We ended the day back inside the triangle. The last three bars have formed an evening start candlestick pattern. This is a bearish reversal pattern. If we do not get back above the upper trend line on Monday then I think the odds shift to the bears. A break of the lower trend line would be likely. Here is the 130 minute SPY chart.
The last candle is a doji bar at the 18 SMA. This suggests a possible bounce Monday morning. Unless it is a super strong bounce I think they will end up selling it before the day is over. If we start down out of the shoot I think sellers will be more aggressive then they were today.
The next chart is SPX with both breadth charts.
At the June low the breadth showed a huge divergence with price. The 10 DMA lines were very close together just like the are now with this retest of the prior high. The vertical lines mark the recent peaks. Notice the strength in breadth at the prior two peaks is absent at this peak despite it being higher. I showed a divergence in the new high numbers last night. This last bounce was technically weak while causing bulls to come out of the woodwork. This is a very bearish setup if the market follows through on the down side. The breadth indicators will all confirm the down move this time. Something they did not do in the last two pullbacks.
I got a question today about why I keep talking about a retest of the June low. I thought that was a good question that others might have as well. The short answer is I can't rule it out. Here is why:
1. Quarterly hanging man bar on spy has high odds of retest. Read:
http://traderbob58.blogspot.com/2012/07/quarterly-spy-chart.html
2. Summation index at -3000 has high odds of a retest. Read
http://traderbob58.blogspot.com/2012/06/mcclellan-summation-index.html
3. Economic data continues to get worse.
4. There is nothing in the market internals or weekly price chart that allows me to say that has become a low odds outcome. The market status system has only had 3 green weeks out of 10 items and this is seven weeks off the low. By two weeks off the low last fall I had 5 green. At four weeks I had 9. The market is not exhibiting the same strength. Take a look at the weekly chart.
The weekly bar finally turned green, but we only closed 2 points higher then we did 3 weeks ago. If we follow through on the upside next week and close above this weeks high that would be a very different story. That should set up a test of the yearly high. I just don't believe that is going to happen, but we will see.
Bob
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