Will Q1 Earnings Season be the Impetus for Price to Break-Out of this Consolidation?

The stock market has been doing a good job of late chopping up shorter-timeframe traders.  Here is how I see the market …

S&P 500 Index ETF (SPY) – Weekly Chart

The above weekly chart highlights the fact that we are clearly in a corrective pattern for the SPY off of an extreme trend strength warning signal (dark blue candles) made by charting software … we are now in a position of having the ATR in resistance, so until we can get a better idea of this weekly price structure, it behoofs traders to take caution with their overall exposure to equities.

S&P 500 Index ETF (SPY) – Daily Chart #1

The daily chart shows that we are in a bigger consolidation pattern and are no longer trending … traders have to be more nimble in this type of trading environment.

S&P 500 Index ETF (SPY) – Daily Chart #2

Even if you are a big equity bull, it is not clear yet that the corrective pattern is complete … the C-wave of the correction did not actually go down to make a new lower low below the A-wave low.  Typically that last push to a new minor low is necessary to take out stops and set-up the squeeze higher out of the corrective pattern.  Also, the market usually makes one fake-out move to the upside to get the weak hands out of their shorts and to get the naive bulls more aggressive.  If that happens here again with this price structure, I would expect price to push higher for the next week that would peak above the trendline off of the two prior highs – that break would get many traders further committed to new longs as they “play the break higher”.  The market tends to bitch-slap this early break-out attempt.

I would then think that the market pushes down to make that new C-wave low … that is when we will see if this is indeed a corrective pattern and we can therefore make a more legit move to attempt a break of the prior highs.

S&P 500 Index ETF (SPY) – 195 Minute Chart

The bigger question I am still monitoring, however, is whether or not we are making an ABC correction or whether we are making a bigger 1-2-3 price structure that is part of a much bigger distribution pattern or even the marking of a very important market top.  If we are making that bigger move, then look for SLOT resistance to hold and price to turn lower.  Maybe that move lower starts after monthly OpEx or even closer towards the end of April??  We shall see …

Cheers … Leaf_West

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