SPY - Potential upside down C&H and H&S formation in-progress
I'm not currently short -- completely in cash -- just tracking the trend. All technical indicators point downward towards the bottom of the broadening descending wedge . That long wick bounce off the lower trendline is calming for some bulls who are looking for a potential long entry. However, it's also a major inflection point to a previous double bottom we explored at the end of January. This this technician, that's a big red flag that a bounce off of that low means we're likely seeing a dead cat bounce to form a cup handle in an upside down cup & handle . Worse yet, the cup & handle formation would give us the right shoulder of a major head and shoulders . If this entire scenario plays out, we're looking at a downside target somewhere in the neighborhood of $355. Before you bear market alarmists ring your bells, the market will still be in a long-term bull trend when and if it pulls back to these levels. Exercise patience and consider utilizing the handle formation to exit long positions you recently setup and are currently holding the bag. Cheers!
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Here's the daily chart for contrast. A major pullback is nothing to fear. We've had one hell of an advance year-to-date.
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An alternate pattern that would invalidate the above would be if price action pushes down to the $369 then pops up. That would give us an S2 for yet another megaphone pattern printing on the spy, but then, the SPY loves its megaphones. In the short term, this would be much more bullish:
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Notice I use the 2-day chart to analyze the long term support for the SPY. I think it's more accurate than the daily or weekly.
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Someone texted why I'm not short... I'm waiting for a strong entry. I missed the 'holy grail' setup today since I took the day off. But I'm tracking the bear flag on the ES! and waiting for a firm break below this trend (if you buy into the cascade you're setting yourself up for a nice cushion in case we get a bounce off $373. I'll be using a tight stop until the price action gets some distance:
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If we get RSI divergence against the peak lows today, expect this trend channel to break UPWARDS. I'm not expecting that given the grim view of the technical indicators above. But it wouldn't be the first time the market bounced to new highs off of weak technical support!