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.
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)
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…
- …a bounce will prompt SPY to fill-up today’s gap-down from its daily rising wedge, making this breakdown a bear trap
- …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