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Wednesday, 11 May 2016

Uncertain Breaks

Many apologies for the very late post today. I'm not feeling that great & am mainly posting this to explain why I was so doubtful about yesterday's break back over the daily middle band in my comments on twitter last night and this morning. Hopefully most of you saw those. If you didn't, and you'd like to see them next time, my twitter ID is shjackcharts.

In summary the reason I was so doubtful was because although bulls had delivered the two main targets I'd been looking for on a bull break, namely a definite break back over the daily middle band at the close, and a break over declining resistance from the high, those breaks weren't really supported by much else. Neither RUT nor NDX had even tested their daily middle bands and what troubled me most was the three perfect bearish patterns on SPX (megaphone), RUT (wedge) and NDX (wedge), that were all intact and none of which had even overthrown. One thing I really don't expect to see on a bullish break up is three perfect bear flag patterns on these three indices that I follow closely. Obviously that was casting the bull break into serious doubt.

Now I've mentioned before on a number of occasions that a break back through a middle band needs confirmation in the next time period, that being the next day on a daily middle band break. When these breaks fail they tend to fail with a strong reversal candle immediately afterwards that breaks back below the middle band with confidence, often retracing much or all of the previous candle. At the time of writing, it looks likely that we will see such a candle today, and that the daily middle band, currently at 2079, will break back down on the close today.

If so, does that mean that the bull case is then as trashed as most were assuming that the bear case was last night?. Well ...... no. There are three key levels that I'm watching here that bears need to reconvert  to resistance and they are first the ES monthly pivot at 2063.80, being tested at the moment and in the 2068/9 SPX area, then the ES weekly pivot at 2053.40 (2058/9 SPX area) and most importantly there is a candidate breakaway gap level at Monday's close at 2058.69, which is a good match with the ES weekly pivot but it needs to be borne in mind that the spread between ES and SPX tends to vary during the day, and that one is very much an SPX target. Once that gap is filled then the possibility of a bullish breakaway gap at yesterday's open is eliminated and bears just need to reconvert the ES weekly pivot to resistance to start the likely next leg down. Bears didn't deliver that today, but they need to tomorrow, or if SPX trades sideways tomorrow, Friday morning at the latest really. Ideally that support would be broken with a breakaway gap down through it tomorrow morning, though that isn't required.

Here are the respective bear flag patterns on SPX, RUT and NDX. They have all broken down now and the next leg down should now have started, unless bears totally mess up this setup tomorrow of course. We'll see. :-)

SPX 15min chart:
RUT 15min chart:
NDX 15min chart:
I'd like to see a retest of the ES daily middle band at 2073.5 overnight that holds. That may or may not happen but if seen that would be an attractive short entry IMO.

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