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Friday, 19 September 2014

Pavlov and the Three Little Bears

SPX made a new high yesterday and closed at 2011.36, only 0.13 over the daily upper band which closed the day at 2011.23. The bears had plenty of time to knock the market down after a new all time high was made in the morning, and failed to do so. The odds that we are starting an upper band ride on SPX improved sharply yesterday.

It's a struggle to remain objective at a time like this because the last couple of years have conditioned us all to dismiss any bear case at the first sign of trouble, and I'm struggling not to just do that here. The odds of a bullish resolution here are definitely improving, but that's not a done deal yet, and the stats from my SPX daily RSI5 / NYMO sell signal particularly are warning that we could still see a bearish resolution here, though if we are to see that we would need to see some significant weakness today or at latest on Monday.

For today on the daily chart I'm looking for a third day of riding the upper band. At the time of writing an open above the daily upper band looks likely. I would expect at minimum a touch of the daily upper band at some point during the day. The daily upper band closed yesterday at 2011 and probably won't close the day over 2015. SPX daily chart:
So how should we view the bear case here? Well there is an easy solution, as I have three support levels to watch on SPX here. If SPX fails to break any of them the bear case is dead in the water, and on a break of the third and last SPX will have broken down.

The first of those three support levels is at rising support from the 1978 low, and that is currently at 2004 and rising at about eight points per day. Until this is broken the bears aren't even on the radar really.

The second of those levels is the 50 hour MA, now at 1994. This should remain unbroken until the current uptrend is topping out, so a significant break below would cast very serious doubt about much further upside in the near future.

The third of those support levels is the last low at 1978.48. That is double top support here and a break below would currently target the mid-1940s. If we see that low broken then it should follow through to at least that double top target and possibly a lot lower. SPX 60min chart:
USD is approaching the first of my main resistance levels,and that is at declining resistance from the 1985 high in the 86/7 area. It's hard to give an exact number from this 34 year monthly chart but I'll be posting this chart often as that area is reached. A break above may signal the end of the huge secular bear market in USD since 1985, and would open up a test of major double bottom resistance at 88.71. USD monthly main chart:
I've been giving the precious metals market some thought. The nice looking bull setups at the start of 2014 never followed through, and if we are looking at a major bull run on USD that may extend forward for years, then precious metals are unlikely to prosper. I have a decent falling wedge on the silver weekly chart and if silver can break and hold below the very strong support at 18/9, then the next obvious target would be wedge support in the 12 area. Silver weekly chart:
So my solution to the conundrum of what to think of the bear case here is to disregard it unless bears can demonstrate that they are still in the game by breaking the three support levels listed above. Until we see that my working assumption will be that SPX is riding the daily upper band, and if SPX is doing that, then I'd be looking for early dips to buy and grinding upwards the remainder of the time.

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