SPX Daily Chart Downward-Sloping Channel H&S Gap Lower Band Violation

The overbot conditions, red rising wedge and negative divergence created the market top and subsequent spank down. The blue channel is in play with price exhibiting lower lows and lower highs indicating a bearish trend. The red lines for the indicators are weak and bleak so lower lows in price are desired moving forward even if a bounce occurs. Price violates the lower standard deviation band so a move back to the middle band, the 20-day MA at 1795.04, is in play. However, note the tight band squeeze over the last few days that is squeezing out a downside move. Tomorrow is a critical day since price would have to break down immediately to follow the August fractal (purple box). The RUT has not violated its lower band as yet.

The brown H&S targets 1750-ish. The light blue lines show the gap at 1733-1735 and important support due to the September high--back when the Fed played baby games preparing the markets for the start of tapering QE and then pulling the rug out under traders with Chairman Bernanke coyly responding in the Q&A session that he never said he was going to taper. The Fed lost a lot of credibility that day and this may turn out to be a key historic market event looking back a few years from now. Thus, considering all the baby games, price should seek and test the 1722-1745 area simply out of respect moving forward. This support level also encompasses the huge sell candlestick from September so a volume comparison can be made once price moves lower. The SPX has not tested the 200-day MA, now at 1664.28 and rising, in over one-year's time, which is very unusual. Price will need to move lower moving forward to create a test. Considering the current upward slope of the 200-day MA (green line), the expectation would be a move to the 1680-1745 area over the coming 1 to 8 weeks time.

Monday is an important day. If the bulls bounce equities, watch the 1781-1783 resistance level, and if that gives way, price will run up for a back kiss of the 20-day MA at 1593-1596, where price will bounce, or die. The expectation would be failure again and the downside to resume. If the bears come to play tomorrow to begin the week, and push under the strong 1772 support, a test of the 50-day MA at 1761.74 and rising would occur. Overall, moving forward for the days and weeks ahead, lower prices are expected. The bear case is fine as long as the SPX stays under the 20-day MA. Bulls will mount an upside charge if they can punch through 1781-1783 R. 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.