Courtesy of Springheel Jack of Channels and Patterns
The low on Friday was a technical low with positive RSI divergence on the SPX 15min chart and, barring any unexpected news over the weekend, that should deliver a decent move up next week. SPX is currently in a bullish sequence of higher lows and highs, and unless we see a break below the multiple support levels in the 1335-40 area, I’m leaning bullish for the moment, with an IHS (Inverted Head and Shoulders) target in the 1403-5 area, and trendline resistance currently in the 1385 area and rising at about 6 points per week.
Longer term, a bearish rising wedge appears to be forming and if that continues to form, it would suggest that we may see a bearish break downwards after reaching the upside target area in the 1388-1405 range. The signal for a significant break downwards would be a break of rising support from the early June low, currently in the 1325 area and rising at about twelve points per week.
Here’s the setup on the SPX 60min chart:
(Click on charts to enlarge)
Many analysts are calling for a strong move up into the presidential election, and that occurs into many presidential election years. I think it’s doubtful now. The economic numbers are weak; Europe is still being ‘saved’ from meltdown every few weeks, and is probably in recession; and the US may re-enter recession as well. I don’t generally forecast using fundamentals but the downside risk here seems large.
From a technical perspective, there has been no bullish confirmation yet from either bonds or copper. The setup on Dr. Copper looks ominous, with an almost completed head and shoulders pattern that would indicate falling below its 2008 low if it breaks down. This bearish topping pattern is not alone, there are many like it on equity indices worldwide. While that remains the case, equities look riskier than usual here, and if the US goes back into recession this year, that would normally look bearish for equities. Here’s the alarming setup on the weekly copper chart:
We shall see whether that rising wedge on SPX continues to form.