This week Market seemed to continue to gather the concerning signals. While I very cautiously thought about possibilities for the bull trend to resume, the last three days canceled my hopes. The bear shadow I talked about in my Angles last week is growing. Slowly, but surely.

Let’s explore the hypothesis from various angles.


SPX (Candles charts)
While the October candle did not confirm the September Dark Cloud, there are two growing concerns. First is that the upper wick becomes dangerously long. Second is about a possible closure below the August high. If it happens, the August high/September open, ~3500-3505, becomes an area of enormous resistance.  If November closes below 3209.76 (very low probability), the September low, I would turn aggressively bearish for several months.
Last week ended with a Spinning Top/Doji that was Bearishly Engulfed this week. A Bearish Engulfing is the most bearish of the bearish reversal combos. They rarely happen on a weekly scale and this particular one was one of the reasons for me to look at the very long term charts for major indices for possible long-term reversal points.
The index produced a Bearish Harami Cross on Tuesday that was confirmed on Wednesday. An anemic Incomplete Piercing Line attempt by bulls on Thursday was decisively canceled on Friday, closing below 8 EMA. Outlook is very bearish.

All Indices Weekly & Daily Candles
Let me highlight just some major concerns for these.
– NDX – there is a nice setup for Tower Top on weekly, the daily failed to close over the half-line of the large red candle for 9 days.
– DJI – a similar development as in SPX that I explained in details above. What aggravates the situation is the 3 open gaps in the last rally and a potential Bearish Island forming.
– RUT – a weekly Spinning Top with a little gap. If price gaps down below the 1751.35, last week open, and does not close the gap, it would be very bearish.
From previous Weekly:
“Three gaps in DJ cash remain unclosed. The third gap in SPX was closed. Would DJ be powerful enough to pull all other indices into another corrective action to close the last gap? We should keep this in mind.”

Rectangle and Triple Top

This section remains the same for the last two weeks.
“There are two classical patterns fighting each other right now – the Rectangle formation and the Triple Top. If price breaks through the top of the rectangle, it should move fairly fast the height of the rectangle to approximately 3900. If the price is rejected at the top of the rectangle, a Triple Top would be complete and the price is likely to fall the height of the rectangle to the 2900 area.”
In the last week, ES decisively entered the rectangle and backtested the upper boundary twice. Perhaps one more test is due.

Technical indicators for ES show the first signs of deterioration. The stochastics, RSI, momentum, MACD point towards lower lows.

Based on the analysis above, I think that ES needs to complete a C wave for the bigger wave 2. From the rectangle perspective, the wave should be somewhat short and I think of a possible diagonal. The Short Term chart reflects this anticipation.

My operative Long Term preference is currently Green. While candles action last week urged me to analyze all indices charts from Very Long Term perspective, I am hesitant to add these counts at least until the monthly November candles are complete.

If everything that I gathered and interpreted is accurate, on Sunday ES could open a bit lower to complete wave B of 2 and work on a diagonal until the Monday morning-noon. Then, a wave 3 could start. There is also a possibility of a gap down and go for some indices, but this is a lower probability scenario for now. If Monday closes with a red candle below Friday’s low, a downtrend is likely be confirmed.
Given the context, I am bearish for the next week, watching how conditions continue to slowly deteriorate, until proven otherwise.

Have a great weekend everyone!

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