Tuesday, November 4, 2014

SPX 2-Hour Chart Rising Wedge Overbot Negative Divergence Potential Island Reversal Gap

Here's the 2-hour chart saga continuing. It has been about 1-1/2 weeks watching this chart waiting for the negative divergence to develop properly and it is like waiting for Godot. The maroon lines show the top at the end of last Thursday's session. Price printed a higher high while all indicators turned neggie d so the spank down was at hand and price started to falter. The only thing that could stop the chart weakness is a positive news event as was ironically mentioned that evening. And, as fate would have it, overnight into Friday morning the BOJ fired the QE money bazooka and boom, an upside launch negating the negative chart set up requiring some time for the chart to build in the euphoria.

On Friday, price gaps up through the 1999.50-2001.50 area (brown lines) and is now sitting on an island above 2001.50. Price now comes down to test this support as this is written and if price would collapse straight down through the gap to 1999 and lower in a heartbeat that is an island reversal pattern. Otherwise, price may continue to simply saunter lower and gently fill the gap as price leaks lower. The third option is a bounce from the top of this gap.

Price ran up through the red rising wedge and failed under the lower red trend line collapsing from the wedge. The saga with the indicators continues. The RSI and MACD remain a hair long and strong so the current down move is questionable. The two peak candles have equal tops but the intra-2-hour top occurs with the MACD a tiny touch higher, thus, neggie d is not 100% there, and you comically need a magnifying glass to split these hairs at this point. The other neggie d (red lines) in the indicators sends price lower today for the initial spankdown but the thought is that price will come back up for another look and perhaps fill that gap at 2018-ish. At that time, price should roll over to the downside and the top will be in. There are two wild cards which bring back memories of last Friday's orgy bounce.

First, the mid-term elections are in play in the States today, the polls are currently open and the politicians are promising a chicken in every pot. The expectation is that the republicans will take the Senate and even though some of this is built into stock prices a rally will likely occur anyway. Conversely, if the republicans are denied the Senate, stocks should sell off strongly. Second, the ECB meeting is Thursday morning East Coast time before the US market opens on Thursday where President Draghi either fires his QE  money bazooka creating a stock market rally, or decides to wait a few weeks. An ECB money bazooka will create another upside orgy in stocks if it occurs. The thinking currently is that Draghi will hold off especially with the smoke from Japan's move still clearing. So there are two events over the next, say 38 hours, that may dramatically affect the charts again.

Marrying the republican Senate outcome overnight tonight with the hint of juice remaining above by the RSI and MACD may bring price up again to that 2018 gap. Equities may want to stagger sideways this afternoon awaiting the election results this evening and through the overnight. The chart is topped out now or about to top out with one more spurt higher. Watch for the gap fill or island reversal at the 1999.50-2001.50 gap. The MACD negative cross occurs (red circle) so the bears are in charge. Thus, the expectation is a continued down move in price now or a brief rally move up tomorrow on the republican outcome followed by continued down directly thereafter. 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.

Note Added 12:29 PM: The SPX bounces directly off the top of the gap at 2001.50 as the above article was written. How do you like that? Price is at 2009.33 running higher. The SPX will likely stagger sideways waiting for the election results. Keybot the Quant remains long and the algorithm is tracking VIX 14.10 and JJC 37.12 as key market direction drivers currently. Copper has collapsed over the last few hours with JJC at 36.45 helping bears. Volatility rises with VIX above 15 helping the bears as well. For equities to move another leg higher, the bulls need either VIX under 14.10 or JJC above 37.12, otherwise, the bulls got nothing. Even if a rally occurs due to a republican taking of the Senate, watch these two parameters since stocks will reverse and roll over to the downside unless the bulls achieve either VIX 14.10 or JJC 37.12.

Note Added 12:49 PM: The bulls are unstoppable with the SPX now up to 2012 taking a big trampoline bounce off the top of that gap at 2001.50 about 1-1/2 hour ago. VIX 15.07 maintaining the 15 level about a buck above its 14.10 rally signal line. JJC 36.40. TRIN is 1.44 favoring the bears today representing a pace of steady-eddy selling even though the Dow Industrials and Dow Transports are a touch positive.

Note Added 2:05 PM: The SPX is up to 2013 receiving lift in the afternoon. Heck, price is so close to the 2018 the bears would be better off simply filling that upside gap to get it over with. VIX is 14.99 dipping under 15 so any move lower in volatility sends stocks higher but price remains above the 14.10 level identified by the Keybot the Quant algorithm. JJC 36.46. The beat goes on.

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