As SPX was testing rising support from the low yesterday I did a chart on the SPX 15min showing the three important short term support levels on SPX to watch. I was going to post this on twitter but that was down for quite a while yesterday so I posted it on slope and BlueChipBullDog instead. The first level was that rising support from the low of course, the second level was at the IHS neckline in the 1335 area, and the third level was in the 1325 area, that I gave as a line in the sand yesterday morning on the basis mainly that none of the five reversal IHSes that made target since 2008 had retraced more than ten points below the neckline. Here is that chart:
74%. After yesterday's meltdown, and in the overall context, I would scale that down to 50% now, declining rapidly on any move below yesterday's low, and I'd write it off altogether on a move below the right shoulder low at 1306.62. The failure of a high probability pattern like this is indicative of a strong trend in the other direction, and in that event we might well see a violent move in the direction of that downward trend.
There are three main reasons that I'm downgrading the odds on this H&S making target. The first reason is that SPX closed well below the neckline, which isn't great though it doesn't invalidate the pattern. The second reason is that, as I've been mentioning regularly over the last couple of weeks, the overall setup favors this move up from the low being a counter-trend rally in my view, which means both that bull patterns are more likely to fail, and that a high probability area for a rally high is at the test of the 100 DMA, which is where the rally has peaked so far.
The third reason is that the close was five points above the middle bollinger band on the daily chart, which qualifies as a test of that level. Since October we have seen fourteen tests of the middle bollinger band and it only held as support or resistance on five of those tests. On a close below that (currently at 1319) the odds of seeing at least a test of 1300 (a few points above the 200 DMA at 1295) would be high, and five out of seven of those breaks below hit the far bollinger band, currently at 1276. Here's how that looks on the daily chart:
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