Lower Band Bungee Jumping
Yesterday was a classic lower band ride day with a touch of the 2SD daily lower band, an AM high that failed, and a gap fill and lower low.
The obvious target is still the 1820 area and as long as the lower band ride continues then I think we may well make that target today. SPX (NYSEARCA:SPY) closed back within the 3SD lower band yesterday, so SPX just missed a record breaking three consecutive closes below that.
For today I’d be looking for an AM high that would ideally test the daily 2SD lower band which closed yesterday at 1927. Any high under Monday’s high at 1954.09 is theoretically acceptable but I’d be getting edgy about the short case on a break over yesterday’s high at 1948.04, and would recommend being very careful with shorts on any break over 1954.09, as that is possible double bottom resistance. SPX daily chart:
In terms of the pattern setup here the bear flag that I was talking about yesterday morning turned out to be a bear pennant that broke down in the afternoon. I would normally look for either a retest of the low on a break like this, already done at the close last night, or or on a break lower the same length move as the flagpole into the pennant, which in this case would be 1720. I’m expecting to see support in the 1820 area, but if there is a strong break below then 1720 could well be the target. SPX 60min chart:
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Just for clarification, when I post a possible bull or bear scenario on a break over a level, it does not mean I am giving that scenario equal weight. I’m leaning strongly bearish here unless we see a break over 1948.04, neutral on a break over 1948.04 but under 1954.09, and bullish as long as bulls can keep the tape over 1954.09. The bears have the advantage here and a decent chance of making the 1820 target area today. If we see that target made intraday we could see a strong rally off that test. Stan thinks a V day is very possible today.