As far as I’m concerned, this was one of the biggest trading weeks of the year.
Last week, I offered a binary outcome: “Either underperforming managers start buying or SPX will retreat to its support levels.” Well, things got scary at the beginning of the week, when SPY traded down to trendline support of its short-term symmetrical wedge (green). After bouncing around those confines, it breached its ceiling and managed to trade along former resistance as support throughout mid-week. Then came Thursday, when stocks broke-out:
SPY has left its symmetrical wedge in the dust. It’s now riding that rising wedge (blue) as support. More importantly, I take a step back to the daily chart, where I notice MFI starting to breakout. This was the last piece that didn’t fit: MFI bear divergence had worried me for the past few weeks, but the buyers have stepped-up, backing this rally with their volume:
Don’t get me wrong, volume is still weak, but anxious buyers arrived just-in-time. Critical save. Now that SPY has achieved a 100% retracement back to highs (red), I expect it to respect trendline resistance of its bull channel (yellow). Next week should test the lower support of SPY’s rising wedge (blue), so we’ll see how we’re positioned mid-week before making any tactical moves.
For the longer-term, I’m happy to see the development underway in the weekly fractal, where this rally is starting to reverse the bear divergence in indicators. In short time, we’ll have confirmation of such bull reversal. Further, the same is occurring in the monthly chart, where SPY is trying to break-through resistance of the secular bear market’s channel:
This was a huge week.
Week-end closing prices (4:00 est):