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05/05/2018 |

Market Update Into 5/7: $SPY Indices Forming a Continuation Pattern

We here at TrendSpider have been watching $SPY closely. What we see here on the daily chart looks like a bullish continuation pattern. In this post, we will discuss why we think that is the case, and where we could be wrong.

$SPY chart with downward wedge forming.

The first thing that stands out on this TrendSpider analysis is the obvious downward wedge pattern that is forming. We notice a few things about this pattern:

  • The lower trend is much older and stronger, having been tested in March, April, May, August of last year and January, March, and April of this year, each test resulting in price respecting the trend line and holding.
  • The upper trend, similarly, has shown to be strong, but is much shorter term and has a sharper slope down.

$SPY chart with weekly multi-timeframe analysis trend lines overlay.

Here we take the same chart, but we overlay Weekly Multi-Time Frame Analysis trend lines on top of it. Here we can see that there is additional support below our lower trend line from the weekly time frame.

$SPY chart with weekly trend lines and moving averages.

This is again the same chart, this time with only Weekly trend lines and moving averages on it. You can see that price has also been respecting the 50 WEEK moving average on the daily chart.

$SPY chart with weekly Fibonacci levels overlay.

Finally, here we overlay Weekly Fibonacci levels. Here you can see that the 50 Week moving average aligns with the Weekly 2.618 Fibonacci retracement level.

These factors give us a fair amount of conviction that $SPY will break upward.

But what happens if it doesn’t?

For us, the chart becomes bearish when the 50 Week Moving Average and the lower yellow and teal trend lines break. If that happens, the next stop for support is the weekly teal trend line, and then the extrapolated pink trend line from the daily chart. If that happens, then we believe that will indicate a potential reversal point.