Wednesday, August 13, 2014

SPY Time Pattern Analysis and Logic

Click on Chart to Enlarge

The review of SPY tonight will rehash a little of what I have pointed out in recent posts, and also add a pattern concept.

First off, as suggested in the last post, the short-term price logic continues to confirm a bullish trend.  The up moves are directional, large and fast.  The intervening downward move was small and "slow".  And again with today's move higher, the intervening downward move was completely erased in less time than it took to develop from high to low.

So the next thing to look for here in terms of when the trend is potentially ending is to look for a divergence pattern to develop.  So in the chart above I show a momentum indicator.  If price makes a higher high, but the momentum fails to make higher highs, that would indicate a slowing down of the market, which is the typical pattern that precedes a reversal.

There is an unfilled gap down above prices, and it is highlighted on the chart.  Sizable gaps have a strong tendency to fill within a couple week time frame.  And so as we see prices rallying here, that gap is an obvious target of potential attraction for prices, and may also offer a potential point of chart resistance.

The pattern concept I want to point out here is that when two successive moves in a pattern are similar in time, the next move is typically longer.  As an ideal ratio the next move may take about the same time as the total time of the prior 2 moves together.  That is what the vertical lines are showing as a time projection on the chart above.  That would suggest we may see price move generally high until Friday.  From my pattern based research, a typical ABC pattern has a median C leg that takes a little less than the total time of A+B.  However the AVERAGE C leg, takes about 1.17 times the time of A+B.  In any case, I am simply offering the suggestion here, that even if this move up here is counter trend in a correction, we may still have a couple days up in the current portion of the move.


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