On February 6th, SPX pushed back inside the rising price channel, which was at 1760, and then confirmed this was real on the following day. This put in place the possibility of a measured move of 120pts based on the width of the channel. At the time, I thought SPX would push to the upper channel line at around 1900, exceeding the 120pt target, but obviously that didn't happen.
Now SPX is moving within the confines of what appears to be a Bull Flag and rather than trying to catch a falling knife it is much safer for traders to wait for SPX to break out of the Bull Flag before initiating any new long positions, IMHO. I say this because there is always the chance that the current pattern may prove to be a falling price channel rather than a Bull Flag.
A couple of things to watch for in the week ahead: The RSI is now just above 50 and as long as it doesn't drop below 50, then expect the decline to stall and perhaps turn, but, if the RSI drops below 50 then that will trigger more selling. Next, some traders will sell when the DI lines on Wilder's ADX have a bearish cross which becomes a 'sell' signal when there is a close below the low of the day of the original bearish cross. However, other traders will wait for the ADX line to move up through the -DI line to confirm the sell signal and that will trigger more selling as well. So pay close attention to these two indicators in the early days of next week's trading.
And, of course, Geopolitical events are likely to going to be the most important factor in market direction next week.
GL & be careful.
Comments
2X
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Nice chart! Good ideas.
CurtisM
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Thanks for your comments and thumbs up. Much appreciated.
While I am looking for SPX to drop to the 50% retrace level, I think Glenn has it right with his expectations for 1785 to 1770. And don't be surprised if SPX drops to the most recent swing point support level in the 1740's.
Regardless of where SPX stops this decline, how will you know that the decline is over or that the break out of the bull flag is valid? There are no guarantees, but the chart at the link shows how CCI often signals the end of declines before other indicators and oscillators.
Excellent chart. While the cart is clear, the label "SPX CCI Buy Signal 03/14/14" is only speaking in general terms of previous reversals but not flashing a new buy signal yet, correct?
CurtisM
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Glenn,
Correct, no CCI buy signal now. For this signal to work, CCI needs to first drop below -100 and then rise back up through -100.
CCI fell by 56pts on Friday and could easily drop below -100 by Tuesday. While I still use CCI to look for negative divergence in an uptrend and positive divergence in a down trend, I realized the other day that I was blind to this other aspect of CCI. Since you are short right now, this is something I think will be very useful in determining your exit strategy.
Also note on the chart that I use a 20/20 Stochastic. A bullish cross of the 20/20 will happen a day or two after the CCI rises above -100 and would confirm the CCI buy signal, IMOH, of course.
GL
SimGlenn
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Thanks for the clarification. can you provide a link where we can obtain daily CCI reads. That seems to be scare but valuable information. Thanks.
CurtisM
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Glenn, for that chart I'm using the free version of Ninjatrader, which you can download and use for free. You'll only get end of day data but for daily, weekly, and monthly charts that's good enough.
You can add CCI to any TradingView chart. It's in the "Indicators" drop down menu. However, I'm getting different values for CCI with TradingView vs Stockcharts and NinjaTrader, which is why I chose to use NinjaTrader for the linked chart.
jbspringfield
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Appreciate the post - excellent analysis
SimGlenn
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Thanks once again for the astute analysis Curtis. This is an interesting time since the SPX upside is about 60 points, and the downside is about 70. Most traders are very confused as you indicate. The direction is not clear to me at this point either. Since there is still downward momentum, I am staying with 3x shorts (SPXS and TZA) portfolio protection. There is strong support at the lower channel and 150 DMA near 1770. I would begin covering my shorts near 1785.
It appears that the Ukraine geo-political event may have cut the rally short about 1%. I had my range set for 1875-1900 which it did enter, albeit, briefly. I suspect since the rally was cut a bit short, the upward stretch momentum was also a bit less than previous rallies, so I am expecting this pullback to also lose momentum early.
Lastly, I noticed the VIX did not come into the froth zone, and AAII investor sentiment also did not get frothy. I again suspect the Ukraine issue created a bit of a war fear premium. Additionally, since investors just saw a pullback in January, they may have remained on edge a bit. Other than those characteristics, this recent rally/pullback tandem appears like the others. All major indices show a pronounced MACD rollover from relatively high levels. I disregard the Dow lack of confirmation due to the above trend run up end of 2013.