With powerbars and gaps in the average the only interpretation is buy signals in the major indices. The crucial signal is the surge across the tight downtrend line in the humpty dumpty pattern. This signal is always aggressive — or appears so. And we are mired in a sideways or mule market as defined by the two horizontal lines So this may just be a trading move, rather than the start of the great bull market which will carry the S&P to 1565 as we so rashly predicted to trigger this nasty trading market.
We are thinking of predicting an S&P of minus 24 in order to provoke the market to go to 1565 — but enough of negative psychology.
The important trendlines here, at the moment, are the downtrend line from April 26 and the horizontal line at 1132. The downtrend line may offer some resistance here, but looking at the strength of the last few days it would be unexpected.
The horizontal line is the important one, but — scant comfort, the April 26 high becomes the resistance and the trading zone is extended. Nonetheless there are profits to be made even in a mule market.
We are always amused and entertained when our colleagues (respected) and the pundits and talking heads (disrespected) natter on about double dips and heads and shoulders and sunspots and the Lindsey Lohan indicator and Britney Spears booking tickets on the Hindenburg. We live such a simple life. We just look at the charts and they tell us what to do.
There may be a head and shoulders here. And there may be a smaller Kilroy Bottom (reverse H&S). And there are broadening patterns and what does it all mean? What price glory, Captain?
It means that you do what’s happening right now, as one of the rules of chart analysis is that you allow the pattern to finish before you commit capital to it. The only thing finished here is the dumpty bumpty pattern.
Have a happy labor day, and don’t belabor the chart