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Thursday, 24 April 2014

Key Inflection Point Area

After very solid AAPL earnings last night ES has gained 10 points and is testing those highs at the time of writing. This means that the inflection point that I have been talking about over the last few days is likely to be tested today and tomorrow, and the way this breaks will most likely determine direction for the next few weeks.

Front and centre this morning is the falling megaphone on NDX, with untested falling megaphone resistance in the 3610 area, and a distinct possibility that NDX will gap over that at the open. That would be bullish and would suggest strongly that SPX will test the highs, but NDX will still look potentially bearish because of the nice looking H&S forming there on the daily. The ideal H&S right shoulder high would be in the 3630 area, and I have an alternate, lower probability, falling megaphone resistance trendline in the 3670 area. NDX 60min chart:
The setup on TRAN here is clearer, with megaphone resistance in the 7780-5 area today. In this context this pattern is a broadening top, which sounds bearish but is actually direction neutral. The test of megaphone resistance could signal a significant reversal back down. There is obvious negative divergence on the 60min RSI here, and SPX and NDX will also show negative divergence today on a break above the current RTH (regular trading hours) highs. TRAN 60min chart:
There is no trendline to watch on SPX but there is obvious resistance at the test of the 1897 high, and we may see that tested this week. There should be significant negative RSI divergence at that test, and regardless of whether we see a major reversal there, it is an obvious place for a retracement of this move up from 1814. The obvious target for that retracement would be at the 50 hour MA, currently at 1857 and rising. SPX 60min chart:
Looking at the SPX daily chart the upper bollinger band is currently at 1900 and that should be an effective cap for any rise this week. I've mentioned the possibility on the chart that we might currently be making the second high of a double-top here and if so that would work very well from a TA perspective. SPX daily chart:
On the SPX weekly chart the upper band is now at 1895 and should close the week at 1900 or lower. That should be strong closing resistance tomorrow. SPX weekly chart:
On that last chart I gave 80% odds that the lower band would be tested before the upper band, after the punch through the weekly middle band a couple of weeks ago. Not everyone seems to have understood that this is just a historical probability, and that there was inherent within that a 20% probability that the upper band would be hit first instead. In the same way a 70% bullish falling wedge will break downwards 30% of the time. That isn't a failure, it is just the historically lower probability path. Just to clarify that for anyone who didn't understand that already.

I'd like to see a gap fill today and that would be a strong buy if we see it. As long as yesterday's low at 1873.91 holds then the lean today should be bullish and if we see any significant trendline breaks today I'll be posting those on twitter. I'm away tomorrow so my next morning post will be on Monday. Everyone have a great weekend. :-)

Wednesday, 23 April 2014

Absent Friends

My wife and I had some shocking news this morning when she was told that the husband of an old friend of hers was stabbed to death by a random nut in a pub last night. I didn't know him that well but we'd spent some time with them and he was a very decent, hard working, family man who leaves a wife and two children behind. Just incredible, and a reminder that very bad things can happen to good people, and that people don't always make it to three score years and ten even nowadays. After two close friends of mine died within three months of each other two years ago that is now three people in my circle all dead from various causes in their early to mid-40s. Very bad luck and extremely thought-provoking. 

Back to the markets where SPX broke over the last rally high at 1872.53 as expected. The next major target is a test of the current high at 1897.28, and the possible second high of a double-top that could be made there. We may well see some retracement today, with the obvious target at a retest of that broken resistance, and that could set up negative RSI divergence on the 60min chart for the retest of the highs. SPX 60min chart:
Supporting the possibility of a double-top on SPX are the NDX and TRAN charts. I showed the possible H&S forming on the NDX daily chart yesterday and today I'll show the falling megaphone from the March high on the NDX 60min chart. NDX came close to testing megaphone resistance yesterday and I'll be watching that carefully on the next push up. It's worth noting that a break over megaphone resistance could be a bearish overthrow before this patterns breaks down, and that the megaphone resistance area is a decent fit with the possible H&S ideal right shoulder high in the 3630 area. NDX 60min chart:
On TRAN I have a standard megaphone, and resistance there is a very good fit with the megaphone on NDX. With all three of SPX, NDX and TRAN I'll be watching for any negative divergence on the 60min RSI 14 at the hit of these resistance levels. TRAN 60min chart:
On other markets I'm been watching for the possibility that oil would make a double-top at the test of the last highs and that may be happening. On the USO chart below I have oil falling to rising megaphone support and if that breaks then the next stop is double-top support. On the bigger picture the setup supports the double-top and I'd give even odds here on that playing out. USO 60min chart: 
On GLD the second low of a double-bottom may have just been made, and if so then on a break over 128.25 the target would be a test of the last high at 133.69. I'm expecting that GLD and USO will both most likely bounce today but on GLD that may just be the start of a big move up. GLD 60min chart: 
I'm leaning towards seeing some retracement today with the obvious target being a retest of broken SPX resistance at 1872.53. That should set up the next push up at which time we will see whether we are going to see a major reversal into the main spring/summer decline in the next few days, or SPX, NDX and TRAN all break up through resistance in a move that would most likely last several more weeks.