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.
