Thursday, January 30, 2014

SPX Daily Chart H&S Pattern

The market drama continues. Markets rally strongly today but the indicators hint that the move may be more of a dead-cat bounce. Traders remain complacent and bullish despite the -4% market sell off so the dip buyers create buoyancy. The thick blue lines show a potential head and shoulders (H&S) pattern forming that needs a right shoulder. The head at 1850-ish, and neck at 1772-1775 targets 1690-1700 as a landing zone if the 1772-ish neck line fails.

The tight standard deviation bands squeezed out the wicked downside move (yellow lines). Since price has violated the lower band with the selling this week, a move to the middle band, the 20-day MA at 1824.52, would be in order, at a minimum. Both the 20-day and the 50-day MA at 1812.67 will require back kisses moving forward. Note how the 20-day and 50-day are converging and this confluence creates a target area for the potential right shoulder to play out.

Key S/R is 1832, 1828, 1824.52 (20-day MA)1815.73 (200 EMA on 60-minute), 1812.67 (50-day MA)1808-1810 (also the left shoulder of H&S), 1806, 1801-1803, 1796, 1793, 1791, 1788, 1781, 1778.97 (20-week MA), 1772-1775, 1768.24 (100-day MA)1768, 1763 and 1745. Meshing the moving average targets mentioned, a potential upside target for the right shoulder is 1808-1828, a strong resistance gauntlet. Since price has moved up through the 1796 R, a move to 1801-1803 is a reasonable expectation. Price is now fighting at the November market top at 1798-1799.

The RSI never reached oversold and the positive divergence (short green bar) is a cheesy bottom. The MACD line continues lower wanting to see further lows after any bounce. The month has taken a beating so typically this will create bullishness for the last couple days of the month, despite the new moon negativity on tap in a few hours and the seasonal weakness expected to end the last couple days of January. Pay attention to XLF 21.44 since it likely dictates if the rally has upside legs, or not. Projection is a move higher to place a right shoulder, perhaps in the 1808-1828 zone, then roll over to the downside again with the neckline failure occurring and the selling continuing as the days and weeks play out. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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