Art's Charts

SPY Starts Fills Most of Monday's Gap with a Rebound

Arthur Hill

Arthur Hill

Chief Technical Strategist, TrendInvestorPro.com

The bulls simply refuse to buckle. Despite a gap down on Monday and sharp decline Monday morning, stocks rebounded on Monday afternoon and continued strong on Tuesday. The ability to immediately recover should serve notice to the bears. QQQ formed a massive hammer on Monday and closed strong on Tuesday. DIA and SPY have falling flag patterns over the last two weeks. The chart below shows SPY with an inverse head-and-shoulders pattern working as well. The shoulder lows are about equal and neckline resistance is in the 133-134 area. I know the early March high did not make it back to the mid February high and this is not a "picture perfect" pattern. However, I don't expect picture perfect patterns. Markets are driven by emotions. Indices, such as the S&P 500, consist of many stocks. Instead, I look for the essence of the pattern. There was a little dip in late February, a big dip in mid March, another little dip in mid April and a clear resistance level. A move above the February-April highs will confirm the pattern.

110420spyd



Elliott Wave is all about counting and recounting. Rarely, if ever, have I made a count that stuck the first time and did not require a re-count. Looks like this time will be no different. The original count was for an ABC correction and SPY was currently in Wave C down. Monday's gap down is Wave-i down and the bounce back above 131 is Wave-ii up. I was expecting Wave-iii of C down this week, but the bulls had other ideas. Elliott rules state that Wave-ii (2) cannot retrace all of Wave-i (1). This means a move above 132.5 would negate this count. More importantly, a move above 132.5 breaks flag resistance and argues for a continuation of the prior advance.

110420spyi

Key Economic Reports/Events:
       
Apr 20     07:00     MBA Mortgage Purchase Index   
Apr 20     10:00     Existing Home Sales    
Apr 20     10:30     Oil Inventories        
Apr 21     08:30     Jobless Claims   
Apr 21     10:00     Philadelphia Fed        
Apr 21     10:00     Leading Indicators                    

Charts of Interest: Tuesday and Thursday in separate post.

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This commentary and charts-of-interest are designed to stimulate thinking. This analysis is not a recommendation to buy, sell, hold or sell short any security (stock ETF or otherwise). We all need to think for ourselves when it comes to trading our own accounts. First, it is the only way to really learn. Second, we are the only ones responsible for our decisions. Think of these charts as food for further analysis. Before making a trade, it is important to have a plan. Plan the trade and trade the plan. Among other things, this includes setting a trigger level, a target area and a stop-loss level. It is also important to plan for three possible price movements: advance, decline or sideways. Have a plan for all three scenarios BEFORE making the trade. Consider possible holding times. And finally, look at overall market conditions and sector/industry performance.
Arthur Hill
About the author: , CMT, is the Chief Technical Strategist at TrendInvestorPro.com. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed market technician. Arthur has written articles for numerous financial publications including Barrons and Stocks & Commodities Magazine. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from the Cass Business School at City University in London. Learn More