There's a lot going on in this 10-day SPX graph. I'll start with the most recent and move backwards in time.
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Right now at 9:31 am Mountain, the SPX is at 874.59 which is literally right on NL? but hasn't clearly broken out above NL? yet. If the SPX bounces off NL? the rest of today, that will make for a difficult decision at my fund cutoff time. The market tends to make life hard for participants so I usually assume such. The hardest thing for me would be that the SPX is right at 875 fifteen minutes before the close as it could easily rally those last 15 minutes and and clearly take out NL?
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As I've become very conservative in my old age, I'll almost certainly choose to not gamble and just wait it out. I'd much rather be forced to buy at higher levels as opposed to buying a top. If that plan changes, I'll write again today before 1:35pm Mountain.
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Today's early rally was both news and pattern based. Today's open blasted through the top of a Symmetrical Triangle pattern bound by ST-S2 and ST-R3. The upside implication of this confirmed pattern is the width of the Triangle at the breakout. That level is labeled "sym-tri obj" which was attained early today.
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One concern I have is that we gapped up this morning on the open (G1). Gaps in the indexes usually fill, but not always. In order for the SPX to fill G1 it's going to have to drop back down to below ST-S2. In the chart above, I've labeled five other gaps which have all filled (a couple more were filled immediately and aren't labeled). EG. An important gap, G5 was filled in a rally near the close last Friday up to ST-R2.
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Noise in the charts. There are two issues that defeat most beginning technical analysts. First is an unrealistic expectation. Nothing in this business is more than 75% accurate. Expecting otherwise is certain failure. The second is related and what I call "noise", which is simply imperfections in the patterns. There are lots of noise examples in this chart. There are two recent Head-and-shoulders patterns with necklines, nl-y and nl-z. The neckline nl-y is from a Head-and-shoulder Bottom (HSB) pattern. There was a clear breakout to the upside of nl-y late in the day yesterday which implied a move to obj-y. But the SPX was turned lower by ST-R3 and collapsed down to ST-S2 into the close, which is exactly what one would expect. That collapse caused the SPX to drop back below nl-y. Technically, that failure of nl-y renders the pattern unreliable and a failure. But as you can see the SPX did make obj-y this morning aided by some news and the Symmetrical Triangle breakout. A similar thing happened with a Head-and-Shoulders Top (HST) with neckline nl-z. This HST did fail to drop to its implication obj-z because it ran into support ST-S2.
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Another example of "noise" is one of the points on ST-ST labeled "noise". As you can see, I've drawn ST-S2 as a "best-fit" across the four points on the line which is my policy in the case of minor noise. Of course, at some point a line loses importance when lows/highs don't occur on the line. But as I've said before, lines with parallel counterparts (ST-R2 in this case) are more important that lines without. Thus, more "noise" is acceptable.
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My main point in all this rambling is simply to say technical analysis is an art not a science. All the patterns on the chart should be considered together (as in the HSB-nl-y/ST-R3/ST-S2 example). They should also be considered in the context of the longer term picture. Most importantly considered with realistic expectations. Chart patterns are just clues about the participants greed/fear based actions that the market is giving the analyst. Sometimes the market is generous with those clues and is well-behaved, other times not so much.
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The entire ten days in the chart above make up the Right Shoulder (RS?) of the large Head-and-shoulders Bottom (HSB) pattern in the daily chart that I discussed yesterday.
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ST-S2 and ST-R2 form a rising channel. An upside breakout of a channel this steep is difficult, unlikely, and would usually imply an unsustainable "blow-off" type move that isn't important other than the fact that it's unsustainable implies a correction would be due.
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If the channel were to fail to the downside, the expected implication of that pattern would be to expect a drop of the channel's width. That would take the SPX down to ST-S1, which is still where I want to buy long into this market. In fact, in order for G1 to fill, the SPX must take out ST-S2. So if NL? is successful at pushing the SPX down again, then "fill G1" vs. ST-S2 will likely be the next battle fought in the SPX.
