SP500 Update.

On Friday, I produced a post regarding the major bearish 'Broadening Patterns' hanging over equity markets, this included a large selection of charts showing various global markets (That can be seen here). The day before I had a posting which suggested a possible short-term bottom (See here). --- This echos a similar ocurrance from the beginning of July when I did something very similar, on the 7th July I posted a set of charts showing various markets from all over the world displaying topping patterns, yet the day before I had posted an article suggesting a correction due (can be seen here). The 6th and 7th of July turned out to be the final part of the bottoming process that led to a 100+ point rally over the next few weeks. -- Basically I spotted a potential short-term reversal pattern, then when it immediately failed to follow through I had my doubts and went all bearish, only to have been correct in the first place. The market can play wonderful tricks on the mind sometimes.  - Well it is possible that the same process is taking place. 

Looking further at the July low and the past few days, the set-ups bear very strong similarities. The set-ups are as follows:

• Day 1 is a Hammer (or Hammer Type Candle).
• Day 2 is a large Bearish Candle (The high of Day 2 is higher than Day 1) .
• Day 3 Produces a Double Bottom with Day 1 (Slight new low in July), then a Bullish Engulfing Candle with higher highs than both Day 1 and Day 2.

Thus we have 2 potential Bullish Reversal Candle patterns, firstly a hammer candle, then a Bullish engulfing candle.  Furthermore these have created a potential 'Tweezers Bottom'.

This can be seen on the following chart :

Elsewhere there are various other signs hinting that we may have a bottom for this current move. The following chart highlights significant Bullish Divergence in both RSI and MACD. Also as I previously pointed out, support held at a line connecting the April high and the interim July high, which is the upper line of the large Q2 'Declining Wedge' pattern. This low was also significantly the fibbonacci 76.4% correction of the July - August rally.  - In addition both the RSI and MACD momentum indicators have produced strong declining trendlines over the past six weeks, the RSI trendline has broken, the MACD line is close to breaking. If price action breaks its declining trendline in co-ordination with breaks of the declining momentum trendlines, this could produce a strong counter-rally. - I have seen this sort of price and momentum behaviour in the past, the lower chart shows a previous example of this which occurred on the Continuation Bund future last year.

Finally I refer back to my early August post regarding Falling Wedges (this can be seen here). I mentioned that this could be a large continuation type wedge, though it was unclear whether it could alternatively be a reversal type wedge pattern. Nothing has happened yet to solve this particular puzzle, however in the past I have seen the continuation type wedges come all the way back to test the upper wedge line, which is exactly what has happened. Though this resolves nothing, it is something which I will keep an eye on, since if this does turn out to be the continuation type wedge, it would mean that the SP500 is at least likely to revisit April's high.

Overall my prior post regarding the 'Broadening pattern' still remains valid, however it is a very large pattern formed over the past year, and as I previously mentioned it could and will possibly continue to act as a Dark Cloud hanging over the market in the much bigger picture. Short-term though this market could post a surprisingly strong rally, I also however think that last week's low is now a major pivot, should the market fail to rebound strongly from here, and makes a sustained break below last week's low, then the market could drop very sharply. - In the absence of this, a strong rally could ensue, back towards the high of early August, and should this break, then the odds will shift in my opinion to a re-test of April's high.