Thursday the SPX left a textbook sell setup. Maybe too textbook on the heels of Wednesday’s surge suggesting Thursday was a Pause Day.
The SPX turned its 3 Day Chart up on a backtest of its 50 day line and rolled over…closing below the key 5945 level which as you know is 180 degrees down from the 6100 all-time high, albeit not by much—the index closed at 5937.
As well, most importantly, the SPX turned down from a conspicuous 3rd lower high.
W. D. Gann stated fast moves come from 3rd lower highs.
The T Rex in the ointment is that today is a monthly OpEx.
The other T Rex is the Mag 7 which led the decline weighing heavily on the SPX and QQQ.
TSLA – 13.97
AAL -9.51
META -6.00
MSFT -2.91
AMZN -2.86
GOOG -2.63
NVDA -2.39
Let’s take a look at some other 3rd lower highs.
Here’s 2018
Here’s 2015
Notice the 3rd high is a tad higher than the 2nd high. The market isn’t a Rolex.
Here’s late 2012
Here’s 2007 which is interesting because it’s from an all time high…similar to the current pattern.
Checking the SPX hourlies shows the market has essentially gone sideways since Wednesday outsized gap to a first hour high.
Initial support is the 20 hour moving average at 5920.
The 50 hour moving average at 5890 is coincident with a short term rising trend line from Monday’s low.
50% of the range from Monday’s low is 5869.
This level ties to the 50 hour moving average and the square, 270 degrees down from the all-time high.
As well it is Tuesday’s high (5872).
So we have 4 technicals that may act as a magnet pulling the SPX lower over coming hours/days if it starts down:
- The 50 hour MA
- A short term rising trend line
- The square 270 degrees down from high
- A 50% retracement of the range off Monday’s low
In sum if the 20 hour fails to act as support the door to this 5870-80 level is open.
That said Thursday was an NR 7 Day—the narrowest range in 7 days.
These contractions in volatility are usually followed by an expansion in volatility within the next few days.
Based on Wednesday’s momentum the volatility could be to the topside today.
At the same time, next week the Gann Panic Window opens in the context of 3 lower highs.
Consequently, a rally into the long weekend could be a Bull Trap.
Markets will be closed on Monday for MLK Day.
On that day, we’ll be diving into a remarkable synchronicity between the Great San Francisco Earthquake and Fire that destroyed the city in 1906 and this months fires in Los Angeles.
We’ll showcase this in Tuesday morning’s report.