Testing The Middle Band

Yesterday’s bearish historical stats delivered hard and broke the bull flag setups that I posted in the morning. SPX is now testing the 4000 area and, if that breaks, the next target will likely be a retest of the retracement low at 3810.32.

I still like all the bull flags from the high here, but if SPX reaches the retracement low and continues down hard, there is an obvious target for that move. The H&S I have drawn on SPX from the high isn’t high quality, but it isn’t bad, and has a very obvious target in the 3400 area, which is a significant area because that would be a backtest of the pre-2000 crash all time high. In my view that would be the obvious target on a  break below 3600.

SPX weekly chart:

On the SPX daily chart, the close yesterday was below main rally support at the daily middle band, now at 4041, and if we see a confirming close below again today, then that will be a significant signal that SPX may continue directly down towards the retracement low, and after yesterday’s breakdown, I do have a couple of high quality targets on the way there.

SPX daily chart:

Now one of the three flags I showed yesterday was just a flag triangle, and triangle targets aren’t clear, but the other two had an alternate read as high quality H&S patterns, and those do have clear targets.

On the SPX H&S that broke down the target is in the 3980 area, and that’s not far below. That would also be the about the 50% retracement of the rally so far. If we were to see that tested today then a rejection to close back over the daily middle band, then that would be a cautiously bullish setup suggesting that we might then have finished an A and B wave for the rally, and be starting a C wave that might reach the weekly middle band in the 4300 area.

SPX 5min chart:

NDX has a more ambitious target for the H&S there, as that pattern has only just broken down, and the target is well below the 61.8% retracement level for the rally. That target is in the 11910 area and, if reached, NDX would likely follow through into a retest of the retracement low.

NDX 5min chart:

The historical stats for today lean bearish,  and then lean bullish all of next week. If SPX is going to test the weekly middle band, that would be a good time to do that, and then most likely fail into a retest of the retracement low.

SPX may well fail directly from here though. Another close below the daily middle band would be bearish, and any significant move below the 61.8% level at 3950 would likely deliver a direct move back to the retracement low at 3810.32, where on the bullish scenario we might see the second low of a double bottom, and on the bearish scenarios we might fall through to one or both of the next decent support areas in the 3600 and 3400 area.

Everyone have a great weekend. 🙂

Written by:

Richard Chappell

Jack is a 20 year retail trading veteran and co-founder of The Art Of Chart. He started his blog at channelsandpatterns.net in 2010 and since has published tens of thousands of charts looking at hundreds of trading instruments across most tradeable markets, doing original work mainly in the areas of trendlines, patterns and divergences. At The Art Of Chart Jack has taught trading skills, technical analysis, and the discipline and trader psychology that allow those to be used effectively in trading.

10th Jun 2022

Leave a Comment

Your email address will not be published. Required fields are marked *