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Thursday, 5 May 2016

Rally Time

I was concerned yesterday morning that SPX would fail to break down through the 1939 to 1945, and that failure there would likely lead to a significant rally. SPX made the H&S target at 2045 and that was the low for the day, leaving a a setup for a rally at the close that has reached as high as 2060 on ES overnight. Looking at SPX, NDX and RUT I'm expecting that rally to go higher in trading hours today with the first obvious target at likely falling wedge resistance on SPX, currently in the 2070 area. On a break up from the falling wedge I'd be looking for a retracement into one of the 38.2% (2070 if over wedge resistance then), 50% (2077), or 61.8% (2085) fib retrace targets. SPX 15min chart:
I think SPX may be putting in the right shoulder on a larger H&S pattern here, and the ideal high for that right shoulder would be in the 2075 area. That area is strong resistance if hit today, with the 50 hour MA closing last night at 2074.5 and the daily middle band closing last night at 2076.5. As long as those resistance levels aren't broken and converted to support, then on a break back down through the H&S neckline the H&S target would be in the 1975 area, close to significant support (and an even larger possible H&S neckline) in the 1960-70 area. I would add though that on a sustained break back over Monday's high at 2083.42 there would then be a possible double bottom setup to retest the current swing high at 2111, so at the least the bears would have to successfully hold the daily mid band as resistance on a daily closing basis. SPX 60min chart:
The possible 60min buy signal that I mentioned was brewing on ES yesterday morning fixed late afternoon and has made the possible near miss target at the overnight high. I'm expecting that to make the full target higher today and I'd note that the TF 60min buy signal that I also mentioned hasn't reached the possible near miss target yet. Slightly more worryingly for the bear side I'd also note that a possible IHS right shoulder is forming at the time of writing, and that possible IHS would have a target at are test of Monday's high. If that plays out the day could get pretty interesting. I'd also note though that the ES monthly and weekly pivots have been strong resistance since Monday's rally, and that they are at the 2063.8 and 2066.75 levels respectively. That resistance zone could hold on a test today. ES Jun 60min chart (the chart is a few hours old as these charts are all from the ones that I did for theartofchart.net chart service subscribers last night):
There is a lot of resistance overhead that is concentrated in the 2070-85 SPX area and I'm expecting that to hold today. As long as it does this rally should just be setting up the next leg down. If we were to see a conviction break back over the daily middle band on a daily closing basis today however, and a break over Monday's high at 2083.42 then the current series of lower highs and lows would be broken and that would open up a possible test of the current swing high at 2111.05. I'd be surprised to see that here, but I've been surprised before and it's best to keep an open mind.

As I said yesterday I'm always a bit sceptical about trading correlations between instruments but for what it's worth .....  I was wondering about the possibility that CL might be breaking up yesterday and the rising channel that I was looking at on CL broke down, but only to retest the low in what is currently the second low of a double bottom, but may be evolving into a slightly larger IHS. CL is likely starting another leg up here, though there is some reason to think that ZB may be doing the same, so whether these correlations are of much practical use here is debatable.

Just a reminder that Stan and doing our monthly public Chart Chat on Sunday at 4pm EST at theartofchart.net. That's free to all and if you want to join us you can register for that on this page here. I wrote a post on the blog there on Tuesday night looking at JPYUSD on multiple timeframes and forgot to mention that on my post yesterday morning, so if you missed that you can see that at the theartofchart.net blog. This is the first of a series that I'll be doing there looking at the major USD currency pairs, and some less major USD currency pairs that I find interesting. Stan's planning to do a series looking at various energy futures over the next few weeks as well, which should also be very well worth reading if you trade these.

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