SPX: Falling Wedge Breakout

From the weekend:

"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."

Yesterday was exactly what The Bears didn't want to see: The Bulls reversed The Bears' Double Breakdown of May 16 (The Rising Channel and the Symmetrical Triangle) on an upside technical breakout of this Falling Wedge. The Bears were under pressure to cover their short positions all session.



Mid-session, the gap from 1334.62 got filled almost to the exact penny (horizontal white line). The early afternoon low was 1334.66, within four pennies of an entire gap fill. I liked that and I liked the ensuing rally, so I got long the SSO (Two times bullish the SPX) around 2PM, figuring that The Bears would be under additional pressure to cover the technical breakout going into the closing gong, given the gap fill, the bullish technical breakout of the Falling Wedge in the daily and the fact that this intraday chart wasn't looking like it would be a "Gap And Crap" session.

Interestingly, another Cup & Handle emerged in this intraday chart! I guess we're now going to see those everywhere since we recently discussed the pattern. LOL. The problem that I had with it was that the handle seemed to be dragging out a bit more than I liked and we were about a half an hour away from the closing gong. I wanted to see a lot more pressure on The Bears than I was seeing, so I threw the trade in for a very small gain.

More's the pity. As we can see from the chart, the SPX took off to the upside not long after I sold. Arrrrrrrrrrrrrrgh ;)



Gain: $300. I blew that one. I should have stuck with my trading plan and taken the risk, based on my thesis that The Bears would be under pressure to Buy To Cover, going into the close. Impatience is one of my many weaknesses. Curses! ;)



The Bears who are using the May 19 high of 1346.44 as their stop (red arrow), which was a trendline validation of resistance, caught a break yesterday. The session high only was 1345.20, so technically, they weren't forced to buy, to cover their positions.

Personally, I don't think that it's ever a good idea to remain short an upside technical breakout (or to remain long a technical breakdown), but that's up to the individual player.

Falling Wedges are notorious for morphing (changing) into Bullish Inverse H&S patterns. I don't know with what frequency they do it, but it's always something to watch for. We had one of those in FCX, in mid-March. We got a nice rally out of FCX on the Bullish Inverse H&S breakout, but unfortunately, that rally ended April 11 with a breakdown of a Bearish Wolfe Wave.

The down and up black arrows in this chart are an example of how that "morph" scenario might play out. The neckline would be the May 19 high of 1346.44 and yesterday's high of 1345.20. Pure speculation on my part, of course.

If I were coaching The Bulls, I would have them plant a foot on the top of the Falling Wedge at the low of a putative Right Shoulder, for a successful retest of that pattern, then rally like gangbusters up through the neckline.