January 23, 2018
By Mish Schneider
What I discovered today, will unequivocally help you determine if not the top of the market, at least a major inflection point for a correction.
The Rorschach test is a pychological test that uses inkblots to examine a person’s personality and emotional functioning.
Controversial because the interpretations can be subjective, that controversy reminds me of the varying controversial interpretations of the market.
Furthermore, examining the market’s personality and emotional functioning may result in illusory and invisible correlations.
For example, some do not see a strong association between price and market performance because it does not match their expectations.
Those would be the technical analysis naysayers.
Looking at the photo and trying to measure the market’s state right now, I see a gargoyle and Captain Crunch-hey-it’s my interpretation .
When duality exists, I take a micro rather than macro look.
I scrap the daily, weekly and monthly charts and focus on the 30-minute charts.
Doing so now has elucidated a powerful technical indicator called pivot points.
Examining support levels or S1, a fascinating pattern has emerged.
A pivot point is calculated as an average of the high, low, and closing price from the performance of an instrument in the prior trading period.
When an instrument trades above the pivot point it is usually considered bullish, whereas if an instrument trades below the pivot point it’s considered bearish.
The S point, or S1, S2, and S3 are the support levels one expects an instrument to hold, especially when the instrument is trending.
3 of the 4 indices, or the S&P 500, Nasdaq 100, and the Dow, all have been trending higher. Indisputable no matter what anyone might interpret looking at my Rorschach test.
SPY, QQQ and DIA have not closed beneath S1 on a half-hour basis since January 10th.
That comes to 8 trading days that each of these indices has held key intraday support levels.
Here’s the best part-
If we go back to January 2nd, SPY has only traded under S1 on a ½ hour close once-on January 10th.
That means that out of 16 trading days, SPY only broke intraday support for one day. And, that day, January 10th, SPY opened under S1 yet wound up closing above it.
Ditto for QQQ and DIA.
That’s HUGE and quite honestly, super exciting and clear to a chartist such as myself.
Repeatedly, I have focused you on watching both the U.S. Dollar and the 20+ Year Long Bonds. Both have their last vestiges of support around 23.45 and 120.60 respectively.
And I still believe that should the dollar break (UUP) below 23.45-especially as we close out January, consider that a precursor for a possible meltdown.
Nevertheless, if you couple that with the first day any of those 3 indices close below S1-say hello to my little Rorschach gargoyle friend!
S&P 500 (SPY) On the half hour chart, this has not closed below S1 since 1/10. That number tomorrow, 282.65 area. Must close under there on a 30-minute close and even more powerful if closes under end of day
Russell 2000 (IWM) 158.95 S1 pivotal support
Dow (DIA) Like SPY, hasn’t broken S1 on a ½ hour since 1/10. That number tomorrow-261.35
Nasdaq (QQQ) Like SPY and DIA-so S1 tomorrow is 168.80
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