For the third session running, the top of the May Symmetrical triangle (in black) was a key factor. That trendline came in yesterday at 910.677. The open was about twenty cents above it, at 910.86. The Bears went for an early takedown, but only could take it down to 907.94 in the first few minutes of trading before The Bulls took over, and moved the index back above 910.677 by 9:40AM. The Bulls remained comfortably in control of the trendline for the remainder of the session.
As the chart stands, The Bulls still have the Symmetrical Triangle target of 971.57 IN PLAY since, for the moment, they've defended the top of the pattern. The Bears still have the Bear Flag target of 898.18 IN PLAY since the low, so far, is 903.78.
Before we move to the Hourly chart, notice the blue "thumbs up" that we discussed back when the Bear Flag was forming. That was a trendline validation, which we know usually has some significance, when taken out.
I didn't realize just HOW signifcant it was!
After Data Points #1-4 of the Bear Flag were established, the SPX made a third "hit" to the lower trendline, at 927.97, validating it as support (the white arrow). Subsequently, the SPX ralled to #5, which was a Breakout/Fakeout, then the Bear Flag broke down.
Retests of broken patterns/trendlines are common, and are to be expected. After the SPX fell to a low of 919.65 on the June 15 Bear Flag breakdown, it rallied back on June 16, for a retest. On June 16, the broken trendline was at 931.42, and my plan was to short the SPX via the SDS on any print in the 931's. It never got there, and it wasn't until afterwards that I figured out why.
The low of the trendline validation was 927.97 (white arrow). On the rally back to the bottom of the broken Bear Flag, the highs of the three Hourly bars (horizontal red line) were: 927.98...927.97...928.00, respectively, all within three cents of that 927.97 trendline validation low, which we know usually has some signifcance when broken.
The significance, in this case, was that 927.97 validated support became resistance, as it should. They "pulled the plug" right there. Down she went, to SPX 903. The failure of those three candles at 927.97, all within three pennies of being exact, in an index of this size, is further evidence that the market is only a random walk ;)
The rally off the 903 low is looking Bear flaggy. Interestingly, the lower trendline of the rally will come in today at 910-911-ish which, for the last three sessions, has been the battle line at the top of the Symmetrical Triangle (in black) in the daily chart.
8 comments:
Good Morning,
Is the bear flag on the SPX defined because it rises as opposed to declines? Would it be a bull flag if it had hooked downward instead?
Can we expect the mkt to be bound by the top of the Symmetrical Triangle(black line) and the bottom of the bear flag(blue line)?
Is there any significance to the blue Ichimoku line as well?
Thanks
Good Morning, Mark,
Question #1: Yes, and yes. Did you do your homework at StockCharts.com on patterns? If not, you'll have to clap erasers after class ;)
Here's the link for chart patterns.
http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:chart_patterns
Question #2: Okay, you did a good job of identifying support and resistance, so you won't have to clap any erasers ;)
Support: 910-911. Bulls "own it" because, even though we had a "fast down" to 903, they have successfully defended the top of the Symmetrical Triangle, thereby keeping the 971.57 IN PLAY.
Resistance #1: 927.97 - 928.00. Bears "own it." That was a validated trendline in the Bear Flag, and The Bulls meet their Waterloo right there. The Bears stopped The Bulls and didn't let them through to retest the bottom of the broken Bear Flag (pattern in blue in the daily chart).
The highs thus far this morning are 927.09 at 9:48AM, and 926.92 at 10:59AM, just one point below that 927.97-928.00 resistance. The Bears "gave up" the Neutral Zone (910-928) in the early going, but, so far, they are staunchly defending 928. If The Bulls break through...
Resistance #2: 934.01. That's where the bottom of the broken Bear Flag comes in today. It hasn't been retested, so The Bears haven't established that they "own it."
Question #3: I think you mean green Ichimoku line, rather than blue (it kind of looks blue). That's the equivalent of an 8-Day moving average. The red line is the equivalent of a 21-Day moving average.
"The highs thus far this morning are 927.09 at 9:48AM, and 926.92 at 10:59AM..."
CORRECTION: The second high was 927.01, at 10:57AM.
Hi Melf
If you have the time, have a look at Novell chart: looks like it may complete a cup-and-handle formation (late March to now) soon and volume is bullish. Do you know if a cup-and-handle gives any price projection?
Thanks, Alex
Melf,
I went back once again to the Chart School. There is no clear definition of a rising flag after a sharp upward move which I measured from May26 or 27th. It is best described by them as a rising wedge reversal pattern and fits best if you shave the shadows when you draw the lines. But that doesn't fit very well either and thus my question. Perhaps the correct question is really about whether the rising consolidation with smaller bars always constitute a bearish indicator?
I don't want to waste your time in a semantic discussion so if I am off on my terminology please forgive me.
Hi, Alex,
My apologies, but I've got all that I can handle trying to follow the stocks that I'm interested in.
For a Cup & Handle target, take the lower of the two highs at either side of the "rim" of the cup, subtract the low of the cup, then add that answer to the lower high.
Make sure that it's a Cup & Handle pattern, though.
Have a great weekend!
Hi Melf
Not a problem. Thanks for the measurement guide.
I was also considering having a specfic list to follow regularly rather than frequent additions/deletions. as a matter of interest, how many stocks do you regularly follow?
Mark, a 'flag' pattern will always have main move in one direction and then the reaction or 'flag' will be in the opposite direction (if you think about it, in real life gravity means the flag is always pointing in the opp direction to the flagpole); Hence a bull flag points down, after a run up; a bear flag will point up after a move down. If both fluctuations in price are pointing overall in the same direction, up or down, then it is not a 'flag' formation.
Have a good weekend Melf and everyone.
Alex
Mark,
Sorry that I missed your questions yesterday afternoon. Our posts crossed while I was responding to Alex.
I don't agree with shaving the shadows, but that's up to the individual analyst how they want to draw trendlines. Personally, I feel that the range of trading, depicted by the shadows, shouldn't be dismissed out of hand, as though it didn't have any significance at all. But, as always, "use what works."
The rising aspect of a Bear Flag doesn't necessarily mean smaller bars. Some Bear Flags can have a rather wide range between the highs and lows, but the flag formation should be reasonably close to the top or bottom of the flag pole.
The basic idea of a Bear Flag, which has "higher highs and higer lows," is that the rally is getting exhausted. It's point higher, and seemingly bullish, but The Bulls are "rallying on fumes," so to speak. Ideally, volume declines on each successive move to a new high, like we witnessed in Goldman in its recent Rising Wedge formation.
Bear Flags and Bearish Rising Wedges are very simliar in that regard. The shapes are slightly different, but the outcomes are similar.
No, the rising consolidation with smaller bars does not always constitute a bearish indicator. Unfortunately, there's no "always" in the stock market. At least, I haven't found any. But, there are tendencies, and the majority of Bear Flags and Rising Wedges "tend" to resolve to the downside.
Alex's explanation of flags was very good, by the way.
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Alex,
I don't have a set number of stocks that I look at although, like you, I've considered it. "So many stocks...so little time."
It would be a great idea, I think, to pick ten or twenty stocks (whatever you can handle), and follow them faithfully. If there isn't a play, then don't play anything. But, you'd get to know the charts that you follow real well.
For example, I think that I could describe the Goldman chart in my sleep. LOL. I think I've played that one about six times this month.
Have a great weekend, as well!
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