JamesBrown

Putting Spy Into Perspective

AMEX:SPY   SPDR S&P 500 ETF
Here's a look at a "mega" weekly pitchfork and major price pivots. The way I drew it, price has recently reacted to the median line , with highs reaching just above the 0.625 pitchfork level (each line is a 0.125 increment of a pitchfork ).

Of course, this isn't really a valid pitchfork , since prices have never reached the 1.0 level in the first place to create that necessary pitchfork pivot (P1), so this is only a hypothetical pitchfork in a possible future retrospect (if that makes sense?).

The "real pitchfork" ( RP             ) has the solid red line as the 1.0 (P1) level and the bottom solid black line as it's 0 (P2) level, with prices reaching as high as the 1.25 level (as the increments would now be twice that of the two-times larger pitchfork - 0.25 increments for RP             , instead of the 0.125 that the hypothetical pitchfork uses).

In any case, it's to be expected that prices would come back to test the solid red line after breaking through it and the odds favored that it would happen at the 1.25 level to the RP             .

We have a definite pivot (topping) pattern, similar to what is seen at the other major pivot levels in the past (shown by the squiggly red lines drawn on the chart). The behavior of this potential top is much different than both the 2000 and 2007 stops, both in that its tops are playing at the potential pivot area much longer (with more tests) and in that the corrections to those top tests have made a much wider (volatile), but far less sloping, price channel.

What does this all mean?

The way I see it, there are two likely scenarios playing out (of course, the actual number of possibilities are endless):

1.) We aren't seeing the top to a major bear market in the making. The slope to the price channel during this correction, and the possibility that price has been reacting with what could become a type of median line in retrospect to a future pitchfork (after the next possible future bull-run completes), both allow for this possibility. In other words, price may be gearing up for another major price move upwards. We would expect that a major median line to a pitchfork would hold up to a lot of tests (act as strong support) and we should expect many tests after price traded so long below it before finally breaking it. The next logical step (after the median line holds up to repeated tests) is for price to go back to testing higher pitchfork levels, with a fairly high probability of the 1.0 level being tested after the strength of the median line was made abundantly clear.

2.) We're simply seeing a different type of start to a major bear market, this time happening with a wider, but less sloping start to the decline, and at the 1.25 pitchfork level (drawn off of the price channel created by the 1990's bull market and two proceeding major bear market corrections). The question is of what importance this very different topping behavior and size (and slope) of the initial price channel correction this will play on how the bear market plays out (will it break out of the channel with a fast and steep drop like in 2007, only more steeply and further down due to more volatility in the initial price channel correction to the topping pattern?). We could see a test of the bottom of RF             out of a very steep and quick drop from the current price channel. We could also see a test of the median line to RF             , wherein price trades mostly inside of the current price channel. Of the two options presented here, I'd go with the former as the more probable (quick, deep decline out of the current price channel), because it's been so long since the last major correction ( bear market) and the topping pattern has taken so long to form (giving signs of storing a lot of "energy" for the move ahead).
JamesBrown PRO
7 months ago
As I mentioned towards the end of my comment for scenario #2, I believe the odds favor a quick, steep decline to test the bottom pitchfork level(s), due mostly to the fact that it's been over 7 years since the bottom to the last major bear market (a long time when compared to the typical bull/bear market cycles) and also due to this POTENTIAL topping pattern taking so long to complete. A break-out below the current price channel will be the confirmation of top and a strong indication that scenario #2 is in effect.

Of course, price doesn't always trend. It's said that price trends only happen between one fourth and one third of the time and that the market usually trades within range. So there is the real possibility that price will hover around the current major highs and minor lows for many months, or even years, to come.

All we can do is look to probabilities based on past pattern recognition and tools known to put the market into better perspective to get an idea as to what scenarios are most likely to play out.
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JamesBrown PRO JamesBrown
7 months ago
Price actually reacted to the 1.5 pitchfork level (not the 1.25 level that I stated in the description above). My bad.
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JamesBrown PRO JamesBrown
7 months ago
The increments for the "hypothetical pitchfork" are actually 6.25, which makes the increments to the "real (valid) pitchfork" 12.5.
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Trance-Man
7 months ago
Agree --> Of the two options presented here, I'd go with the former as the more probable (quick, deep decline out of the current price channel), because it's been so long since the last major correction ( bear market) and the topping pattern has taken so long to form (giving signs of storing a lot of "energy" for the move ahead).
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