Wednesday, July 10, 2013

SPX Daily Chart Upward-Sloping Channel Megaphone Bull Flag Patterns

The SPX sneaks back up inside the upward-sloping blue channel yesterday. This action may simply be a back kiss, where price collapses from here, or, price continues higher and remains inside the safety of the channel moving forward. So a decision is required today. The blue bull flag is in play and appears to target about 1660-ish but the hourly or minute charts can provide a better look at this pattern. The purple lines show a megaphone pattern, more typically called an expansion pattern, since price continues to expand as time moves along which creates the look of a megaphone. The green dots show happy bulls with higher highs and higher lows. The red dots show happy bears with lower lows and lower highs. Note that yesterday's action now matches the prior high in mid-June. Another decision is required. Either the bears maintain the trend of lower lows and lower highs with price collapsing from here, or, price prints higher today negating the trend and placing a feather in the bull's cap. If the bears could have printed sub 1540, under the last higher low from mid-April, that would have created far stronger negativity but instead the bulls righted the ship with a rally.

The SPX has leaped from 1620 to the 1654 high in a heartbeat once price overcame the 20-day and 50-day MA gauntlet of resistance. The indicators have long and strong momo, sans the money flow, so a price should stay elevated even after a pull back occurs. It is prudent for price to back test the top trend line of the megaphone at 1640-ish. The thin red lines for the indicators from mid-May forward are negatively sloped. If price continues higher, the all-time closing high is 1669 only 17 points away, and prints at this level again, watch to see if the thin lines remain in the current profile and signal negative divergence, or not. The top in May occurred with negative divergence across all indicators so price really does not have to come back up to the all-time highs from a technical perspective. There are also no gaps above that would attract price on the top side. Note that the mid-June low bounce did not occur from positive divergence except for the money flow. This current rally started with China stopping the Lehman-style banking collapse two weeks ago, followed by numerous Fed heads pumping the QE talk each day, then on the July 4th holiday the BOE and ECB firing money bazooka's to catapult global markets higher. The central bankers see their main role as to pump the stock market higher, so that is what they do, as long as they can.

SPX S/R is 1649-1650, 1652-1653, 1666 and 1669. The price action is a tough nut to crack, especially with the FOMC Minutes and Chairman Bernanke speech on tap this afternoon and evening that can violently send equities up or down, but current projection would be a move down to 1630-1640, then back up to 1653-1666, then roll over to the downside.  This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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