Technical SetUps

Technical Setup: $SPX

Time for a technical update. Last week was a tricky period in markets, the initial rally off of the March lows saw a sizable retrace as resistance was hit. Was this the beginning of a full retest or new lows or was it something else, i.e. an add long opportunity for those who had closed new longs off of the March panic lows.

There were no clear answers at the time given the continued accumulation of bad news on the economic and health fronts. And the weakness persisted in markets for days, but again technicals helped provide perspective.

One of the key scenarios we considered was the potential formation of a cup and handle that could retrace into the .236 fib price area or so:

We tracked this potential pattern to see it if could indeed form.

The next day we saw the drop on $SPX cash:

Would this pattern confirm? One of the tools that helped was looking at $SPX on a shorter time frame similar to $RUT we discussed yesterday.

Here too a bullish descending wedge was forming:

But these patterns led to an ALERT long trigger on our systems:

Indeed we got a technical reaction from this general price zone:

Key then was to track it and see if the handle would indeed form and confirm:

Well, we have our answer:

Which provided the result today:

The question of course that presents itself is also not a straightforward one. The pattern, as a cup and handle, has potential for a lot more room higher and for now we’ve seen a bullish break out above previous resistance. On this basis, as long as this previous resistance can be defended as support the bullish case may indeed be the status quo for now, especially since the Fed is printing like there is no tomorrow and perhaps more positive news on the virus front leads to more hope for a quick recovery.

But there is another entirely different possibility as well which is what makes markets.

Check it out:

A rising bearish wedge on the daily chart? It too has risk higher still, but if it proves dominant over our previous pattern then suddenly the retest and/or new lows scenario may still unfold as well.

Anyone projecting certainty in these markets has access to information I don’t have, but as with $RUT previously and here with $SPX here our job is to navigate these markets as best as possible with constantly evolving technicals to help guide us through the uncertainty and assess the ever changing risk/reward equation.

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Categories: Technical SetUps

4 replies »

  1. Such a “cup and handle” is better characterized (IMO) as an ABC correction in the upward direction. Classic zigzag structure playing out. Overall the B up correction the massive A down. Incomplete still when you break down the C of the ABC to it’s expected 5 wave structure. So most likely some more push up to come. Maybe to the 50% retrace or so, then the big C down should launch. Next week with the the banks reporting? Or maybe even Thursday with an unemployment filing # too big for a digital computer to handle, and too large for the market to ignore again!

  2. Look we will touch 2945 and we will go to retest bottom and probably as usual will be hammer touch down 2080-2120 buy zone

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