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.
