Sunday, July 1, 2012

Nearing Possible Pattern Completion

Click on Chart to Enlarge

The stock indexes are possibly near a minor and major pattern completion as of this week.  It appears to me that the price pattern up from the mid May momentum low is likely very near completion.  Isee the 137-138 region on SPY as the resistance zone.  Also, there has been no logical confirmation that the price pattern up from the Oct 2011 low has completed and it appears possible that it is completing around these levels at a LOWER high - implying major weakness ahead on a longer term basis.

Of course this is speculative and we can see patterns where there are none, but that is why logical confirmation is required after a price pattern completes.  That gives you some objective evidence that an interpretation is or is NOT correct.  So at this point we need to see the current move up since last week complete, and then be retraced in LESS time than it took to form as initial confirmation that a pattern has finished.  

Check out this post from July 2011 and this one from shortly thereafter to get some familiarity with what would be expected when a pattern completes.  At the time I wrote these, the required price moves for confirmation seemed outlandish, but ended up being pretty textbook and giving logical evidence to suggest that the analysis was accurate.

I think there may be another more bullish interpretation of the price logic if we see further strength from here, so I would wait for a bearish trading signal (MACD or stochastics, etc) if wanting to go short/inverse the market and use stops based off that signal.

Some signs of bearish divergence are showing up on this rally now, but I think they need at least a couple days to be ripe for a possible trade entry.  Also, price would need to slow down and start to roll back down to support this outlook.

No comments:

Post a Comment