What is happening here is the market is going BELOW the most important price level on the chart for the past year. The most important price is 184 in the SPY because it has 23 total days at that price. IF today's price range stays BELOW 184 then the market is telling us that it is DISCONNECTING with 184 and that the buyers that SHOULD be there are NOT THERE and now they become potential SELLERS. This key level goes from being SUPPORT to being RESISTANCE. It goes from being DEMAND to being SUPPLY.
184 is also a key level from OPTIONS EXPIRATION as we have had 2 expirations at that price which adds to the level of importance of the price level 184. Please see the "SPY OPTIONS EXPIRATIONS GRAPHS" I have posted over the past year here at TradingView.
Why isn't the market holding at this level this time? Perhaps the new earnings season is making investors hesitant. Perhaps the new budget that passed the house is viewed as recessionary since it cuts the spending side of the equation. Perhaps investors realize that China is running into trouble and with no monetary easing in the visible future, that markets are vulnerable.
The decline I have drawn seems extreme at first glance but it is only a 10% decline, which is normal in the context of history. We have had many 10% declines in the market.
If the market stays under 184 for the entire day today (Friday), a 4-day sell signal triggers that has a price target of 178. I would cover half at that level and lower the stop to 181 at that point in time and look for a much larger decline over the course of the next 23 days. 23 days is the total number of days at 184 and we could be in a decline for the next month.
Comments
traderCarl
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Triple top being viewed as the Head and the 173.62 level could viewed as a neckline to this H&S pattern
timwest
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I think most broad market Head & Shoulders patterns fail because too many people know about the pattern. The pattern people don't know about is "time at a price".
AlexandreFF
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If everyone sees it, they all do it then the price actually reflects the pattern so why wouldn't it work ?
timwest
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H&S patterns work 25% of the time on the broad market, from my experience. It is great when it does work, but I personally don't expect it to. I've charted the daily market since 1986 and the odds are hard to measure just because traders find the patterns at different times. If you find it before others your trade location is a bonus, but if you find the pattern late, then the risk is higher and the odds are low. It comes down to find them early and exiting once there is broad awareness of the pattern. That's how I see it.
Greenstream
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I like your way of thinking! You give great analysis on direction, extent, and direction. Do you use any other tools other than the 23 days on determining the amount of time it would take to get to that ~10%? The way I'm looking at it is it's taken us months to get where we are, where the pattern month over month is crazy bullish, it could take us a few months to unwind since is probably a pullback in the bigger picture. Thanks.
Wyckoff_Trader1
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Look at correction of 2012. It took nearly 24 months for the top(distribution) to complete. In 2011, only 6 months. The longer the distribution, the higher probability that the correction will be much deeper.
Wyckoff_Trader1
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sorry I meant capitulation of 2008 took 24 months for the top(which was simply distribution) to complete. There was no correction of 2012.
timwest
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Thanks for the question about "other tools" to calculate a 10% drop in 23 days: I have used multiple time at a price analysis and options expiration support broken support levels (also at 184) combining to form the most powerfully directional downward move that I have ever seen that rivals the 1987 stock market crash. The Monthly "time at a price" analysis says that April will be the top using the same methodology. The weekly "time at a price" analysis also says the same thing (see my charts). The weekly level also set up another 9 week rally but that "failed" so what we have here is a massive failure on top of the end of the rally on multiple time periods. We also have many other indicators and variables that are negative, but don't fit into this analysis. Check out my other charts and see what you think. Thanks for asking.
Tim Saturday, 10:43PM EST
TradeVulture.com
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I wouldn't sell below 180/79 just yet. Look at the monthly/weekly. We are still in distribution. We are currently forming the head of a head and shoulders pattern. We are going to pop off 75 to complete the right shoulder and distribution. Can't sell off hard until distribution is complete.
vlad.adrian
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I don't know how you see that on monthly, but I do agree with you that it is too late and too risky to sell now