Technical analysis is about identifying potential tradable edges, be it with patterns and/or pivot levels of support and resistance. I say potential because there are no guarantees in anything and one must know when a pattern, for example, is either no longer valid or when it is confirmed.
Since last week I’ve been discussing a potentially very bullish pattern with a specific price target which I also highlighted in the most recent weekly market update: Battle Lines.
Specifically I’ve been talking about the potential for a bullish inverse pattern to emerge:
As I’ve stated the pattern had room into the 2712 area on $ES to build a potential right shoulder.
Since then we’ve seen a rejection of the .618 fib highs and then a multi day reversal culminating in today’s overnight action where we’ve seen 2711 being hit precisely and have since bounced off of that level:
I will have to again point out that this pattern will not confirm until it breaks above its neckline at recent highs.
So there’s a lot that needs to happen and plenty can go wrong with this pattern. It’s a potential pattern, but what is noteworthy is that it has so far played very precisely according to the structure I proposed on November 8.
And, in context, it may be worth pointing out that this pattern is now everywhere. No, I really mean everywhere, it’s pretty freaky actually:
And last, but not least or all, $NYSE:
As you can see there’s a big fat open gap on $NYSE dating back to the January highs. And note $NYSE has been a horrible chart all year. Never made new highs nor even approached old highs, then build a large channel this summer and fell through it like a wet noodle in October.
Just horrible action.
But are you sitting down? Check the math of this potential inverse pattern: Neckline 12680, bottom 11820, that’s 860 measured points to the upside on pattern confirmation. 12680 + 860 = 13,540. Gap fill. Done.
Even $VXX is showing a sizable corollary Heads and Shoulder pattern:
So concurrent with all the horrible action and the depressing headlines there are raging bullish chart patterns in play everywhere.
Aside from these patterns are there signs that could support the notion of a massive rally emerging?
Crude has been a horror show.
Yesterday I outlined a potential support zone:
So far crude has been trying to defend this area:
Should these lows hold crude has plenty technical room to rally.
Another potential glimmer for bulls is the 30 year yield:
New highs on a negative divergence opening the path for a potential, at least, short term retreat in yields.
And last, but not least $NDX. Note there 4 open gaps above:
All gaps fill if ever Art Cashin once famously quipped. We shall see.
Again, none of this is confirmed and it could all fall apart today for all I know.
And one must be aware of the risk factors.
For example there’s an open gap below on $SPX:
If we were to see a drop into this zone $SPX would really need to close above 2710 to keep the inverse pattern alive, otherwise the retest/new low scenario opens up quickly and there’s a potential technical pattern emerging for that case as well:
So bulls have to prove their case and fast.
What to look for to show that the inverse pattern may actually play out?
Simple, it starts with a close above the daily 5EMA and then a recapture of the 200MA currently at 2742 and 2763 respectively.:
Bottomline: The patterns are there. They are now screamingly obvious. Perhaps too obvious. Once patterns become too obvious they risk of not playing and that is the risk for bulls here. So they better step on it. Fast.
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