Thursday, 30 September 2010

10:28 BST - SPX - 60 min time and price chart

I've continued to watch this 60 min time and price chart with interest:

SPX 60 min time and price chart:

When I posted it on Tuesday (see here) I noted how price had crawled up the mid line of the channel after the big gap up on Friday, fallen away from it and then tried to get back to it but failed, suggesting some weakness.

You can see that following this, we saw price drop out of the channel, but it then did what I didn't want to see it do if we had seen a top to the rally from the August low - it got back into the channel and we duly made a new high.

However, its interesting that we didn't get near the mid line of the channel with this new high at 1150 and after making that high, we fell back out of the channel and then spent most of yesterday crawling up the lower line of the channel, trying to get back within it. The failure to do so continues to suggest weakness and, as you can see, we continue to see the indicators seemingly confirming this weakness.

Also of interest is the striking similarity between the current move and the move into the early August high - I've highlighted the two areas in yellow. The current move seems to be a smaller version of the August top. Well, this is interesting but probably has no predictive value. Just thought I'd point it out.

Still, the current move, is displaying the same indicator divergences that we saw into the August top, so may be indicative of a topping process going on.

None of this precludes further highs, so we just have to continue to watch price action and look for confirmation in the indicators. I explained in the previous post what I would want to see in price and indicator action to provide a degree of confidence that some sort of top has been put in. Although we closed below the channel yesterday, I don't think it can yet be considered as a significant breach. We need now to see downside follow through if a top has been put in.

However, if price gets back into the channel, then its going to be a warning that we may see further highs before this rally is over. It could be limited if price again fails to make it to the mid line of the channel, so it would be sensible to monitor any move back into the channel to try to gauge the strength of the move. 

As I pointed out prior to Friday's move, price could move up into the next Gann price levels (1156 then 1170) by just crawling up the mid ine (or, indeed, the lower line) of the channel. If that's what it does, again, I'd be looking at that as a sign of weakness.

Of course, if it gets back into the channel and then gets above the mid line, then all short bets should be off.