NYSE Still in Stuck in a Contracting Triangle

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I recently posted about the SPY being in a contracting triangle and ready to breakout, probably to the upside.  Well now SPY has broken to the upside of the triangle boundaries, but in very weak fashion with no follow through.  Price has now retraced back to the breakout point.

If you look at the broader index of the New York Stock Exchange composite, you can see that it is still within the bounds of a contracting triangle.  There are 3 touch points on either boundary, so from a charting standpoint this is very significant.  The price and time bounds have both been repeatedly respected.

As of the end of this week, we will be at the 50% mark of the time from beginning to apex of the boundary lines.  As we pass beyond that point, a breakout becomes more imminent.  With the size of this pattern, I would infer that the coming trend will be very significant.  The only question I really feel will be important is whether it will be a "clean" break, or whether there will be a brief false breakout and then reversal into the true new trend direction.  As price unfolds I think we should be able to catch whichever scenario occurs.

From an ideal Fibonacci perspective, the 0.618 time point from the high to the apex point will be at the end of the first week of March.  So maybe we see price continue to respect the boundaries for another several weeks and then breakout.  If so one could consider a straddle trade at the equivalent of 10,750 on the NYSE as we approach the 0.618 time division.  I would think that a June expiration or Q2 expiration would be sufficient to capture the lion's share of the probable move to follow in such a scenario.

Pete

S&P Update

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This chart above is from a couple weeks ago, and I am just showing it for background and because the chart below from today is an updated version of that same chart basically.

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This post will probably only interest those who are into Elliott Wave. The only change from the chart above is that the "w" and "y" were simply changed to "a" and "b". From the way I track these patterns, I would say there have been 4 completed waves and are now in a 5th. However, they all look corrective and are overlapping so I am labeling them as a developing corrective pattern (triangle or complex).

The interesting thing here is that in large triangle patterns, a smaller triangle often is the last wave of the larger triangle. So in large expanding triangles, you often see an smaller expanding triangle for the huge wave E. Also, in contracting varieties, you see a progressive dying volatility toward the apex of the triangle where a smaller contraction forms as the wave E of a larger contraction. Then BOOM, a major breakout occurs. The recent activity in gold prices seems to fit this pattern. So here we are edging up in what may be a triangular type of pattern since the volatility peak last fall. If this is wave E, then it would be most common to see a contracting triangle form for it. So it fits with the above scenario.

Another interesting thing over the last week is that I am getting a sense that some long term bears are now revising up their expectation for how far this move will go. In an odd contrarian way, that makes me feel more likely that the market won't go much further at all. It's basically like everybody is convinced that it is either a major bull market or that there has to be another wave up, etc, etc. The reverse happened at the March lows when everybody was bearish and most Elliott wave followers were just waiting for the "last wave" down before a major rally. But it never came. From my view a large part of the problem at major turns is that most Elliott wavers almost always are looking for impulse moves and want to see pretty 5's and 3's. But I think that in major corrections it is better to assume corrective patterns for the subwaves, and be very strict and sparing with interpreting anything as an impulse.

Despite the holy grail seeking mentality that pervades Elliott wave and the periodic runs of seemingly magic market precognition, for mere mortals, some simple concepts that I frequently highlight will help to pretty accurately gauge major turns shortly after the fact. The most important thing to look for is a counter trend wave that completely erases a prior wave in less time than it took to form. That actually hasn't happened on the daily chart in months.

So right now, the way I see it I would expect a quick poke above the recent highs, though it is not necessary. Then if that is followed by a reversal and retracement of the current move up in less time than it took to form, that would sensibly integrate into the larger pattern as a major top. If new highs continue, then I would still keep the larger context for the time being, but would view the possibility similar to early May where a contracting triangle may have formed, but it also may be forming a 7 legged pattern e.g. abc-x-abc.