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SPX made a high on Friday on the 50 DMA and just under the middle daily bollinger band. The reversal from there was very strong and we may well see more downside. However SPX is still just above a cluster of strong support levels and I'll be having a look at those today as the overnight action on ES so far is looking a lot like a bear flag.

First support is the possible H&S neckline in the 1396.5 area. This is just below the 100 DMA at 1400 and the lower bollinger band at 1398. A bounce there would look potentially very bearish and would target a bounce into the 1425-30 area lasting a week or so to make a right shoulder on an H&S that would target the 1320 SPX area on a conviction break below the H&S neckline. Somewhat below on the 60min chart is a decent declining support trendline in the 1390 area today. This could now be the support trendline for a falling wedge, though the upper trendline would need a third touch to confirm it:

spx3

On the daily chart I've already mentioned the 100 DMA and lower bollinger band. Below those are the rising support trendline from the October low in the 1385 area and the 200 DMA at 1379. A bounce at the 200 DMA would establish a rising wedge from the October 2011 low that would very much limit any further upside if there is a strong reversal there. You can see my rising wedge daily SPX view here, and my main daily BBs and MAs chart is below:

spx-1

One thing that's also well worth mentioning here is support at the middle weekly bollinger band on SPX. That tends to be decent support in uptrends and has been support for the last couple of weeks. That is at 1407 SPX now. Looking at the seven year chart, a weekly close below the middle bollinger band has happened ten times in the last seven years and on eight of those occasions SPX then reached the lower bollinger band, currently at 1332. If we see SPX trading below this weekly middle BB then the weekly close will be important, as a close much below would look very bearish.

Other things worth noting on this chart are that the four major highs and lows were all signaled with divergence on the weekly RSI 14, which we don't have here, and that the weekly MACD has made a bearish cross, which has happened nine times in the last seven years, with the smallest retracement on the cross being 9% from the high, though on three of those occasions there was a higher high after the cross to make a major top. A 9% fall from the QE Infinity announcement high would target the 1340 area, which is close to or at where the lower weekly bollinger band will be in a couple of weeks. Food for thought:

spx-2

From a technicals standpoint the overall picture here is that SPX is just above a cluster of decent support levels, and these may hold. However if they do hold and we see a strong rally from here, that would be unlikely to much exceed the current 2012 top before making what might well then be a major top. If we are to see a major bull run anytime soon, then that would look much more healthy after a move to the 1315-40 area to clear out all the current bearish indicators and setups on SPX. Without that a test of the 2007 high in 2013 now looks unlikely in my view.

Looking at other markets the high on NQ was on a clear (hourly close), though short-lived break above declining channel resistance. This may be a signal that it will break up more definitely soon:

NQ

EURUSD also broke below 1.28, and I'm expecting more downside there. I won't show that chart today as the setup is clearer on the DX chart, where there was been a clear break up from a W bottom targeting the 81.8 area. Looking back over the five year chart DX has made six previous similar lows on RSI in that time and each time there was at least a strong bounce, with the W bottom target in the minimum range for those bounces.  I'm expecting this pattern to make the target area. I'm assuming this is a counter-trend bounce at the moment, and three of those six reversals were counter-trend bounces:

DX

That move on DX is also impacting on gold. On the GC chart I started talking about a likely retracement in September and showed three support trendlines for GC. The third broke on Friday and the obvious target now is support at the 150 DMA in the 1655 area:

gc-2

Short term resistance on ES is at 1409.5 and 1410.25 this morning, and on a break above I'll be looking for a rally to the next resistance level at 1416.5. I would be surprised  to see a break much above 1416.5 but if we see one that would open up a run to test Friday's highs. Short term support is at the overnight low at 1402.5 ES. Overall I'm leaning bearish on SPX, EURUSD and precious metals for the early part of this week.

Read more from Springheel Jack

                       

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