The short term picture appears to be drawing a “Bearish Rising Wedge” pattern and is a short term bearish development. The “Rising Wedge” pattern is the pattern with boundary lines in the blue on the SPY chart. When market rally above previous highs it should do so on increased volume at least equal or greater then the previous high. This show of increased volume on a jump above a previous high shows the market has strength and is called a “Sign of Strength” can confirms the uptrend. When markets jump above the previous high on lighter volume (in Red on the chart), it implies a false breakout and the market should reverse. Yesterday the SPY jumped above the 8/17 high on about 75%
Lighter volume and a bearish sign and implies the pattern that has formed from the 8/16 low is a possible “Rising Wedge” pattern. Today the SPY gapped down and the SPY may try and fill today’s gap first by rally back to test yesterday’s high before heading down to the “Rising Wedge” downside target of 137 range. SPY doesn’t have to fill today’s gap right now but it could and not affect the bearish pattern. Therefore the pattern developing is a short term bearish one for the SPY. A test of the 8/16 low at 137 on SPY may be seen this month and complete the bottoming process.
The bigger picture for the NYSE is very bullish. Big rallies occur in the NYSE when the NYSE McClellan Oscillator reaches -300 range (see chart above) and then rallies to +250 or higher range. This setup on the Oscillator occurred only twice before in the last ten years. The first time came in October 1998 and again in June 2004. Both cases lead to strong rallies that at least lasted several months. The McClellan Oscillator has again produced this bullish setup. In late July the McClellan Oscillator reached below minus 300 and hit a high yesterday of +259.70. A pull back can occur when the Oscillator reaches past +250 and consolidate for several weeks (like in June 2004) before the big advance begins, Which fit well into the possible “Rising Wedge” pattern mentioned above. Remember also that VTO (mentioned in 8/22 report) is a bullish intermediate term level as well as the Summation index. We may establish a long position in the SPX and Nasdaq on a test of last 8/16 low.
Tim Ord
Charts mentioned are here
