We'll follow up yesterday's discussion on the SDS with a look at the underlying, the SPX. In this chart we can see that coming out of the March low, the mid-range 21, 34 and 55 RSIs immediately got "in sync," with each rallying above its "shadow," which is the next RSI down in the Fibonacci sequence. The 89, 144 and 233 RSIs quickly followed suit, and it was off to the races on the upside.
In May, we can see that the 21 RSI came down toward its "shadow," the 34 RSI, and remained above it. In late May, the 21 RSI went into "Bullish Synchronicity" with its "shadow," the 34 RSI, meaning that the readings were very close, which acts as a "compression" of sorts. If the high of that day's candle gets taken out to the upside (pivot candle), the release of that "compressed energy" at Bullish Synchronicity often results in a nice move, which sometimes can be quite explosive. In this case, the result was the technical breakout of the Symmetical Triangle (the pattern in black in the next chart), on June 1, at 919.73, which lead to a rally to 956.23, which was a Fakeout/Breakout high of the Bear Flag (pattern in blue in the next chart).
Looking at this indicator, and looking at the price chart, the first sign of any trouble for the rally off the March low was the June 15 breakdown of the Bear Flag, at 930.56. Very painful for anyone shorting for three months (early March to early June), against this trend.
The first sign of weakness in these RSIs was concurrent with the break of the Bear Flag. On the selloff to SPX 903.78, the 21 RSI fell below its "shadow," the 34 RSI, but it held at the 55 RSI. It rallied back to Bearish Synchronicity with the 34 RSI on Friday, meaning that it is "out of position" below it, in a "back kiss" compression.
The 21 RSI reading is 54.124
The 34 RSI reading is 54.1828
Friday's candle is a "pivot candle," meaning that if the 915.80 session low gets taken down, a sell signal is generated from this particular indicator. Remember, we never allow indicators to TELL US what to do. It's our job to decide whether we want to take a signal or not, based on our read of the price chart.
We want to consider the signal in context with what the price chart is doing, and indicators don't know that. We want to see if there is anything "pivotal" about SPX 915.
Friday's close is just about smack in the middle of support at the top of the Ascending Triangle (pattern in black) and 927-928 resistance, and then 934.87 resistance (the bottom of the Bear Flag, on Monday). That doesn't look like there's anything "pivotal" about SPX 915.
In the Hourly chart, The Bulls have a chance at an Ascending Triangle breakout (the pattern in red), the "flatish" highs of which are roughly 928 and 927. The "last low" along the ascending line was 915.80, so if the ascending line gets broken (it rises a little each hour) AND that 915.80 gets taken down, the Ascending Triangle possibility is blown.
On an upside breakout, The Bulls must face DOUBLE resistance at the top of the Bear Flag (in yellow), and the bottom of broken Bear Flag (in white), in the 930's.
Wait a minute. Did we just say 915.80 in the HOURLY chart is important for The Bulls ??? Hm-m-m...
In the 10-Minute chart, the SPX has put in a very short-term Triple bottom over the past two sessions at 915.45 ... 915.62 ... 915.80.
Hm-mm-m......there's that 915 again. STOP that!
If 915 should get taken down, it would be a breakdown of a Descending Triangle in this short-term chart. Descending highs ... "flatish" lows. A breakdown of this pattern would put 904.51 IN PLAY, within a point of the recen 903.78 low
927.09 - High of the pattern
915.80 - The most conservative of the Triple Bottom lows, and also the "last low" along the ascending line in the Hourly Chart
927.09 - 915.80 = 11.29 points of downside on a break of 915.80
915.80 - 11.29 = Target: 904.51 IN PLAY
5 comments:
Hi Melf
I was looking at the 60m chart for SPX too. I was interpreting the latest movement slightly differently: I thought if the bulls take out 928, then that would complete an inverted head & shoulder pattern, giving a target of 951.77 [928-904.23=23.77; 928+23.77 = 951.77].
The additional resistance from the previous flag is interesting, a pause and reversal there to shake out new bulls and then a resumption of the trend (after hitting or breaking 928 again) would cause the most uncertainty.
Would be interested on your thoughts on the above.
Regards A
Alex,
Yes, I should have mentioned the upside target if the Ascending Triangle (pattern in red) on the Hourly chart breaks out. I only mentioned where that Double resistance was.
I always use the more consevative of the two highs (or lows) to establish targets, but your calculation is perfectly legitimate.
I would identify the pattern as an Ascending Triangle rather than an Inverse H&S because this "possible" Right Shoulder is going to be wider than the Left Shoulder, and classically, it should be narrower.
The net effect of a breakout would be the same though, as far as the target is concerned.
I would expect The Bulls to have some difficulty if they get to the DOUBLE resistance area if they can rally it here. Yes, good point about 928. If The Bears backed them up from roughly 934 resistance, but The Bulls could re-establish support at 927-928, that would improve the chances of The Ascending Triangle target in the low 950's getting MADE.
If I had my druthers, I'd like to see a selloff here, and see The Bulls put in a Double Bottom near the recent 903.78 low. That would establish a broader base for a rally and The Bulls might have a better chance of getting through resistance. We'll see.
That's great that you're giving these things so much thought. You do good work!
On the 10 min. chart a break at 915 also looks like a H&S pattern.
Good Morning, Mark,
Yes, it does, except the Right Shoulder is higher than the Left Shoulder. Classically, The Right Shoulder should be LOWER in height and NARROWER in width than a Left Shoulder, and form on LOWER volume, indicating a diminution of buying interest.
Simlar to Alex's Inverse H&S scenario (which, technically, is an Ascending Triangle because of the "width issue"), your H&S (which, technically, is a Descending Triangle), the net effect as far measuring the patterns to establish targets would be the same, so no need to quibble about them.
We still would take the high - low of the patterns, and add or subtract that amount from a breakout or a breakdown.
If either of the targets gets MADE and we can make some money, we won't care what we call the patterns ;)
Also, we have had some unorthodox looking H&S patterns in the past that have worked out fine, haven't we? It seems that we had quite a few last winter in the intraday charts, but I can't remember what they were.
Mark,
(Response to your post in Saturday's thread)
You're a good lad for doing your homework and NOT cheating. LOL.
I find it fascinating how we all can look at the same "blank canvas" and come up with different patterns, and "elliott waves," and so on.
As far as I'm concerned, "the proof is in the puddin'." If we can identify a pattern that breaks out and the target gets MADE, we're going to the Cashier's Window and everyone else can argue about what the pattern was "called," or if our analysis was "right." LOL.
As you probably can tell, I really, really like trendline validations, and retests of breakouts and breakdowns, like the failed retest of the neckline in the Morgan chart. When we play these patterns, we're always wondering things like, "Did I get that neckline right?" A failed retest at the neckline in the Morgan chart is one confirmation that we DID get it right. The move to the "lower low" is another confirmation that we got it right.
Final confirmation would be if the target gets MADE, or comes reasonably close. As we know, these things can "morph" (change) into something else, so nothing is guaranteed, but it sure is nice when they play out "as they should."
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