Good rally without an opening gap.

The SPX has rallied well today off NL for the second retest of the Head-and-Shoulders Bottom (HSB) Neckline.

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It appears that there are a lot of sellers at the 920-930 level which has produced a downsloping line R2. That line in conjunction with S2 (which is just an extension of NL), is producing a flat bottomed triangle. When these triangles form, the slightly most likely break is through the horizontal boundary which in this case would be down. If that were to occur I'd expect a drop of the width of the triangle which takes the SPX down to just under 850 (T-OBJ). In making that drop, S1 is also taken out. This would imply a drop of the R1/S1 channel width down to about 800 (C-OBJ). I'm not too interested in riding out that drop. If that drop were to occur, I'd consider it part of symmetry replicating the p750 low but reduced in both time and amplitude, which is very common in symmetrical moves.

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The good news is that at tomorrow's close starts a historically bullish seasonal period (detailed below). That leads me to believe the break out of the triangle should be up with seasonals overruling a slight tendency to break though horizontal boundaries as opposed to sloping boundaries.

End of May/Early June

Historically, if one had been long the SPX on the last two trading days of May and first three trading days of June, they'd have returned:

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1942-Present Winners: 64% Annualized Return: +40%

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1990-Present Winners: 58% Annualized Return: +42%

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2000-Present Winners: 56% Annualized Return: +56%

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Therefore, I plan to just ride out these five days hoping for an upside break out of the triangle confirming another HSB with neckline NL2? I wouldn't be surprised to see the SPX test NL1? before the Wednesday June 3rd close on which the seasonally bullish period ends. If that occurs I'll probably take profits as I expect SPX 1000 to offer stiff resistance.

I'll give this position some room.

I've entered 100% long with account not managed by mechanical methods near the low on the retest of the Head-and-Shoulders Bottom (HSB) neckline (NL). This HSB implies an eventual move to around SPX 1100 (NL-OBJ).

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It appears to me that the SPX is trying hard to replicate the mirror image of what it did before the March 2009 low (HEAD). It appears we're at about the point p1 on the graph above. The Early-October - Early-January 2009 consolidation took about three months to complete so I wouldn't be surprised to see the SPX do the same thing now a bit abbreviated in amplitude and time which is common on the right side of symmetrical moves. This consolidation should be pretty frustrating for most.

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I wouldn't be surprised to see both NL?'s eventually overcome, confirming other HSB's implying even higher moves in the SPX.

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For now I'm going to give this position some room to operate and so I currently have no stop level where I'll panic out of this position.

Almost down to the 875 retest.

A Head-and-Shoulders Top (HST) has formed in the intraday chart that implies a drop to O1 at 865. The neckline (NL) of the Head-and-shoulders Bottom (HSB) in the daily chart, that I've been expected the SPX to retest is at 875. We also have an unfilled gap just above G3. Some buying should come in just under 880 from those trying to accumulate as they expect G3 to fill and they want to be sure to position long so they put orders in just above G3.

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I expect the SPX to drop to 880 possibly in some late selling into today's close. But I don't think there is much downside left. Therefore, I'll go 100% long at today's close with my accounts not controlled by mechanical methods as long as the SPX is still below 895 at my cutoff time.

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We have two unfilled gaps overhead which I think will soon fill as the SPX moves substantially higher.

As you can see in the chart above, we're very close to the retest of NL. There may be more downside but today's close could be the lowest in this retest move. The line that I've wanted to buy at for the last month is S1 above which is at about 855 today. We still may test S1 in the future but I think S1 is about the lower limit on any downside in this current move.

Channel Failure

The SPX fell out of the ST-S1/ST-R1 channel today which implies a drop of the channel's width down to O2. The late day strength we're seeing now appears to be a perfect retest of ST-S1. In my opinion, the channel failure makes it more likely that we'll soon see a retest of NL and a fill of the 05/04/09 opening gap. I'm still waiting for that retest before I enter long positions with my accounts not controlled by mechanical methods.

Gap open down Today.

The SPX gapped down today and almost filled the G2 gap but plenty of buyers at the gap stopped the drop quickly. The SPX has been trending up slightly ever since. This uptrend has set up a support line parallel but above ST-S1. This and the recent action with the SPX near to, and slightly above ST-R1 at the channels high boundary indicates that the SPX is having trouble getting anything really going on the downside. This is what one would expect in a market that should move much higher.

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The SPX couldn't meet my buy criteria on Thursday so I'm still looking for a good entry point for my capital not managed by mechanical methods. I am still "hopeful" for a break down and out of the ST-S1/ST-R1 channel, which would imply a then a drop down to retest the Head-and-Shoulders Bottom (HSB) neckline NL and fill G3. I say "hopeful" because I don't have anything that leads me to believe that this is likely except that NL retests often happen and that gaps usually fill. When I'm 50/50 on something, I'll always err on the conservative side. So I'll be waiting patiently.

SPX Correcting.

As I expected the SPX is now trying to correct back down to close the gap G1 and retest the break above NL that confirmed the Head-and-Shoulders Bottom (HSB) pattern.

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There are also two small Head-and-Shoulders Top (HST) patterns that imply moves to OBJ1 and OBJ2.

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The real question is whether the upsloping channel ST-S1/ST-R1 is going to hold. If it fails, the implication is right down to NL at 875.

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I'm out of time. So for now, I will gamble on the channel holding and will go 100% long with capital not managed by mechanical methods if the SPX is between OBJ2 and ST-S1 at my fund cutoff time.

SPX Strong and should move higher.

The SPX is strong and is having trouble correcting much at all. Still waiting to buy a dip and will go 100% long with non-mechanical capital at the next close near ST-S1, which today is anything under 890 at my fund cutoff time.

Retesting.

The SPX convincingly broke out at yesterday's open above NL? which is the Neckline of a large Head-and-shoulders Bottom (HSB) pattern. As you can see above there were three attempts are breaking NL? on 04/29/09, 04/30/09, and 05/01/09. The 05/01/09 close actually did close above NL? but it wasn't significant enough to be considered a break.

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On yesterday's open the SPX gapped up through NL?. The SPX even finished strong breaking above ST-R1. However, breaks out of upsloping channels don't really mean anything. The SPX has now settled back into the ST-R1/ST-S1 channel.

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We have two reasons why the SPX should now drop for a few days. Many times after the explosive breakout move occurs, the SPX will move back lower to retest whatever it broke above, which in this case is NL?. We also have an unfilled gap from 879-877.

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Unfortunately, in order to fill the gap or retest NL?, ST-S1 will have to fail. ST-S1 is at 883 at today's close and higher tommorrow. If ST-S1 were to fail, we'd expect a drop of 30 points but that would take the SPX below NL?.

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So, I'm just going to watch how the SPX reacts around these levels and will not be entering long today.

Breakout.

Head-and-Shoulders Bottom (HSB) confirmed. I'll wait for a retest of NL? to enter long with my accounts not managed by mechanical methods.