leaning towards, I'll be looking for that to be forming a right shoulder on a large possible IHS that would target the 2000 area. SPX daily 5dma chart:

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One of the things we were looking at was the importance of the 100 week MA in confirming bear markets and I ran the stats on that this morning for the lifetime of SPX. The SPX retest stats are as follows:

- 1930 - Retest and fail to new lows
- 1938/9 - Test as resistance for a year then break up
- 1940 - Retest and fail to new lows
- 1947 - Retest and fail to new lows
- 1953 - Retest and fail to new lows
- 1957 - Broke up to lower high, made lower low, then uptrend resumed
- 1960 - Broke above for 4 weeks, then lower lows, then uptrend resumed
- 1962 - Broke up and resumed uptrend
- 1966 - Retest and fail into new lows
- 1969 - Retest and fail into new lows
- 1973 - Retest and fail into new lows
- 1978 - Broke up to lower high, made higher low, then uptrend resumed
- 1981 - Retest and fail to new lows
- 1987/8 - Test as resistance for a year then break up
- 1990 - Fail to higher low then uptrend resumed
- 2000/1 - Retest and fail to new lows
- 2008 - Retest and fail to new lows
- 2011 - Retest and fail to new lows
- 2015 - Broke up into lower high then lower lows

Do we need to see a retest of the 100 week MA before more downside? No, as the current situation is like 1957, when SPX broke back up into a lower high last year and then broke down again this month. It is main resistance here though while we are in this bear trend / market, and if we see a break back above it, currently at 2007, then that would strengthen the case that a significant low has just been made, though I think it is unlikely that any really significant low leading to sustained new all time highs can be made without at least a test of rising support from the 2009 low, currently in the 1750-60 area.

Yesterday SPX rallied to my 1890 trendline target, failed there from a rising wedge formed from Wednesday's low (posted on twitter as the move was peaking), and then retraced 38.2% of that wedge. I posted on twitter as that reversed back up that this was potentially the start of a new bull move up and that that is what we have seen. Where will that move end is the question for today.

I posted the volume spikes on the daily SPX chart yesterday morning showing why at least a short term low might be forming or already have been made. That is looking pretty good on the action so far this morning. For today there are two obvious IHS options and at the time of writing SPX may well be going with option 1, with an IHS target fixing in the 1970 SPX area. If SPX sees sustained trade over 1900 this morning I'll be expecting that to play out, with a possible fail area in the 1950 area where I have a potential larger IHS neckline. On a sustained break back below 1850 from here we could see a retest of Wednesday's low at 1812 and possible continuation lower. SPX 15min chart:

Short Term Swing Low May be In

Today is a cycle trend day, which means that there are 70% odds that either buyers or sellers will dominate the day. That doesn't have to be a full trend day, but often will be. On this pattern setup, if bulls can sustain trade over 1900, then we may well see a trend up day. Trade carefully today and everyone have a great weekend. :-)

Source: Springheel Jack

If you look at the bottom of the daily chart below you can see that I have added some annotations and shading to highlight where there are spikes in the daily volume well over the average. I mark these up because these volume spikes occur at, or very close to, reversal areas, and the last two days have generated these spikes. I've looked at these in 2008/9 and the main differences in a bear market/crash situation were that the average volume was higher, and it often took more volume spikes to turn in very strong moves. Volume spikes like this will generally deliver a swing low within two or three days. That might just deliver a rally, but to just keep running lower would be a rarity. That is the overall context today. SPX daily chart:

Volume Thrusts As An Indicator

Shorter term the falling wedge on SPX has clearly evolved into a falling megaphone. The obvious next target within that megaphone is megaphone resistance in the 1890 area, with a lot of other resistance around it such as the 5dma, the 50 hour MA etc. A break above this resistance should signal that at the least a swing low is forming, though as ever the low could still be retested. If we see a retest of yesterday's low directly from here then that would likely deliver a marginal new low setting up a very possible double bottom. SPX 60min chart:

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So far today the ES low is at 1804.25. This is over 100 handles below the globex high yesterday morning so it has been quite a move. Is it over? Possibly, though we need more evidence before buying here with any confidence. What I will say though is that the high yesterday was at NQ falling wedge resistance, and the low today is at NQ falling wedge support. We'll see if that holds.

On the SPX 60min chart falling wedge support has been broken into the lows. This means one of three things. The first is that we are looking at a bullish underthrow of the SPX falling wedge, and that the long awaited but so far elusive strong rally is starting here. The second option is that the falling wedge is expanding into a falling channel or megaphone, which would be the fairly bearish option. The third and most bearish option is that the wedge is breaking down with a target in the 1580 area, which is in the main 1550-1600 target area for 2016.  That's a possible. We'll see. SPX 60min chart:

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There's been a very decent rally yesterday, and the obvious target on the SPX 15min chart is a hit of wedge resistance in the 1910-5 this morning.

SPX 15min chart:

Signs of Life

What's more interesting is that the falling wedge on ES has broken up overnight. If we see the same happen on SPX, and possibly if we don't, this should mean that ES/SPX are in a bottoming process. We'll see. ES 60min chart:

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