Current topping patterns on the S&P 500 (Not much upside left?)
The 2 hour chart above shows two key shorter-term patterns on the S&P 500 I've been watching. They are also visible on most other time frames up to the daily chart. The first pattern is the Island Reversal that has held as the top of this (bear?) rally so far. Despite all the good news surprises, Fed stimulus, and hopes for a "V" shaped recovery, we are still below February highs on the S&P 500, and unable to rally over the Island Reversal from early June. The second pattern is the Megaphone/Broadening Top we've been creating the last few weeks (blue lines). Recent rallies have been getting bigger, but are capped by this pattern and unless the pattern breaks out to the upside there isn't much upside to expect, even on hopeful days like we're seeing today so far. Don't be surprised if we again revisit the bottom of that pattern. And if price level eventually breaks down out the bottom of the pattern it might suggest an upcoming bottom break of the multi-year Megaphone pattern I've been tracking.
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S&P 500 has moved aggressively right to the top of the broadening top pattern shown above. Will it break over, or is this a top for a while?
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It's really a key moment going on right now. The S&P 500 is just under the top of the megaphone pattern shown above, deciding if it will turn and revisit the lower end of the range, or breakout higher. A confirmed breakout higher will argue the mania will continue, TSLA should be bigger than every other auto business stock (as well as bigger than Intel, Verizon, AT&T, Disney, etc), and the island reversal from early June should fail to hold. A drop and revisit to the bottom of the pattern will start to question if this rally from March is over. Grab the popcorn.
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A bit of a drop today, right at the upper line of the megaphone as predicted. It doesn't necessarily mean we continue down, but so far its going to script. The next few days should be interesting as well.
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Market has opened above the megaphone top today, suggesting a breakout. We'll see how it closes. Also important that earning season officially gets going tomorrow with several big bank earnings reports which will be terrible, how will the market react? "Yea, terrible earnings, let's go higher" ? I'm skeptical of the breakout holding beyond a day or two poke through.
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Mania buying in tech this morning, big gap and run. Complete insanity in TSLA, up another 13% so far on top of a bigger than than 50% move the last few days. It's all very similar to the 2000 tech bubble, yet happening in the face of a recession/depression. It's just the season for the madness of crowds it seems... sometimes people go nuts.
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That was a significant rejection of the breakout back into the megaphone. Huge reversal. Maybe we head to the bottom of the megaphone now?
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The market has been riding the top resistance line of the megaphone up. Not really a breakout, but then again it's not really bearish either. So overall we've moved over the resistance a few times, and we're right near breakout of the island reversal too... so I give odds we'll break higher and continue up. Nothing will stop this rally until it stops.
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Breaking higher, soon to invalidate both these patterns.
Trade closed: stop reached:
Looks like we head back up to test previous highs.