“Artificial energy is racing my mind.” – Artificial Energy, The Byrds
“While monetary policy can contribute to growth by supporting a durable expansion in a context of price stability, it cannot reliably affect the long-run sustainable level of the economy’s growth.” – Jerome Powell
“Tuesday should see stocks remain in rally mode if our Minus One/Plus Two sell setup is on the table, as the soonest that could play out is Wednesday.”
We wrote the above in Tuesday morning’s report.
Not only did stocks remain in rally mode, but as noted in the report, my Four Horsemen, COUP, OKTA, MDB and TWLO, were saddled up. They came out of the gate loaded for bull.
Ditto our biotech positions, BTAI and BNTX in league with ‘stay at home’ name, ETSY.
Tuesday was a solid trend day with several disparate pistons, enterprise software, biotech and what I call the Pesci Home Alone names pumping in unison.
The fly in the ointment to yesterday’s trend day was a last hour downdraft that saw a mini ‘late’ Turnaround Tuesday.
Tuesday’s high came within a whisker of our idealized 2901 SPX near-term resistance.
This is 90 degrees down from last week's 2955 recovery high.
The index may be on a trajectory to fully satisfy a kiss of 2901 today as the futes are up 25 points as I write.
Trade by even 1 tick over Tuesday’s high of 2893.23 will put the SPX in our Minus One/Plus Two sell position.
This would occur within the aforesaid 2901 ‘square’ region, leaving a well-defined short setup.
The following hourly SPX since April 17 depicts what may be a Head & Shoulders topping formation within a larger H & S topping formation within the context of this potential sell setup.
If the SPX can eclipse and sustain above its 50 hour moving average currently residing at 2878, it puts the index in a position to strike 2901.
At the same time, a failure below yesterday’s open gap on trade below 2843 leaves the index vulnerable to breakage below a Neckline (green) which ties to 2813.
I don’t want to get too far ahead of the anticipation curve, but it would be a typical pattern to see a 3rd test of this rising trendline (now at 2813) play out followed by a bounce with a subsequent failure below this Neckline.
At that point, we would have breakage below a 3 point Neckline.
A logical target for such conjectured rollover would be around a 50% retrace of the 763 point advance off the March 23 low.
This gives a 50% theoretical retrace to the 2573 region.
There are two factors that underpin this geometry:
1) On the Square of 9 Wheel, the number 763 is 180 degrees straight across and opposite January 22. This is important because January 22 was the primary high on the SPX. While February saw a nominal higher high than January, it was a short-lived false high underscored by swift reversal from the February high.
So we have what looks like a square-out of the range. In other words, the 763 point range of the rally ‘points to’ the important January 22 primary peak.
Red is 763
Green is January 22
2) Additionally, this aforesaid 50% retrace region at 2573 is revealed to be the opening gap up from April 6. In case you had forgotten, Monday, April 6 saw a massive gap up. The Friday before the SPX closed at 2488. The next day, Monday, April 6, the SPX gapped open 90 points to 2578.
So April 6 saw a massive impulse which ties to a 50% retrace of the rally off the March 23 low.
Additionally, April 6 saw a conspicuous change in character from weak Friday action carrying over into the following Monday.
The impulse from April 6 projects to the high of the recovery move so far at 2955 by virtue of it being a geometrical ‘mid-point.’
Be that as it may, that does not rule out the possibility of a Pinocchio to our key 3014 region as walked through recently and depicted on a daily SPX from earlier this week shown again below.
Conclusion. There is a setup brewing. The tension is on the tape. We want to watch the action carefully should the SPX trade above Tuesday’s high today as this puts the index in the Minus One/Plus Two Sell position in a well-defined resistance zone.
Breakage below Monday’s low — whether or not the SPX attains trade above Tuesday’s high today or not — warrants caution.
