This is the hourly chart of the S&P 500 large cap index, the de facto performance measure benchmark for many investment professionals. Rambus did a fine job of highlighting this now easily recognizable bullish channel and the smaller patterns that made up this advancement in price. This broad index held this important pattern for half of the last year. All that changed with the sharp break below this channel in the beginning of February.
The fact that we took out the red horizontal rectangle in addition to the 6 month channel is the market telegraphing to you a very important clue. I’ve highlighted the blue wedge consolidation pattern that we are currently tracing out. A small, bearish consolidation pattern below significant support levels is the market whispering to you to be on your toes…to be prepared to fold if you’re betting on a good rally from here.
Technically, the odds seem stacked against the S&P’s near term bullish case. We have the blue wedge resistance, the bottom of the channel and the various levels from the red rectangle to battle against. If we do make it through this big resistance, the next question is are we forming the right shoulder of a larger head and shoulders or is it: On to the Promised Land?
So there seems to be good reason to be highly skeptical of any material, oversold rises. I would say it’s quite likely that rallies will be getting sold more then the major dips will get accumulated. The way this correction has begun, it has trapped many bulls above the 1085 level. If the red highlighted resistance area turns back this most recent rally, the chance of us hitting the 950-980 level sooner or later this year seems to be a good bet.
Bear in mind this is an hourly chart and the technical indicators are a product of this shorter time scale. The RSI has recently demonstrated some positive divergence with its latest lows in February relative to January’s. However we also can pick out a larger series of lower highs for the RSI since late last year.
The overhead resistance is definitely not impassable - especially in a market where literally anything goes. Likewise, we are also aware that a large gap down and out of the blue wedge on Tuesday morning would not surprise us either.
So we find ourselves closely watching how the market plays out his current hand. He often attempts to get you to up your bid, to get you to dig into your precious reserves, when his hand is strong. Conversly, he also tries to make you fold if he thinks your hand superior - shaking you out of an excellent position. Watching him closely over the decades: he knows how to play his hand well.
The truth of the matter about the market is he is cool, like a cat, with his poker face and make no mistake..he plays the game to completely clean you out. He usually holds off showing you his hand until the very last possible moment. I can also assure you that he bluffs better then any gambler I’ve ever known. Clever bastard…he is, but unbeatable he is not.
