SPX: Double Validated Resistance

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Nested Patterns (a pattern(s) within a larger pattern) that break out or break down tend to be a bit more reliable than individual patterns, as far as having some follow through on the breakout or breakdown.



The SPX al-lmost filled the April 18 gap (the minimum downside expectation), then morphed into a Channel/Falling Wedge and went up to retest the Double Breakdown.

The index managed to rally back inside the Rising Channel from which it broke down, but failed at Trendline #1-#3 of the Symmetrical Triangle on a near-Doji Star Hangman. When the low of that Doji Star Hangman was taken out in the next session, that was confirmation that Trendline #1-#3 had been validated as resistance, and was an excellent, low-risk place to initiate a short position. Stop the trade out if the high of the Doji Star Hangman gets taken out to the upside.

Also consider getting long if the high of the Doji Star Hangman gets taken out to the upside. Validated resistance "shouldn't" get taken out to the upside, like the Quintuple Resistance that recently got taken out to the upside in FCX. That particular upside takeout also was an Ascending Triangle breakout in FCX. Great place to enter a long position.



On the second selloff in the SPX, from validated reistance, the April 18 gap target of 1312.70 did get MADE.

"Take profits, or at least 'some' profits, when targets get MADE," and we can see here a very good reason for doing that: the SPX is ba-a-ack at the top of The Channel/Falling Wedge, putting some pressure on The Bears. Those who shorted and held short the May 16 Double Breakdown at 1333.17 have been in the position for two weeks and have scored only two points as of Friday's 1331.10 close.

The Bears are perfectly justified for holding short the SPX. Friday's high was within less than a point of the top of the Channel/Falling Wedge, so resistance held and that's now DOUBLE validated resistance. The Bears need to take out Friday's low for additional confirmation.

Where The Bears can get themselves into trouble is if that DOUBLE validated resistance gets taken out to the upside, and particularly if the 1346.44 high of the May 19 Doji Star Hangman gets taken out to the upside. That was the initial validated resistance and that "shouldn't" get taken out. It's a "logical stop" on a short trade for a Buy To Cover the position.



Basis the Ichimoku Kinko Hyo chart, the top of Kumo (Cloud) resistance is rising and came in on Friday at 1331.94. The Bulls penetrated it intraday on Friday, with a high of 1334.62 and the 1331.10 close was just below it, within a point.

If I were coaching The Bulls, I would have them give up some ground early in the coming week, then go up and knock out the Double Validated Resistance. They've got room in The Channel/Rising Wedge to allow The Bears to back it up some.

As the chart stands, though, it's Advantage: The Bears.

EDIT: I forgot to mention that in addition to the Symmetrical Triangle target of 1291.18 still being IN PLAY, 1294.70, just above that, also is IN PLAY. That's the low of Black Data Point #3 in the Rising Channel/Bearish Rising Wedge that broke down on May 16. We'll see if that becomes a factor if The Bears resume the selloff.