Reference the left side on this chart on the other post, Day Trading the SPY. The conclusions from that chart: Markets often collapse of their own weight. In trading terms “exhaustion”. Now we have another chapter in the story.
After the selloff from 273 1/3, the SPY dropped to around 268. At that point it rallied and has since put in a nice diagonal line of support, “A”. On the 12th we broke through that resistance at the previous high. The following morning there was follow through and the index made a high at 275.89 which became the first point of “B” followed by a slightly lower high of 275.67. For our purposes it creates a pennant or triangle, which is a continuation pattern should the price break the “B” line. There were a couple lows that day which formed “C”, and this is not a textbook bottom line for a triangle, but when the price dropped at the close, it made a small bump before breaking that line. Trust me it’s there, just very small.
Today’s close did the same thing at the close, it broke the “A” line, the larger area of support in which “B” and “C” are nested. Meanwhile all the oscillators are working overtime. We could call this “Too much of a good thing.” PartII, like the first part failed to push higher, this time it was on HIGHER volume. Now we just have to wait and see what happens in the overnight market.
Notice that the space above the first “A” line, is only about 1 2/3 SPY points above the previous high, while the drop to 268 was considerably more. Don’t underestimate the buying power in this market, however a test of the 268 low is possible, (wait for a signal that all is clear) and depending upon the internals that bottom might the last good chance to buy this for a move to 290.
Tomorrow is Friday and often times markets which have had a good week indulge in some “profit taking”. We might pull back 3% overall. There is a high from Jan. 18 at 267, which should provide support.
The overnights lifted the market, now it appears a small Head and Shoulders pattern might be forming, but the objective for that is of little consequence, but it would represent another point on the bears side, or rather bullish exhaustion. If it breaks it will almost certainly break yesterdays high. Looks like another good volume day, and volume precedes price by Murphy. In this instance volume always spikes on selling.