The SP500 remains in consolidation mode. Last week it broke out above the June and August peaks, setting up an inverted Head + Shoulders consolidation breakout, and at the same time breaking the string of lower highs which has been a feature since late April. It has however balked at the 1150 resistance level, I have covered the various resistances at this level in the posts over the past two days. - The past two week have seen tests of the breakouts and failed attempts to overcome 1150. Hence we remain stuck inside this range for now, capped by 1150 and supported by 1132 and backed up at 1118, with lots of noise in between. (See chart below - Click on chart to enlarge).
One new aspect I am considering on the SP500 is the Broadening/Expanding pattern possibly being formed. The 4 hourly candle chart on the E-mini S+P futures below highlights this. - Broadening or Expanding formations tend to be reversal patterns, however one problem with these types of patterns is that they can be extremely difficult to confirm, price action can be very volatile and erratic and what may appear to be a Broadening Formation could easily turnout to be consolidation.
If however this does turnout to be a Broadening Formation, then this could have strong Bearish implications. The next chart shows the SP500 Index over the past year, I have highlighted the current formation, and 3 previous Broadening Formations, each of which led to significant corrections.
One noteworthy obsevation, all three prior formations saw minor breakouts to the downside, followed by a sharp correction back to the upper half of the pattern before ultimately breaking lower. This is not unusual with these type of patterns, I stress that they are one of the most difficult patterns to successfully navigate, however they can have serious reversal consequences once successfully completed. I highlight this further by showing the weekly SP500 Index back to 2005; the major top in 2007, prior to the 2008 bear market, was a Broadening Formation, and as I have stressed before, it is possible that our current price action over the past year may be part of one ugly Broadening Formation.
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hi , i have a similar view to urs and am observing at nasdaq to wait for his signal to short. there was a spike down ytd on the futures and the sup line is being pressured as the parallel channel is starting to get distorted.
ReplyDeleteDan.. Thanks for your response.. I've had a Bullish bias for the recent short-term, but never really got on the move as something has been nagging me... I did expect some stronger action however on the break up last week, and given how FX and Bonds are reacting, I would have thought equities may have performed better than this.... - This break up could turn out to be a failed breakout/non-confirmtation, which could have very serous consequences.
ReplyDeleteyes i agree , and would be looking to open short positions instead of long positions. there are also expand tri formations in the spx futures tat we need to watch out for. sharp spike downs are also a cause of worry as prior to a "break down" downward spikes normally happen. we have seen it a few times like u said :)
ReplyDeletei suggest looking for spike downs as evidence of shortist trying to attack the market. we have seen those spike downs quite a few times and it is rather visible on several charts of your most recent posts. :) good work mate!
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