Chicagostock Trading

Chicagostock Trading

Is This the Top?

Last week, we highlighted the inverted head/shoulder technical pattern that was created after the market made new lows for the month in November and caught new shorts on the hook.  This inverted head/shoulder pattern, gave room to expand the market above the neckline of 258950 up to 262350.  The target was met on November 28th, with the market hitting a high of 2627.  



After running into 2623 on the 28th, coinciding with the 61.8% fib extension, the market consolidated, printing a low of 261975 as the fib turned into support.  To close out the month, the market opened today above 2627, triggering another short squeeze and forcing buyers to chase premium higher. This saw the market push through its 76.4% fib at 2639 in attempt to reach for its 100% extension at 2665.  The 2665 level, also coincides with our 2664 "high" call on July 18th. 


Where did we come up with 2664 on July 18th? Simple calculation of taking the 666 low and multiplying by 4.  This equates to 2664, and in adding the 2 and the 4 together, create a triple 6 top, similar to the triple 6 bottom.  This was tongue in cheek back in July, however the market does like using sinister numbers. After using the late September low of 2485, early November high of 259450 and mid November low of 255550, the 2664 level coincided with the 100% fib extension from this rally.  As seen in the above chart, the market printed a high of 265850, falling short of 2665.  The question is can the market hold to make another run at the level.  Wednesday's pivot low of 261975 is now key, as a break of this level shakes out longs and sets up a short term high, trapping late buyers above 2634.  Failure to hold 2620, gives room to retrace the breakout back to the right shoulder at 2580. 



 The midcaps today also completed a major objective, being the range expansion of the July-August range 1795-1685 (110), up to 1906.  We talked about this on Monday here. As seen in the chart above, the objective, also coincides with a major fib extension, being the 61.8% fib at 19079. Going forward, the next major fib is seen at the 76.4% extension at 1960.  Question is there any fuel left to push the market up there? Failure to hold 1885 and a daily close below, creates a negative that buyers will need to overcome as aggressive sellers will have new levels to defend.  Doing so, gives room to retrace the market back to 1826 and ultimately 1713 for a retest of the August low. Notice the Midcaps was the only index that established a 6 month bearish bias, and it turned into a bear trap that fueled the move higher.  The break in August below the 6 month vol window trapped shorts, and as the market overcame its reversal window of 1779, the short bias was reversed, thus forcing shorts to reverse and longs to chase, giving way to expand that 1795-1685 range up.  


Keep an eye on the Nikkei index.  This market was first to capitulate on November 9th as it ran into a high of 23445 and turned down to a low of 21845. Over the past 2 weeks, the market has chopped sideways, giving way for today's short squeeze and retest of 23000, which has turned into new resistance as buyers are caught above from November 9.  Going forward, buyers will need to overcome this 23000 resistance for another shot at the high.  Failure to do so and a daily close below 22520, turns this move into a headfake, giving way to expand the market lower, with 19700 as major support to retrace the September breakout. 


Coming back to the SP500 chart above... Notice the breakout in September above the 6 month vol window of 2478, establishing a bullish 6 month bias, giving way for the rising trend channel into 2600.  To start the month of November, the market held above its prior objective of 2559, turning old resistance into new support as the market chopped sideways above the level.  After the head fake on November 15th, the breakout over 2590, has given way for the expansion into 2623 as seen in the 480m chart above.  Today the market continued its push, probing through the top of its rising channel as buyers panicked into the market with the SP500 trading on the high at 2658 and the VIX being up 12% at the same time!  The market came off these highs to trade below 2643, leaving short term longs caught above.  Going forward, buyers will need to overcome 2650 for another shot at the ATH.  Failure to do so, leaves late buyers caught above, giving way to shake the market lower.  Daily close below 2621 is needed to reject the current high and allow room for a retracement of the breakout down to 2580. The 6 month reversal window is all the way down at 2418.  The market would need to take out this level, to trap buyers above 2478 from the 2nd half of the year.  Notice the first half of the year January-June, the market establish a bullish bias by breaking through its 6 month vol window of 2297.  This was repeated in the 2nd half of the year, with the market breaking through its 6 month vol window of 2478 in September.  Going into the last month of the year, there is opportunity to see profits taken.  The first 2 weeks of January is critical as this is the opening range for the 1st half of 2018.  If you would like to receive the 6 month volatility windows for Jan-June 2018 on the equity, energy, grain, metals, and currency markets, be sure to subscribe above. 



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2623 & 2665