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The Seven Samurai of Resistance

Feb 10, 2014 8:12 am Print Print

The major indices finished higher for the week. The SPX missed turning its Weekly Swing Chart back up by 0.74.

Given Monday's mini-crash, the turnaround was remarkable, but then again, this fits entirely within the overlay of the potential crash pattern we've been looking at.

Last week, we noted in "An Interesting Thing" that this is the point in The Pattern where a large rally could very well play out.

For example, in early October, the largest one-day rally point-wise to that point in history played out.

Thursday and Friday set the largest two-day rally in 4 months.

Despite the weak jobs report, which sent the futes reeling for all of 10 minutes, the market rebounded quickly to grind with a vengeance into the bell.

Actually, the futes were pointing to a strong open on Friday prior to the NFP, but plunged immediately after the Bureau of Labor Statistics released the poor numbers.

The consensus amongst economists was for a gain of around 175,000-180,000 in nonfarm payrolls. The actual gain was a puny 113,000.

So, there were two ways for market participants to be wrong on Friday: To miss the number and to compound it by missing the reaction to the number.

While you can't dismiss the strong price action to the weak news, one can't help wondering if someone big didn't have an agenda for the important Friday weekly close.

Did investors really buy into the premise that the bad weather was a good excuse?

Reading financial accounts over the weekend, you can't get a handle on whether bad news was good news again or whether good news (the unemployment rate genuinely dropped) was once again actually regarded as good news.

That's why we'll concern ourselves with the technicals.

The big question is whether the 173% S&P rally from a 12-year low in 2009 is over coinciding with the Fed pulling back from 3 rounds of stimulus that helped push the index higher.

Interestingly, there is another sign that the January 15 record high (a nominal high over the December 31 high) is significant: 173 (as in 173% advance) is 90 degrees square precisely January 15.

The decline that kicked off 2014 measured 110.92 SPX points. 111 aligns with February 4 on the Square of 9 Chart. The intraday low, so far, was February 5 while the closing low was February 3. Happenstance? Is this a tool that should be in your trading arsenal?

The market respected this square-out of the range -- at least for the time being. The big question is, as offered last week, whether this was another square-out like that on October 9, 2013.

The market roared off the October 9 lows as well. In my experience, when the market hits a potential square-out like a brick wall and turns sharply, the "vibration," the square-out is indeed exerting its influence.

That said, the angle of attack to the downside off recent highs was powerful. So, we should find out within a week or so to as early as today or tomorrow, which "vibration" is packing the punch.

The SPX is rally up to 7 Samurai of Resistance. We are about to find out whether these 7 indications of resistance will prove to be the Magnificent Seven that slays the bull.

This tight resistance just above on the SPX ties to the following:

1) A Bowtie of the 20 and 50 DMAs

2) A 50% retrace of this year's decline at 1795.38

3) A turn-up on the Weekly Swing Chart

4) 90 degrees down from high at 1807

5) A possible right shoulder in a Head & Shoulders top formation

6) A backtest of a Live Angle (green on chart below)

7) 1807 aligns with February 4, the low. In other words, the date of the recent low may be "pointing" to the price of a retracement pivot high.

Daily SPX Chart:



On Friday, the SPX rallied to 1798.03, just shy of a turn up on the weeklies on trade above 1798.77. This week the Weekly Swing Chart can turn back up on trade above last week's high of 1798.03, Friday's high.

Monday should be interesting. The normal expectation is that it would be easy for the SPX to turn its 3-Day Chart up on trade above Friday's high today. While the index is in the Minus-One/Plus-Two-sell position and while this is the first time the pattern has been carved out in 2014, the strength of last week's rally suggests a higher high today, which pinocchio's 1800.

In so doing, the SPX would turn its weeklies back up for the first time since the sell off began.

If the SPX is able to convert its 50 DMA and 1807, there is a better than average likelihood that a test of the highs -- which could include a new high -- could play out. I don't think that are the odds on the scenario, but if it should happen, I think it will represent a last-ditch rally.

Form Reading Section:

Tesla (TSLA) Chart:



Gilead Sciences (GILD) Chart:



Palo Alto Networks (PANW) Chart:



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