Are We There Yet? S&P 500

Labor Day Weekend is right around the corner, the unofficial end of summer. So you still have time for one more road trip. Pack up the family in the car and get out on the road. Those of us with young kids know the journey is never part of their adventure. Almost immediately upon leaving the driveway the chants of “I’m hungry” “how much longer?” and “are we there yet?” start coming from the back seat.

This reminds me of the stock market from two perspectives. The first is the question that start coming the second the market pulls back a penny from an all-time high: “Is that the top?” That question has come to me about a 1000 times this year alone with the series of small advances lately. The second relates to when that small pullback reverses: “Are the market heading higher again now?” Since April this has come with added frequency.

Both are questions that no one can know the answer to definitively. As market technicians, we can read the price action and make observations that can help guide how to mange capital and risk through these events. Both are difference so the focus here is on the current sharp end of the market, is the pullback done?

The chart above shows the last 2 months of price action in the S&P 500 ETF, SPY. There are several things to note. The first is that the total range, from the bottom July 6th to the top August 8th, is only a little over 8.5 points, or just over 3.5%, not a major move. But the pullback at 78.6% of that move is also not major. A solid retrenchment of the move but nothing more.

Next, the pullback that started with the Spinning Top doji on August 8 created a falling expanding wedge. The price closed back at the top of the wedge Wednesday, and with the pre-market action Thursday looks to break above it. A close above the wedge would be the first clue a short term bottom is in.

From there a close above the August 16 close at 246.94 would be a higher high. This would be the second clue. The final clue would be a new all-time high close, over the August 7th top at 247.87. With the confirmation of a new all-time high the answer to “are we there yet?” remains almost.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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