As anticipated, the market is balancing in a triangle pattern so far this morning. The pattern is staying above the key moving averages. That is bullish. A reversal higher head and shoulders pattern is apparent on the 15-min cash chart of the SPX or the SPY. A break above the neckline implies a 35 point move higher to 4440.
Alas, however, there is some bear news. On a 2-hour chart with overnight data, and were the reversal higher pattern to fail, you would see a loosely structured head and shoulders topping pattern of which we would be forming a right shoulder. That might imply a second down leg to a lower low around 4350. Perhaps before reaching that level, we would have a successful retest of yesterday’s low to finish the 5-day cycle tough.
Overall, I am short-term bullish, but the sloppy, overlapping nature of the rally from yesterday’s low looks corrective, not impulsive. Clearly, this could be earnings and Fed trepidation reflecting some indecision. But I cannot exclude the additional down leg possibility.
The market would experience quite a battle trying to invade the territory below yesterday’s low and the 7/14 breakout highs. That should have happened yesterday. Only a negative Fed announcement has the power to drive the market lower at this juncture.
Now you know why I don’t day trade Fed days.
A.F. Thornton