Diary of a Financier

SPY technical update: Breakdowns in need of defense

In Capital Markets on Thu 31 Jul 2014 at 11:45

As I write, $SPY -1.3% @ $194.4, and some key support levels have been taken out. Therefore, I wanted to record my technical read at this juncture.

~~~~

To set the stage, weekly and monthly fractals provide context of the longer-term trend: bull reversals out of multi-decade bear divergences are a signal of a new, secular bull market. I keep that current in mind with every decision.

SPY weekly/monthly 2014.07.31

SPY weekly/monthly 2014.07.31

 In the shorter term, however, there are technical signs of stress…

SPY’s daily chart shows a number of pattern breakdowns combining forces today, including:

  • Daily ST bull channel breakdown (white)
  • Daily longer-term rising wedge breakdown (yellow)
  • Daily 3x bear divergence (red)

SPY daily/15min/1min 2014.07.31

While the bull channel is already lost, I’m watching the rising wedge to see if it can defend its trendline support by the close and hold-on into the weekend – perhaps filling-up today’s gap-down.

The intraday fractals show us the potential bubbling beneath the surface. SPY’s 15min flashed a bull trap when it classically broke-out above an ascending triangle on Wednesday 7/23. Bear divergence was developing throughout that move, however, so the breakout couldn’t be trusted until resistance-cum-support proved its mettle. Of course, the whole move reversed in this morning’s breakdown.

In real time, SPY’s 1min is showing an effort to stage a ST reversal in the slide, consolidating along a potential bottom here with 2x bull divergence. The 1min should take one more pass at support ~$194.2, the reaction at which juncture can act as a tradable signal. Either…

  1. …a bounce will prompt SPY to fill-up today’s gap-down from its daily rising wedge, making this breakdown a bear trap
  2. …another breakdown means more days’ work needs to be done in the 15min to form a sustainable bottom, with $190 resistance-cum-support then dual support >$188 as downside targets

–Romeo

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  1. […] is the first attempt at a bottoming process since I noted the potential for breakdown last […]

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