I am by no means a bear, but I do think that this is something to keep an eye on. Historically, rising wedge patterns have resulted in breakdowns and market corrections. We can see this in 2018, and 2019-2020, as well as our current wedge looking like its about to top out.
The yellow line has previously acted as a long term resistance level going as far back as 2014, we broke that level in November of 2020, which gave us a bull run breakout over the trendline. As we now reach the top of the wedge, I feel skeptical of how long buyers will be willing to keep forward momentum as inflation rises, supply chain problems, as well yields rising as bond traders anticipate the Fed raising rates, which I do see as one of the few options they have to combat rising inflation.
If we look at the technical patterns, we see that historically, rising wedges have generally resulted in breakdowns. A pure technical analysis obviously cannot assume a market breakdown, but there are catalysts that are currently instilling fear and bearish sentiment.
We can also look at a 4HR chart and analyze more recent price action and patterns to see potential paths for SPY. Looking the 4HR, we can see there is also a rising wedge within the long term wedge, indicating again, a correction. A wedge in a wedge, if you will. If a correction is coming, levels to look out for to find support is the $380 level.
The $380 level is important because of fibonacci wave extension showing support in the $380 level IF a correction is coming, and that extension is based on the previous ATH in May, to yesterdays ATH. So we have our first reason to why $380 is a crucial level. Second, we have the long term trendline shown in yellow, that was a major resistance level on a year to year basis, we broke through that trendline, which would indicate it now being a support level. This level also points towards the $380 level, giving us our second confirmation to why $380 is so important.
Lastly, the major resistance levels in respect to February of 2020's all time high to the trend based resistance levels shown within the purple channel. If SPY continues to show strength for the time being, I expect heavy resistance near the 430-435 level.
I think you are looking at to much of the short term. You need to pan out and look at the bigger picture. 380 will be broken, without a doubt. 300 will be broken, without a doubt. Next month? Nah... it will be several months until that happens I believe. I am looking at sometime in the fall. Anywhere between late August till some months out from there are all possible for the "when". Catalysts, could be Augusts meeting but I don't pay attention so much to the why. Identify the spot that will be seen and just wait for it. Patience is the whole name of the game with the stock market, as frustrating and unbelievable as it may seem at times, it finds a way to happen.
chartxzy
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@CJS04, Right, timing is always the difficult part, July FOMC meeting could also be a catalyst, but we will have to see, just looking at the chart and everything going on and its getting choppy. Appreciate the feedback
CJS04
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@chartxzy, exactly.. and just to note, you drew the top line to the trend but forgot the bottom trendline... sure, it cut off last March (2020) since that dropped below it but you can see why it dropped to where it did. (a previous trendline and "zone" caught it.)
UnknownUnicorn15881386
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can't compare a chart of a black swan event to expect something Similar
pechi123
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With the SKEW index at an all time high, the downside out of the money is a crowded trade to say the least. Put/Call ratio high past couple days though it was at multi-month lows in the past 2 weeks Many issues that led the rally up already show 5 completed waves and are now correcting. It is possible market will embrace issues with incomplete wave counts is causing a change with leadership.
poister198
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Nice analysis but fed will probably not taper off aggressively enough to cause any pullback, and right now with limited catalysts only sideways movement or slight gap ups possible.
Yes there should be a crash but will only happen after we return to normalcy, which is not within this year