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On to the markets.
Having made it that far, I was saying that the obvious place for the rally to fail, if of course it was just a rally, was at the weekly middle band, and we saw a hard fail there yesterday. It isn’t a done deal necessarily, but it was a textbook fail and has opened a very obvious target below in the 3340 area IF, and this bit is really important, SPX can deliver a conviction break of main support at the 200 week MA, now at 3619. We’ve seen a couple of pokes down through that so far this year, but to reach the 3340 target area, we would have to see a sustained break.
SPX weekly chart:
When the high at 3886 was made I said that a good way to close out this rally, if it was just a rally, would be to retrace enough to deliver a significant decline on the daily RSI 5, then retest the high to deliver a divergent RSI high and both get a possible RSI 5 sell signal brewing and set up a small double top, then SPX would break back down, fixing the daily sell signal and likely ending the rally. That went exactly to plan and the daily RSI 5 sell signal fixed yesterday, and has not yet reached target.
I also said on Monday sustained break back below last week’s low at 3803.79 would look for a target in the 3705-20 area, and that target was hit this morning. SPX is now testing the 50% retracement level for this rally, and if that breaks down then that opens a possible retest of the 2022 low at 3491.58.
SPX daily chart:
As well the test of the 50% retracement level for the rally, SPX is also testing the daily middle band here, currently at 3730, that needs to break to open lower targets. The daily lower band is currently at 3529, so in effect a break and conversion of the middle band to resistance clears the path to a retest of the 2022 low on the daily chart.
SPX daily BBs chart:
On the hourly chart SPX reached the RSI 14 sell signal target this morning. I also drew in a possible resistance trendline a few days ago that was the theoretical falling channel resistance from 4325 that would be an ideal fail level for this rally, and it was hit at the high.
That has established a clear falling channel from the 4325 rally high that is within the overall falling channel for the decline this year. I have marked both on the daily chart above. That is particularly interesting because the two channel support trendlines are due to intersect in the 3340 area in late November.
My inner math geek would be very happy with a test of both trendlines exactly as they intersect, but I’ve seen a few of these over the years and that rarely happens. What would be more usual would be a test of larger channel support near the end of November after the trendlines cross, and a hold of that larger falling channel support would set up a possible strong rally in December back into the 4000 – 4075 area at channel resistance.
Let’s not get ahead of ourselves though. First SPX would need to deliver a sustained break of the 200 week MA at 3619, and then the 2022 low at 3491 to open up the obvious trendline target in the 3340 area.
SPX 60min chart:
The rally formed a decent quality rising wedge that was likely a bear flag that has now broken down. A rally at the 50% retracement level could hold into a retest of the rally high at 3911.79, but given that would now break the falling channel that has been established from the 4325 high, that seems unlikely. If seen, that might be a prelude to a break up further.
We are seeing a modest rally here. I’m expecting this to be a bear flag before SPX breaks the daily middle band and heads lower.
SPX 15min chart:
So far the bear scenario back into at least the retest of the 2022 low is playing out perfectly. If that remains the case then the next big inflection point will be at that retest, which might of course be the second low of a double bottom. We’ll see how this develops on the way down.
I’m not yet sure whether we are doing our monthly free public Chart Chat at theartofchart.net on the coming Sunday or the one after so once I know I’ll mention it on my twitter.
My next post should be on Monday or Tuesday before the open. Everyone have a great weekend. 🙂