Chicagostock Trading

Chicagostock Trading

SP500 January 2018 Mirrors January 2016


The SP500 started this year, zooming through last year's high and charging up to 2800.  This 2800 level is the 6 month volatility window in which 5 daily closes above established a bullish 6 month bias, forcing buyers to buy the breakout. The bias was established on January 24th, when the market completed its Cup/Handle target created on January 17th, after recovering its prior high of 280850 based off the January 16th low of 276925.  The market expanded this Cup/Handle up to 2846, seeing 2 days of consolidation, before expanding higher on Friday January 26th.  The breakout over the prior ATH of 2855 lured in new buyers, in which were caught when the market fell back under fell back under the January 24th low of 282550.  Over the last 2 days, buyers have fought to defend this level, seeing the market fall back to its Cup/Handle breakout of 2810 in which buyers defended, however were unable to overcome 2840.  Today the cash market opened lower, leaving longs trapped above and forcing sellers to chase lower, giving way to fall back under 2810 and target sell stops below the January 16th low of 276925 that began the move up.  By falling under 2800, buyers who bought the breakout above are now on the hook as the market falls back to test its 6 month pivot of 2751.  Buyers will be forced to defend this level, to prevent further damage, however as the Midcaps are showing, a move below the 6 month reversal window of 2717 and 5 daily closes below, will reverse the 6 month bullish bias into a reversal bias, giving way to expand the range of 211 (2667-2878), down toward 2456, which retraces the market back to test its breakout from September.  Rallies back to 2800-2810 now offers new resistance as supply is caught above, for buyers to overcome and sellers to defend.  Buyers will need to squeeze shorts through the February high of 2837 in order to get another shot at the high.  Failure to overcome 2800-2810, leaves longs vulnerable to see a shakeout under the 6 month volatility window of 2717.



We were looking for a break of 2769 into the FOMC, however it came 3 days later, today on Friday, coincidentally Janet Yellen's last day. 


The Cup/Handle pattern created January 17th, giving way for the move into 2846.





The market reached the 2846 target on January 24th, putting in a low of 282550, and a high of 285525.  Over the next 2 days, the market broke through 2855 to squeeze shorts and lure in new buyers, reaching toward the 161.8% fib extension of 2885.  High of 2878 was made, followed by a move below the prior low of 282550, leaving the late buyers who bought the breakout over 2855 on the hook.  With the failure to hold 2825, the fall into 2810 was attempted to be defended, however with buyers unable to overcome 2840, the fall below 2810 has led to the market taking out the January 16th low of 276925, reversing the breakout from the Cup/Handle.  Going forward, rallies back to 2800-2810 provides new resistance for sellers to defend and buyers to overcome.  The acceleration to the downside, is being fueled as longs used most of their ammo on the move over 2800.  Next support comes in at 2751, with sell stops under 273650 to take out the January 10th low. Doing so, gives room to target the 6 month reversal window at 2717, in which buyers will have their last line of defense to sustain the 6 month bullish bias. Five daily closes under 2717 is needed to reverse the 6 month bull bias into a reversal, giving way to test next support at 2680, with stops under the December 29th low of 266775.  Break of this low, will give back all of the year's gains, giving way to take the range of 211 and expand it lower.  


As we highlighted, the action seen in January of 2018 was a mirror image of January of 2016. In 2016 the market sold off to establish a bearish bias, in which sellers were trapped, fueling a move higher. 


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