On Tuesday last week I put forward a favored scenario for a strong rally that would make a high in the 2115-20 area. The following day I noted the strong daily buy signal that had fixed, and on the Thursday I called the double bottom with a target at 2123. Looking at ES that 2123 target may be made at or near the open today.

Quite a few of you will have read those posts as SPX was testing the 2040s, and those of you that didn't think that I was having bullish delusions most likely thought that was a credible bearish scenario. Fast forward to today and almost everyone is seeing this as a bullish breakout that will likely result in new highs. That was always a possibility of course, but has anything actually changed in the interim apart from the big rally that I predicted having now happened? I drew the arrows on the daily chart below on Wednesday last week and as you can see, SPX is pretty much where I was expecting then. SPX daily chart:

Inflection Point Test

Looking at my optic run indices they are ambiguous about a big fail here, which does improve the chances that the high will be retested. Most of them were also showing clear flaglike setups after the retracement yesterday afternoon so the gap up today isn't unexpected. Scan 3x 15min SPX INDU TRAN charts:


The move up this week hasn't gone quite as I expected. As I said on Monday morning, there were and are 90% odds that the triangle that broke up on Friday would make a thrust out that would be fully retraced within days back to, depending on the draw, at least the 2080-5 area. I was expecting that retrace on Monday or yesterday, to be followed by another move up, but it hasn't happened yet.
There is obviously a 10% chance that the triangle retrace won't happen of course, but 90% odds are really pretty high so I'm assuming that we will see that retracement until demonstrated otherwise.

On the daily chart, the RSI5_NYMO buy signal made target yesterday and if we are to see a retracement then the obvious target is a retest of the daily middle band in the 2090 area. On a bull scenario we would go through that intraday and close the day back over it. On the bear scenario SPX would close back under the middle band, and not come back anytime soon. SPX daily chart:

The Triangle Issue

The 60min (RSI 14) buy signal also made target yesterday, and some weakness this morning would fix a 60min RSI 5 sell signal. SPX 60min chart:


Today I've done an optic run of the 15min charts of the main US indices to get an idea of how the next few days are likely to develop. I've discarded the smaller SPX double bottom that I've been showing as a possibility, and the bottom line is that of the six double bottoms on these six indices, not one has yet made target. Given that SPX, Dow and NDX have already broken the 61.8% fib retracements the obvious conclusion is that the falling wedges that broke up on five of the six indices below are full reversal falling wedges, with targets at lower lows from the previous highs or tests of those highs.

The SPX double bottom target is 2123 is a good fit with that scenario. Neither of the daily RSI5_NYMO or 60min buy signals are close to making target yet, so that backs up a scenario where the short term high is not imminent. Scan 3x 15min SPX INDU TRAN charts:

Optic Run

Scan 3x 15min NDX RUT NYA charts:


I was hoping that we would see much or all of the move to the triangle target on Friday as otherwise I feared that SPX would gap up into the target on Greek news. Annoyingly that's what happened so the Greeks ate my lunch again.

Is the Greek negotiation saga finally over? Well maybe. The deal struck however is harsher than the one rejected by the Greeks in their referendum two weeks ago, and it remains to be seen whether Tsipras can sell it back home.

Is this a good deal for the Greeks? Not as far as I can see. As far as I am aware almost all the money will go to paying interest and rolling over existing debt. The Greek economy will continue to be sacrificed on the Euro altar, when the truth is that the best way for Greeks to start on the road back to prosperity is to default on the huge debts that they can never hope to repay, leave the Euro and make a new start outside the Euro straitjacket. In the meantime Greece is like the ancient Greek mythological villain Tantalus (possibly the inspiration for the fictional Dr Hannibal Lecter), who was damned in Tartarus to be in eternally close proximity to food and drink that he could never reach.

Tantalus Ate My Lunch

On SPX the triangle target was made at the open, and the larger falling wedge that broke up on Friday has now retraced 61.8% of the falling wedge move. The key resistance zone that I was looking at on Friday morning runs from the daily middle band at 2088 to the 50 DMA at 2099, and the HOD at the time of writing is at 2097.87. This could be the high or close to the high of the current move, and when this thrust up ends we should see shortly afterwards a full retrace of this thrust back into the 2075-80 area. SPX 15min chart:


Well this is all looking familiar. Yesterday closed down hard after a day of relentless selling with a close just under the 200 DMA, and SPX is looking set up to gap up big overnight. Is it Groundhog Day? No, I don't think so, though the similarity is certainly very striking. At the end of the day though yesterday was just a very odd looking inside day, with no break either of Wednesday's high or low, SPX daily chart:

Not Quite Groundhog Day

The inside day is part of a triangle which it is now obvious that SPX has been forming for much of the week. This means that the double bottom that I was looking at yesterday morning is still in play, but there are now two other pattern targets lower, both of which are higher probability. I'm expecting a break up and the targets for that are on the chart. In the less likely event (IMO) of a break down, then the triangle target would be in the 2015 area, which is a match with the H&S target I posted last week. After the thrust out of the triangle there is then a better than 90% probability (Stan's stat) that the thrust will then be fully retraced in the next few days, which favors a fail at one of the 2093 or 2103 targets, in effect either a fail at the daily middle band of the 50 DMA. SPX 15min chart:


I posted a chart on twitter last night showing the falling megaphone that formed during the day and the triangle that formed and broke down near the close. What happens to a short term pattern like this overnight? Well that rather depends on where the open is the next day. If there is no gap then the pattern will often play out as though it had never been interrupted. If the market gaps away hard then the pattern becomes irrelevant.
Back in the old days you'd have to wait until the open to find out whether the pattern was a fine carriage or just a pumpkin, but nowadays the futures can tell us which is more likely and this triangle, sad to say, is going to be a pumpkin.

That leaves us with the 79% bullish falling megaphone, with a likely gap up over megaphone resistance and with ES at 2061.5 at the time of writing, possibly having made the full pattern target in the 2068 SPX area as well. SPX 1min chart:

Schrodinger's Pumpkin

So where does that leave SPX this morning? Well I was saying near the lows yesterday that I was expecting the move to make the second low of a double bottom that would target the 2123 area on a break back over 2084.  That scenario's obviously still looking pretty good this morning and the next step would be for bulls to test double bottom (and range) resistance in the 2083-5 area and see if they can break it. We may in any case see a bounce off that level at the first test today unless this is a gap and go trend up day. SPX 60min chart:


For me yesterday was possibly the most fun day of the year so far, and had the low of the day just continued down another three ticks on ES to test the globex low at the open on Sunday, would have come close to perfection, as I had a buy order there. It seems fairly obvious, Greece headlines permitting, that SPX is going with my preferred option that I laid out before the open yesterday and both the daily RSI 5 buy signal, and the strengthened 60min buy signal, that I was talking about as possibilities in that post had fixed by the close yesterday.

ES fell hard overnight but the rising wedge that formed from the lows yesterday was obviously topping out by the end of the day. I'm looking for a retrace into one of the main fib retrace targets which are the 38.2% fib at 2068.57, the 50% fib at 2063.88 and the 61.8% fib at 2059.19. On a move significantly below 2059.19 I would be wondering about a possible full test of yesterday's low. SPX 1min chart:

Daily RSI5_NYMO Buy Signal Fixed

I was looking for the stronger 60min buy signal and daily RSI 5 buy signal but what surprised me somewhat was that there was also a NYMO buy signal, delivering a very strong daily RSI 5_NYMO buy signal. I've talked about these before and these are very reliable signals indeed. No signal is perfect though and the biggest fail in recent years was the one of these that fixed in the powerful rally in early October last year the day before the main decline into the October low started. We do therefore need to see some follow through to confirm this signal, but it's a strong indication that SPX may indeed make the rally into 2119 that I was talking about yesterday morning. SPX daily chart


Well the Greeks called the EU's bluff at the weekend, and after all the tough talk last week it appears that either the EU was bluffing about forcing a grexit, or they're planning to just ignore the vote and try to agree on a deal much along the lines of the one that the Greeks just rejected.

There are some great collective nouns out there such as a murder of crows and a pantheon of gods, but as far as I am aware there is as yet no collective noun for a group of EU ministers. This is an obvious gap to be filled and my suggestion for this is a 'shambles of EU ministers'. No doubt this will catch on.

Leaving aside the constant eruptions of wind coming from Europe I've been looking hard at the SPX chart and it seems obvious that a decent rally is coming soon. This would mean that the current H&S that I have marked up on SPX would most likely not be the final topping pattern, and if so, then I have a suggestion that would be a significant technical upgrade.

On the 60min chart I have left the current H&S pattern marked on it and the possible H&S pattern that has formed with a target in the 2114 area on a break over 2085. If we see that break over 2085 before making a new retracement low then I'd be taking that seriously, given that SPX would already have broken over the 50 hour MA in the 2083 area. SPX 60min chart:

A Flat Earth Society of Greeks

That would be one option for a larger H&S here, but the other (and my preferred) option would involve a new retracement low testing and holding the 2039 area. If so that would set up a right shoulder bounce with an ideal high in the 2115-20 area with a possible fail under the 50 DMA in the 2100 area. I like this scenario a lot and if we should see a test of the 2039 area with a decent bounce that should set up a stronger 60min buy signal, a possible daily RSI 5 buy signal and a very nice topping pattern with an obvious target at the 61.8% fib retrace of the rising wedge from the October low. We'll see how that goes. SPX daily chart:


The Greek referendum was a clear vote against further austerity and we should see this week whether the ECB bluff that the Greeks have called is in fact a bluff. I suspect it isn't and that a grexit is now the most likely outcome. If so then I think that's great news for the Greeks, who  can finally default and start rebuilding. It's a rare country that still has a shrinking economy a couple of years after default. If that's the way it goes then it would nice for that to be quick, as the constant headlines have become a serious bore.

SPX hasn't been generous with trendlines since the last high. I do now have a three touch resistance trendline established on Thursday and I'll be watching to see whether that survives the day. As long as it survives my lean is bearish. SPX 15min chart:

Looking for the Grexit

SPX broke the weekly middle band on a closing basis last week and that was a serious support break that I'm expecting to deliver a lot more downside. Confirmation that a serious correction has started also needs a break below rising channel support from the November 2012 low, and that is currently in the 2000-10 area. Important levels to watch today are the daily lower  band at 2058, the weekly lower band at 2055, the 200 DMA also at 2055 and the 50 week MA at 2044. On a break below the 2039 low I would then have no serious support above channel support at 2000-10. SPX weekly chart:


Well that was an unusual day yesterday, with the tape buffeted on and off all day by news. Statistically July 1st is the most consistently bullish day of the year, but the bears dominated the day, but without managing to negate the double bottom setup and conceding a strong close to the bulls.

The constant news bombs reminded me powerfully of 2011 when the news was also mostly about the same mess in Greece of course. If an agreement can be put together this time as well to keep the Greeks in the Euro for the moment, then perhaps we can look forward to the same again in two or three years. Who can say?

The main thing that the bears failed to manage yesterday was to test the daily lower band at 2060, and that being the case, there is now a possible target at a retest of the daily middle band at 2096. With the double bottom target at 2092/3, and open 60min and 15min buy signals, that means there is a credible setup here for a big rally to those levels today or Monday, with the caveat that the stats for today are almost as bearish as yesterday's stats were bullish. SPX daily chart:

The Long Kiss Goodnight

The important support level to watch today is rising support from the lows at 2071. A break below would weaken the rally case here and open up a test of the daily lower band, and a test of that would resume the daily lower band ride. Above there is declining resistance from the highs in the 2081/2 area, and a break over that would open up the double bottom target at 2092/3 and the daily middle band at 2096. SPX 15min chart:


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