Ok, so I couldn’t go to bed just yet. I was listening to the radio (yeah, I’m old fashioned), when I heard a real famous Elvis tune. You guessed it…… then I started thinking about this:
Last month, I had indicated that the market was looking like it was setting up for a “shakeout”. That is, the market was forming a double top, and, at the time, looked like it was setting up to break a double bottom, before reversing back up again and breaking to new highs—effectively “shaking out” the weak bulls. A bullish scenario, if it played out.
Well, let’s revisit this. Things have changed a little.
In December, we got the double top at SPY $91, then a reversal back down to $86, before a run up to the $94 level on January 6.
You’ll notice two things here. First of all,the reversal back down to the $86 level failed to break the double bottom point at $85, so the bulls weren’t really shaken out by the move. Secondly, SPY then reversed back up and immediately ran smack dab into the (red) bearish resistance line at $94 (pretty clearly). But, in the process, SPY broke a spread triple top. Pretty powerful move, right?
Well, the ensuing reversal from there back down to $82, is where we got the breakdown of the double bottom. But look at what has happened since:
We’ve had a reversal back up to $85, a reversal down to $81 and now a reversal back up again to $84.
Lower lows and lower highs recently. Pretty clear on the PnF chart.
This is not looking like a technically strong market. Rather, it looks like the “shaking” has things all shook up.
That being said, a print above $86 tomorrow initiates a double top breakout, setting up a reversal and possibly the start of a new short term bullish trend.
Factor in the range expansion recently on the VIX, and we’ve got us the makings of a market that can “de-bank” a lot of traders.
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