Why 2655ish Is Such an Important Level for the Bulls Right Now
While Tuesday couldn’t follow through from Monday’s large range Lizard reversal, if you drill down to the SPX hourlies, you see a possible inverse of bottoming Head & Shoulders pattern.
A Lizard is a Bottoming Tail from a new 10 day low where an item opens and closes near session highs after a tailing back up on the day.
Yesterday the index was rejected from a gap up open at our 2665 pivot and flat on the year at 2673: however, as the above hourly chart shows, a punch over 2655 ish and holding will trigger the Head & Shoulders. indicating a challenge of the more bullish pivot at 2710.
The mid-point of the range from the October 3 pivot to Monday’s low is 2701.
Last Friday the SPX was rejected from its overhead 20 day moving average at this same 2701-2710 level.If this morning’s rally holds and we clear 2660, the index is set to test its 20 day m.a. again and this time I think it could be successful.
Why? Because the rubber band was pulled back with a flush-out of the 2600 level testing the weekly and daily low closes for the year in the 2580 region.
At the same time, another Flying Elvis long setup looks like it’s in play, as we flagged at the time on the November 20 test of the late October low.
A Flying Elvis (think Nick Cage in Honeymoon In Vegas) occurs when an item puts in a bottoming pattern and turns up but falls the next day looking like a failure. Then on day 3 of the pattern the rip cord is pulled and the parachute opens.
To recap, the presumption on November 20-21 was that a W Bottom was on the table into the Decennial Cycle of the crash low on November 21st, 2008. That set up perpetuated a 170 point SPX rally. This long set up has the potential to be stronger.
Why?
1) Monday’s signal reversal bar was more impressive than the November 20 turning point. Monday flushed out prior lows leaving a large range Lizard in the process.
2) Monday may have installed a Gann W V Bottom. In other words, October 29 and November 20 established a W Bottom with Monday’s undercut putting in the ‘V’.
3) Last week, we flagged the significance of a ‘natural’ December 7 turning point that squares out with 2634. Note the triple bottoms at 2634 on the above daily chart.
Throughout this year, we’ve flagged many synchronicities with 1987.
2018 had the best January sine 1987.
In 1987, the market corrected into a May low and ripped higher for a new high in August and rolled over beginning in October big league — just like 2018. In 1987, following the October crash, there was a new closing low in early December.
So the possible Flying Elvis long setup from this morning’s strength doesn’t look like a fade. A bigger hook than occurred after the November low may be if the SPX can clear and hold 2660.
If the index can clear 2700-2710 it is in a position to challenge the mid-point for the year at 2737. Of course the SPX has cleared that twice this fall only to come apart like a dime store toy.
However, IF the SPX can ever recapture 2737 and hold it is in a position to attack the triple tops at 2800. Theoretically, if the SPX clears 2800, it will trigger a large Rule of 4 Buy signal — a breakout over triple tops. This seems like a stretch but this market has done a good job of making the improbable probable of late.
So never say never. I would not rule anything out here as Mr. Market has shown that when he seems most predictable — as with the great expectations for a year-end north of 3000 — he likes to upend expectations with a series of cartwheels to show just what he’s capable of.
I don’t want to get too far ahead of the curve, but positive seasonality is in the wheelhouse in December and if year-end redemptions and tax selling back off, upside momentum could catch bears asleep at The Wheel.
Conclusion.
This is a market that has paid to entertain the unthinkable. The unthinkable here is a move north of 2800 that sticks — at least for a while.
Last week we noted that a sustainable rally phase that is long enough and strong enough would set up the market for the next leg down. The interpretation is that momentum through 2700 SPX may put a Santa rally in play…
An encore for the bull before he leaves the building.
Strategy.
The bullish potential gets a hard landing on trade back below 2610 — especially on a closing basis. Additionally, the RUT which depicts the picture for most stocks in the U.S. shows what looks like a date with destiny to 1380ish at the lower rail of a near 3 year trend channel.
Caution is still warranted as last week saw the RUT carve out a large range outside down week. It’s a big IF, but if last week’s high in the RUT is offset over coming days or a week it implies a rally phase.
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