The long setup I was looking at on Friday morning triggered on Friday so the daily lower band ride should be over and I'm looking at upside targets. The main target I'm watching is not an SPX level but the 70 level on the daily RSI 5. The RSI 5 closed on Friday at 47, and I'd expect to see a rally of at absolute minimum to the 50 DMA to make this target. Of the last seventeen of these from the start of 2007, only three retested the lows before making my RSI 5 target at 70, and two failed in the 60 area before going on to new lows. This is a strong buy signal. SPX daily vs RSI 5 & NYMO:

Buy Signals Triggered

On my standard daily chart I have the obvious first resistance levels at broken wedge support in the 1950 area, and then the 50 DMA and 1955 with the daily middle band at 1958. My feeling is that we will at minimum test that 1955-8 target, and will most likely retest the highs after that. Only nine of the last seventeen signals went directly to new highs, but that is nine of the last twelve signals since the 2009 low once I strip out the previous five, and one of those three tested the previous high and failed there making the second high of a double top. SPX daily chart:


I am looking very hard for a significant low in the next day or three, and for those wondering why that is while reading this post I refer you to the last chart in this post and the associated stats with the current daily NYMO/RSI 5 setup.

Bulls had a shot yesterday morning and blew it badly in short order. SPX closed on the daily lower band for a second day, and that was the sixth day of the current ride down the daily lower band. If the downtrend continues then I'd expect the lower band top close in the 1900-3 area today.

What was significant yesterday is that support in my 1911-4 range broke, and SPX closed four handles below the 100 DMA. If that follows through then the next big support level is the May lows and the 200 DMA in the 1862 area, though there are a series of smaller levels between of which the strongest is at 1883/4. SPX daily chart:

Searching for Buried Treasure

The tell for the bull fail yesterday morning was that RUT failed to confirm the SPX gap over trendline resistance. I think it's clear that RUT has now evolved into a 68% bullish falling wedge and I have redrawn the trendlines with channel support as secondary support. After the fail at falling wedge resistance yesterday RUT then broke short term rising support which is suggesting that the next move is to test falling wedge support again. We may see another spike down after a morning high today. RUT 60min chart:


Yesterday was cautiously promising for a reversal at the inflection point here. The two lows this week are at 1913 and 1911, both in the 1911-14 strong support target area that I was looking at on Friday morning. We have a possible double bottom in place if the decline patterns can be broken. If the decline patterns can't be broken then yesterday was day five of the daily lower band ride and it could run down longer and further. SPX daily chart:

Inflection Point Tests

Bulls had a shot at breaking the falling megaphone on SPX yesterday and strengthened the resistance trendline with a third touch. If that breaks then yesterday's low should be good and I'd be looking for a test of Monday's high at 1942 SPX and double bottom resistance there. SPX 15min chart:

I identified the rally pattern from Friday as a 70% bearish rising megaphone after the AM low yesterday and posted that on twitter. Hopefully everyone caught that. After the megaphone broke down in the afternoon there was a swift move to make the full SPX double top target at 1914, and to test the weekly middle band, also at 1914, and the 100 DMA at 1912. That is a strong support area and it held yesterday in trading hours, though given the weak overnight action it could break at the open today. SPX weekly chart:
Double Top Target Hit
The question now is whether there are decent prospects for a low around this level, and the picture there looks mixed so far. On the bull side support at 1914 held well yesterday with a low at 1913.77 SPX. There is a possible double bottom in play here now and encouraging positive divergence on both the daily RSI 5 and the 60min RSI 14. On the bear side there was no real rejection at the low yesterday and the low was taken out with some force on ES overnight. While the rising megaphone target was made at the retest of the lows, in this context it may well be a bear flag pointing lower. The retest of broken rising wedge support at the high on Monday is also suggesting lower. SPX daily chart:

SPX broke back above the daily lower band yesterday and delivered a 27 point bounce from the lows, before giving much of that back overnight. There are arguments both ways for direction today. The arguments for the short side are that the 60min RSI 14 reached 50, which is a natural reversal level and the obvious level to reverse at to deliver positive RSI divergence at a retest of the lows. The falling channel on RUT also argues for a test of the lows next. I have two bull/bear levels that I'll be watching today carefully in regular trading hours (RTH) and those are the 1925 ES level (1930 SPX area) at the ES 50 hour MA, and the SPX daily lower band at 1934.

For the moment SPX is still riding the lower band down, but the lower band is no longer strong resistance after being broken yesterday. If SPX can break back above the lower band again today then there is an obvious target above at the 50 DMA at 1954. If SPX can't break back over the lower band at 1934 then the double top target at 1914 may well be tested, and key support for today would be at the weekly middle band and the 100 DMA at 1911/2. SPX daily chart:

Leaning Long

The short term pattern setup has me leaning long assuming that the open this morning avoids building on the overnight weakness. I have a decent looking falling channel on SPX that would allow a test of the 50 DMA within it, and an open double top target in the 1947/8 area, which would deliver SPX close to that test. For this scenario SPX needs to avoid spending much time under broken double bottom resistance at 1932 this morning. SPX 15min chart:


The first thing to say this morning is that short term the bears own the SPX chart until demonstrated otherwise. There are no strong reversal signals here yet and SPX is riding the lower band down, with a very telling hit of the SPX daily lower band from below as resistance at the high on Friday. The lower band is now at 1938 and that may hold again as resistance today. If a bounce clears that resistance, and broken rising wedge support in the same area, then next strong resistance is at the 50 DMA in the 1953 area. SPX daily chart:

Riding the Lower Band

That said, a retest of Friday's low, and ideally a slightly lower low to hit the full double top target at 1914 would look cautiously bullish and should establish the 60min positive RSI divergence that is currently absent. Strong support is just below the 1914 double top target at the weekly middle band at 1912 and the 100 DMA at 1911. I'd expect at least a decent bounce from a test of of this area. SPX weekly chart:


Last time I was looking at EURUSD I said that I was expecting a test of rising wedge support in the 1.35 area. EURUSD made that and then slightly lower to test the 200 DMA, so the rising wedge is now broken. Unless we see a fairly fast recovery to new highs I'm now looking at targets for EURUSD in the mid-120s. I've been watching this setup for months in the expectation that there should be a strong USD rally at the end of QE3 so I'm expecting this to resolve down. EURUSD weekly chart:

Other Markets Update

I've had a look at my May projection for TLT and have adjusted that for the rising channel that has since been established. The obvious next target is channel resistance in the 117.5 to 119 area, depending on the time taken to reach that rising trendline. TLT daily chart:

Other Markets Update

Oil has retreated sharply recently and may retrace a bit further. Overall though I have USO in a rising channel from the 2012 low, and my overall bias remains bullish, with the obvious bigger picture target at the 2012 high at serious resistance just over 42. I have a possible retracement target in the 35.5-36 area, which should match up with CL support in the 97/8 area. USO daily chart:

Other Markets Update

The overall picture on silver looks bullish, with a possible double-bottom forming and declining resistance from the 2011 high broken. Short term though the RSI setup is bearish and silver is currently making lower highs and lows. The next obvious target is under 18.61 and may retest broken declining resistance from the 2011 high in that area. Silver daily chart:

Other Markets Update


Source: Springheel Jack

On equities SPX made a marginal new high last week and has pulled back sharply from that setting up a possible short term double-top. This isn't the first time this has happened in recent months, so there isn't much to get excited about as yet, but the overall setup favors at least some more downside this week, so I thought I'd have a look at that today. On the daily chart SPX tested the lower band on Friday and has gone lower this morning. There is double support in the 1956 area at the intersection of the lower band and broken wedge resistance, and primary support is at double-top support at 1952. A conviction break below double-top support would target the 1914 area. SPX daily chart:

Candidate Top Take #24

On the 60min chart the action on Friday was within a falling channel that I thought might be breaking up slightly at the close but in fact is still intact. If that breaks up today I'd be looking for a rally to the 1982.5 - 1985 area, and if that held, then I'd expect another leg downwards. There is strong resistance at the 50 hour MA, currently in the 1979 area, and if this downtrend is stronger than I am expecting, then that would most likely be solid resistance. SPX 60min chart:


Since the end of 2012, the bears have been pathetically weak on every timeframe over hourly. It looked like they might have recovered some mojo on Thursday, but the strong rejection of those lows on Friday, with the close back over both the daily middle band and the 50 hour MA, killed off that impression fairly effectively. While SPX is making lower highs the bears aren't entirely out of the game, but unless we see the 1952 low taken out, it seems a reasonable assumption that SPX is just consolidating in a range before the next move up.

In terms of the stat I've been following I'm writing it off unless there is a strong break below the daily middle band early on Monday. If we see that then the target is a test of the 1952 low. If not then the last day for that target to be hit on the stat is Monday, so it dies at Monday's close. As it is the stat performed reasonably, with a lower high and then a break down below the middle band to a low only six points above where the lower band closed the week. I'd be surprised to see anything more on this. SPX daily chart:

The Russell 2000 Conundrum

What about the H&S on RUT though? That just retested the H&S neckline on Friday and still looks entirely ready to head down towards the H&S target in the 1090 area. Well if SPX breaks up hard here then we might well see RUT rally to the 1170 area, and a break over 1170 would kill off the H&S. It may be that this will still play out however and if so, then that may keep SPX from breaking up with any force and keep it in a consolidation range. RUT 60min chart:


There was an interesting comment made to me yesterday that the shooting down of the Malaysian Airlines flight over Ukraine helped the bears considerably, and that's true, up to a point. It is something I have noticed regularly before at big inflection points, and it's obviously not the case that the patterns can somehow see into the future. I think there is a relationship there but logically it must be that if there is a strong bear setup like this, then the right news trigger will set the ball rolling with an apparent reaction to the news that is disproportionately larger than the reaction you might see to similar news at other times. We've all seen the markets shrug off bad news many times before, but when there are decent bear setups in play the market is showing a willingness to reverse that any bad news can then set strongly in motion.

Obviously the investigation into the extent that Moscow was responsible for this very avoidable tragedy is just getting started, and we may well see more geopolitical shockwaves from this in current days, though it's important to keep this in proportion. No war is likely to start due to this tragedy, and it's even possible that it may act as a catalyst to end the current Russian insurgency in Ukraine.

We've really had some great volatility this week. Yesterday was the most volatile day yet with a big gap down, a big gap fill that recovered +15 from the ES overnight lows, and then a plunge down to break the daily middle bollinger band at the close. Obviously the stat I've been following for the last week is very much in play here and the target for that stat is the 1949-53 ES area at the test of the last low and the daily lower band, to be hit today or on Monday. That level has been tested on ES overnight, but the target needs to be hit in regular trading hours to satisfy the stat, so I'll be looking for at least a retest of that low by the close on Monday. SPX daily chart:

Dial M for Murder

So what then? I've been considering this carefully, and would say first that there is impressive support at the last low at 1952. Not only is the daily lower band just below, but there is also strong trendline support both from the rising channel from the 1814 low, and also the broken rising wedge resistance trendline from the 1737 low. That is some strong support and the stat I've been following does not take SPX through that, as two of the three previous candles made higher lows and went directly on to new highs.

The third previous candle does provide some support, as in that case the high was the second high of a possible double (or M) top, as is the case here, and the daily lower band was at the support / trigger level for that double-top, as is also the case here. In that case the hit of the lower band broke below it and double top support to make a lower low, then there was a strong bounce before SPX went to the double top target. After that SPX reversed back up and made new highs within a few weeks.

If we are to see that happen here I'd therefore be looking for the 1952 low to be broken, as well as the SPX lower band in the 1949 area. If we see that then the double top target would be at 1919, very close to rising wedge support from 1737 low. As long as that trendline holds the overall uptrend here is not threatened. If that should break then markets might retrace a lot further. SPX 60min chart:

Dial M for Murder

Why am I considering this possibility seriously? Mainly because the RUT H&S I have been watching broke down hard today with a target in the 1090 area, and while SPX is within striking distance of the main target, RUT clearly is nowhere near it. If this H&S on RUT plays out to target then SPX might well break down from this double top and make that target at a similar time to RUT making the H&S target. That would put both SPX and RUT near key uptrend support, which would be a strong buy as long as those levels were not broken, though in the case of RUT, that would only be a strong buy from a technical perspective, as it's hard to get excited about buying opportunities on an index where the P/E ratio still wouldn't have dropped below 65. RUT 60min chart:

Dial M for Murder

NDX is also supporting more downside, with a double top that has broken down with an effective target in the 3837 low area. That low is also double top support and on a sustained break below there the double top target would be in the 3730 area. NDX 60min chart:

Dial M for Murder

How much should one read into the moves on a big news day? Well in the past I've noticed that support or resistance breaks seem just as valid on big news days as on other days, so I was watching the rally on bonds with great interest yesterday. It was strong enough that TNX broke down from the current megaphone with the obvious next downside target at falling wedge support in the 23.25 area, as long as yesterday's break holds. TNX 60min chart:

Dial M for Murder

That puts bonds back on the track I laid out on TLT in May, with a likely move to test the 2012 highs that could well be the second high of a major double-top. Here is that chart again to refresh memories. TLT daily chart:

Dial M for Murder

EURUSD has finally made it to test rising wedge support, as I have been predicting for the last three months. If we see a break downwards here I would have an H&S target in the 1.30 area. This is an important inflection point for EURUSD and USD.  EURUSD daily chart:

Dial M for Murder

The retracement low should not be in yet on SPX, so bounces like the current one should be shortable. Resistance levels for the current bounce that I am watching are the daily middle band and ES weekly pivot, both in the 1967/8 SPX area, and the 50 hour MA at 1971. Ideally none of those would be broken before SPX tests the last low at 1952, and very possibly the SPX daily lower band in the 1949 area. On a sustained break below 1952 the double top target would be strong support in the 1919 area and, looking at RUT and NDX, I'd be giving that 50% odds of happening here. If that does happen, it might well happen fast.


Source: Springheel Jack

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