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The bulls had a very bad day yesterday and almost managed an even worse night. The reversal candle back through the daily middle band was conceded at the close and overnight ES ran all the way to 2033.50, then recovered back to 2060.75, and is close to that at the time of writing.

Are the bulls dead in the water here? No. Last time I saw an overnight move like this was in early August last year at the 1906 low, and as I recall Mike Vacchi took a long overnight at about 1882. That low was not tested again until October. It is a myth that overnight highs/lows have to be retested shortly after.

What the bulls need here is to respect the bull/bear line at the 2061.02 gap fill that I gave yesterday morning. As long as that holds my primary scenario is the triangle scenario I gave yesterday morning. if that gap is filled then I'll move the bear scenario here up to being my primary scenario, though technically the triangle would still be intact until we see a break below triangle support in the 2048 area. The bear scenario is looking for a break below the 2039 low to open up double top targets at 1980 and 1960.

I've laid out the options and support levels here on my daily 5DMA chart below. SPX daily 5 DMA chart:

A Fork In The Road

SPX also has decent support at the weekly middle band at 2063.32, though that support is strongest at the weekly close tomorrow night. SPX weekly chart:

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SPX broke back above the daily middle band at 2078 and unless we see a strong reversal candle today that negates that break up, the obvious next target is over 2100. ES has been very weak overnight and we could see that strong daily reversal candle today, so I have the odds of more upside here in the 75% area with 25% odds on a break back down. If we see a break back down that breaks the 2039.69 low, then we may well see a move to the double top target in the 1960 area. SPX daily chart:

The Right Kind of Triangle


The upside scenario is something I was discussing on twitter yesterday, and that is that SPX is forming a large triangle. Triangle resistance is currently in the 2112 area and I'd expect that to be hit soon. We'd likely see a retracement there and then a break up, as in this context that should be an EW continuation triangle for the move into the main spring high. I'll be talking more about the targets for that tomorrow but it would be a very nice setup for the next few months. This is one of the rare triangles that I very much like to see. SPX 60min chart:

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SPX closed within one point of the weekly middle band on Friday so that very important support there held. While I am looking for some more downside I'm expecting that to hold again this week. SPX weekly chart:

Last Two Days of Q3

Equities have been strong overnight and it's clear that the triangles formed at the end of last week are breaking up. Nonetheless the triangles on all six of the indices below should be bear flags forming and I have sketched in the idea flag resistance targets on SPX, Dow and TRAN. Screen 3x 15min SPX INDU TRAN:

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SPX made a low at 2045 yesterday morning and has been chopping around since. There is much talk that the low is in but I doubt it. My 5 DMA stat is expecting a break below the 2039.69 low and we haven't seen that yet, and I still have possible bull flag support in the 2030-5 area. If that isn't the reversal area I'd be looking down rather than up for the next targets. SPX daily chart:

Chopping Around Near Support

The move up from the low yesterday was a rising wedge which then broke down in the afternoon. I posted the chart below on twitter then with the comment that in this context that rising wedge would generally be a larger degree bear flag, with the target either a retest of the low / marginal new low, or an extension down to the 2000 area if the first target failed to hold. That remains the case. SPX 5min chart:

Chopping Around Near Support

As it is Friday today the close is important on the weekly bollinger bands. The middle band is at 2061 and ideally today I'd like to see a test of the 2030-5 area and then a close back near or over 2061. That could be a tall order of course so we'll see how that goes. SPX weekly chart:

Chopping Around Near Support

I'm leaning bearish until the 2039.69 low is broken. After that I'll be looking for a possible low, ideally in the 2030-5 area. There is a significant chance that SPX would run away to lower targets, though I think that's still unlikely.

I'll be doing a weekend post on bonds explaining why I think a very big move down has started that should at least reverse the entire move up since the start of 2014.

 

Source: Springheel Jack

Well I said it would be a big break if my rising channel broke and well, here we are. SPX broke back below the daily middle band yesterday and closed at the test of main rising wedge support. That has broken down at the open and we are back to the stats I gave at the break back below the 5 DMA a few days ago, when I said that every similar break since the start of 2007 had resulted in a lower low before a higher high. I'm expecting that lower low under 2039.69 this week and most likely today. I'd add that the daily lower band is at 2040 so that really is the next obvious target. SPX daily chart:

Revenge of the Killer 5DMA Stat

SPX closed yesterday at the test of the very important weekly middle band at 2061. Bulls really want that to hold at the close tomorrow and we have seen some wild rallies in recent months to recover back over that from intraweek moves lower. Whatever happens today that may hold as support at the close tomorrow so that needs to be borne in mind for any shorts here. SPX weekly chart:

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I posted the chart below on twitter last night to show that the channel support that I posted as a target on Monday morning was tested at the close. I was concerned by that test being on the low ticks of the day at the close, and we'll have to see whether that holds this morning. On my main scenario we see a strong bounce from that support into new highs, very possibly this week. If we were to see a hard break down then I'd be looking for a very possible gap under channel support at the open today and at the moment at least, that seems unlikely. SPX 5min chart:

Important Support Test Here

So what if channel support breaks? Well that would be a significant break but bears would still have two strong support levels just below that would also need to be broken. The first of those is at the very important 50 hour MA. This is generally not broken until an uptrend is topped or topping and closed yesterday at 2090. Bulls need to hold that level on an hourly close basis, and any significant move below it would look bearish. SPX 60min chart:

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Was that the low for this retracement? Well it made the little double top target left over from yesterday, but fell well short of hitting rising channel support. That looks like unfinished business unless we see a strong break back up, and if that support is going to be hit on this retracement, then the ideal fib time/place hits would be the 2088 area at lunchtime today or the 2094 area tomorrow morning. If SPX breaks back up hard then this rising channel has evolved into a rising wedge and the next upside target is the same pattern resistance trendline, currently in the 2025-30 area, so already in the right target area to make the IHS target there. SPX 5min chart:

Parallel Lines

One of the real oddities of the last few months for me was the October low being in the 1820 area, rather than making the obvious target in the 1790 area at rising support from the October 2011 low at 1074. I should have realized earlier, but the reason was that the October low established the lower trendline of a perfect rising channel from the 1266 low. This means that there are two primary trend patterns from the October 2011 low rather than the usual one, and it also means that the next intra-channel target is at channel resistance, now in the 2170 area. The odds of hitting that target before the next big retracement are therefore higher than I had previously thought, though it was always in play as a target of course. SPX weekly chart:

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We saw a trend up day that petered out in the afternoon on Friday. We may see some retracement today in which case strong support is still at the daily middle band, now at 2089. SPX daily chart:

shj-32315

Might we a retracement that deep today? Possibly yes. Short term rising support broke down at the close on Friday so I would expect to see at least retracement today. If that gets going then I have a possible rising channel here with channel support currently close to Thursday's lows. We could see another test of support there. SPX 5min chart:

I'm expecting to see at least some retracement today and the obvious strong support level on a strong break down from from 2106/7 is the 2085-92 support zone. Depending on when that is hit, anywhere in that zone may be a match with the possible rising channel support that I've marked on the chart above.

 

The bears had their chance yesterday. SPX retested the middle band and there was a knife fight there that lasted all afternoon, with SPX closing within ticks of the middle band. As SPX was testing it from above, that was a victory for the bulls, with key support holding there at the close. These retests can provide some great entries with superb risk/reward entries. Worth catching these when we get them. SPX daily chart:

Support Held, Testing Resistance

On the SPX 15min chart I now have a possible rising channel from the IHS right shoulder low. Support this morning is at that channel support and at the daily middle band in the 2090 area.  As long as the daily middle band holds the next obvious targets are the retest of the all time high at 2119.59 and the IHS target in the 2125 area. That area is an inflection area and I'll be looking at the options from there in my Monday post. SPX 15min chart:

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Yellen astounded everyone yesterday when she revealed herself as a dove, and made reassuring noises about the Fed's willingness to spoonfeed and change nappies for equity investors into the indefinite future. I just thank my lucky stars that I'm fortunate enough to live in the free market west where we have the world's best and most open-handed central planners.

SPX broke back over the daily middle band at the close yesterday, and and long as SPX can hold that as support now on a daily close basis, I'm expecting at least a retest of the all time highs. SPX daily chart:

One Central Planner To Rule Them All

SPX formed a perfect bull flag yesterday with a low just under the strong support at 2062 that I was talking about in the morning. SPX then broke up, made the daily middle band test at 2090, then the double bottom and flag targets 2093/4, and topped out at a possible rising channel resistance trendline that I've marked on the chart below. We are seeing some retracement today but as long as SPX can hold 2090 on a closing basis today, bulls are back in control. If we see a close back well below the daily middle band today however then all of the gains this week could unravel fast. SPX 15min chart:

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