Monday, May 12, 2014

Did the Stock Market Just Tip Its Hand?

Lately the market has done its best to convince traders that there are probably easier ways to earn money, such as by selling a kidney, or by stealing the Mona Lisa.  For the last couple weeks, I haven't done much in the way of near-term projections, because I felt the market was near-term "un-projectable."  I have no regrets in that regard -- sometimes the best trades are the ones you don't take, and recognizing in advance when a market should be avoided can be valuable.

Today, though, we'll consider the possibility that something recognizable may be emerging from this mess, and we'll examine a potential near-term pattern (and variations thereof).  So, without further ado (adieu?), let's get right to the charts.

The first chart is the S&P 500 (SPX), which hints at a potential triangle in formation.  This also fits the recent whipsaw nature of the tape -- for comparison, the last triangle we encountered was in March.

Stepping out to the long-term view, we can see that if there's a near-term breakout, then SPX will encounter long-term resistance soon thereafter:

The NYSE Composite (NYA) is in a similar position to SPX (via a slightly different pattern), and has already completed enough rally waves to be complete:

In conclusion, the market still hasn't laid its cards on the table, but may be tipping its hand just a little bit here.  Keep in mind that if this is indeed a triangle, then it would mean that any breakouts will whipsaw in fairly short order, since triangles virtually always form as the penultimate wave.  Either way, bears still have a good shot at gaining traction over the intermediate term, so keep in mind that all near-term bullish bets are off below 1859 SPX.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

1 comment:

  1. Hi Jason, About the Triangle breakout today, I can't seem to figure out where you would put the 'd' and 'e' as it just broke out without pulling back. Is it still a triangle?