Saturday, May 16, 2015

SPX S&P 500 Daily Chart Rising Wedge Versus Ascending Triangle

Just as there is a fine line between love and hate, in charting, there is sometimes a fine line between a rising wedge pattern (bearish) and ascending triangle pattern (bullish). The majority consensus of traders and analysts is that a stock market break out to the upside is occurring. If so, they are all in the ascending triangle camp. The upside target, based on the vertical side of the green triangle that is 90 points (2030 to 2120) and base line at 2120 is 2210 (2120+90).

If the red bearish wedge plays out, price will fail in the current 2120-2130 range which is the upper trend line and collapse down through the inside of the wedge, fail at 2105-ish, and drop far lower. The collapses from rising wedges can be quite dramatic and devastating and a target area of 1970-2000 would be easily achievable and lower.

The red lines for the indicators are showing negative divergence over the last eight months favoring bears. The Thursday and Friday rally move is creating some long and strong juice for the stochastics in the very near term (days) and the MACD cross favors bulls, however, this buoyancy in price may only create the further move higher to the 2123-2130 area. The stochastics are overbot.

Wednesday's selling volume is greater than the buying volume on Thursday and Friday. A robust breakout should come with far stronger volume overtaking the selling volume from late April and early May. Friday was OpEx so if anything that should have helped create stronger volume. On Friday, the Nasdaq, heavily weighted with tech and biotech stocks, and the Russell 2000 small caps, both finished negative so much of the volume was in fact on the sell side. The higher red volume candlesticks occurring after an up day with a green volume candlestick shows distribution taking place (smart money selling to dumb money).

May is going to finish wildly but only one side can win. The chart favors some sideways to slightly upward bias for a few days but overall the chart is bearish wanting to see the rising wedge prevail and far lower prices ahead. Above 2130 will be a big bull party to 2200+. If bears pull price lower holding the line at 2123-2130, and then price fails the lower trend line of the red rising wedge at 2105-ish, it is curtains for the bulls and the bears will create significant market damage. 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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