SPY's Wedge and Divergences

5 Mar

The S&P 500 ( SPX) as tracked by the most liquid ETF SPY, has continued in a wedge pattern since the lows from late October 2023. This wedge has been steep and risen quite dramatically. Bulls will not want to see this break, but given that it's an election year, would the break just be a consolidation with one more high? These are issues everyone is likely considering.

The series of negative (or bearish) divergences could continue, as anything is possible in markets. But it shouldn't be ignored either. The Supplemental Chart below shows the series of lower highs on RSI, using SPY's daily time frame.



One final note of caution. This wedge pattern technically (no pun intended) hasn't broken yet. Nor has its 21-day EMA. A break would help bears, at least short-term ones, see more downside or consolidation.

GammaLabs, who this channel follows, mentioned in its briefing today that CTAs remain max long still and may become "systematic sellers" below 4900 SPX. So more downside is needed for bears to gain traction. The technical conditions for consolidation are ripe, though, with the wedge and divergences shown. But confirmation remains needed.

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Author's Comment: Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate (respectfully presented) in the comment section. Shared charts are especially helpful to support any opposing or alternative view. This article is intended to present an unbiased, technical view of the security or tradable risk asset discussed.

Please note further that this technical-analysis viewpoint is short-term in nature. This is not a trade recommendation but a technical-analysis overview and commentary with levels to watch for the near term. This technical-analysis viewpoint could change at a moment's notice should price move beyond a level of invalidation. Further, proper risk-management techniques are vital to trading success. And countertrend or mean-reversion trading, e.g., trading a rally in a bear market, is lower probability and is tricky and challenging even for the most experienced traders.

DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified financial adviser or other investment / financial professional before entering any trade, investment or other transaction.

5 Mar

Catatan

Here is AAPL's price chart as well. It's just broken below the trendline from January 2023's low. And it's broken below the VWAP from that same low (light blue). Some have seen a H&S pattern here too that is breaking, though no analysis on that today.

The .382 Fibonacci retracement broke today, and the next retracement is the .50 at $161.90.

7 Mar

Catatan

If one considers the measured move for the H&S pattern on AAPL mentioned above, the objective reaches around $160. Interestingly, this coincides with the 50% retracement of the move from the January 2023 low to December 2023 high.

9 Mar

Catatan

Watching for a break of this wedge. It hasn't broken yet, but the reversal on Friday in Nasdaq 100 / QQQ, and SPY was a bit ominous looking. Even market-leader NVDA had a -5.55% reversal with an outside bar. Perhaps markets are overdue for consolidation when this wedge (shown above) breaks. It seems as if it will break in my opinion, though timing is key.

Plenty of charts have appeared on social media from market-research firms showing that markets tend to do well in election years. And the average election year chart for indices show that prices go up in the 2nd half. But do you think this "election cycle" and seasonality will play out as the averages show? Let me know in the comments, would love to hear your view.

14 Mar

Catatan

Update: SPY is looking heavy today despite massive amounts of gamma supportive flows from dealer hedging. The wedge remains intact still but worth watching closely into quarterly / monthly OPEX

15 Mar

Catatan

The wedge has broken as of this morning, which is quarterly and monthly OPEX. Weakness across the indices and vol up.

15 Mar

Catatan

Let me know in the comments if you think the March 5 SPY / SPX low will be broken in the coming trading sessions next week. That low is at $504.91. In the meantime today, 5100 / 510 is probably a pinning spot for today since 5200 / 520 didn't go the way massive amounts of call buyers had anticipated.

17 Mar

Catatan

Backtest next week of the wedge? Or just continuation? I think we could backtest, but the probability of more consolidation seems high to me.

4 Apr

Catatan

SPY / SPX has seen volatile price action today. It rallied back up near all-time highs (not quite) only to fail when it met the underside of the wedge it had broken down.